Archive for the ‘Best Cost Country Sourcing’ Category
March 30, 2010
The Rio Tinto bribes-for-secrets case has become a landmark for corruption and risk management; exposing business practices many of us consider highly unethical.
Commenting the story for CNN (Wake-up call for foreign firms in China); risk management consultant Peter Humphrey points out several lessons that can be learned from the case:
- First, corrupt practices must be strictly monitored and curbed in order to avoid trouble both with Chinese law and home-country anti-bribery law.
- Second, companies clearly need to gather business intelligence and competitor intelligence but they must do so through legal and ethical means and not through bribes.
- A closely-related lesson for multinationals is what we have learned about the interests that China considers “strategic”.
Now, we’re all aware that corruption is wide-spread in China (as it unfortunately is in many parts of the developing world) the question is how we should deal with the fact. SIDA – the Swedish International Development Cooperation Agency recently announced that they are funding a center for CSR-issues in Beijing (in Swedish) but although training and cooperation centers such as this are one way of instigating change one wonders if it is enough. My belief is that CSR-practices must become the focal point for low cost country sourcing because unless procurement as buyers do not stand up for ethical procedures one cannot expect developing country suppliers to live up to western European cultural ideals in a cut throat business environment.
Posted in Best Cost Country Sourcing, CSR, Global trade, Low Cost Country Sourcing, Risk Management, Supplier Management | Leave a Comment »
March 3, 2010
A few days ago in a post about
maveric spend was expanded by a great comment from Jon Hansen of
Procurement Insights that explored the concept of agent-based Metaprise models that would allow companies to increase supply chain flexibility without losing control or focus.
To expand on the subject without going to deep I believe that the new normal/post-recession economy that we are experiencing today is simply too fast paced to be managed and governed by processes that worked in the past. I plan to dive deeper into these subjects in the near future – as well as looking at what really constitutes as usability – but let me leave you with a quote from William Fung, head of the Hong Kong trading company Li & Fung Ltd, in a few sentences he neatly sums up some of the challanges that supply chain professionals are facing today:
“…the supply chain continues to become more mobile all the time. Today, a supply chain that produces an item in November may look completely different from one that produces it four months later. Price and speed and raw materials all have an impact. The cheapest way I know to produce a men’s shirt now [February 3, 2010 - my comment] is to get fabric from certain parts of China, ship it to Bangladesh, and make the shirt there; it may be ready for the fall season. But if that style really started to sell well and you wanted to reorder in January for February or March delivery, I would take the same fabric and make it in Shanghai, more expensively but more quickly and reliably.”
The full interview with Mr. Fung is available at strategy+business, it’s a highly recommended read that highlights really how fast-paced global business can be today (and in the future).
Posted in Best Cost Country Sourcing, Global trade | Leave a Comment »
March 2, 2010
Swedish lobbyist organization Svensk Handel recently released their latest consumer goods trend report (
konsuMera – in Swedish only) and highest ranked among the trends were consumer expectations in sustainability/CSR related issues.
In an analysis by Svenska Dagbladet they go as far as to say that “in the future, it will be impossible for companies to ignore CSR-related issues”. The question is how this will work out in the future.
When looking through the latest reports on CSR/sustainability one can quickly become overwhelmed by the gap between the ambitions of the producers and their supply chains. There are many aspects of CSR that needs to be accounted for but take this snapshot as an example of the state of CSR in many supply chains.
Carbon reduction ambition
Only 38% of Suppliers currently have carbon reduction targets in place compared to 82% of the Members. The success of long-term global carbon reduction among Suppliers will now depend on two main factors.
This quote is from the Carbon Disclosure Project Supply Chain Report 2010 (authored by AT Kearney) and although it only focuses on one area of sustainability (by some of the leaders in the field) it shows the abyss between the ambitions and actions of the producers and the focus/motivation of their suppliers.
If the report from Svensk Handel speaks the truth about the future – consumer goods producers need not only get their suppliers on track, they will also need to educate the retailers about what they themselves are doing as well as how their suppliers are perform.
Posted in Best Cost Country Sourcing, Business, Global trade, Sourcing, Spend management, green procurement | 2 Comments »
October 27, 2009
Now anyone with even the smallest grasp of procurement knows that in most cases standardization is good, but one has to wonder how far this decree should be taken.
This coming Monday, McDonalds will close their three Icelandic restaurants turning Iceland into one of few McDonalds free zones in Europe (the others being Albania and Bosnia and Herzegovina). In a Reuters interview, Jon Ogmundsson, managing director of Lyst, holder of the McDonald’s franchise in Iceland, blame rising cost of supplies as the main reason for the closure. With McDonalds famed for their comparability across the globe – taste wise, if not cost wise – changing the ingredients seemed out of the question.
“For a kilo of onion, imported from Germany, I’m paying the equivalent of a bottle of good whiskey.” Now, the
Icelandic economy is still in a freefall so there are of course other aspects that play into this equation as well, but one might wonder what could have happened if the purchasing professionals at McDonalds in Iceland had stayed a little more on their toes when it came to sourcing their ingredients for 2009.
Posted in Best Cost Country Sourcing, Business, Low Cost Country Sourcing, Marketing | Leave a Comment »
June 8, 2009
According to an IDC report quoted by Sweden’s Dagens Industri (in an article highlighting India’s IT-wonder – exemplified by Tata Consultancy Services) IT-outsourcing rise from 12 percent in 2004 to 27 percent in 2009, during the same time frame the share of companies that consider IT-outsourcing has risen from 5 to 37 percent.
Now, IT-outsourcing covers a wide array of services ranging from help desk functions to network management to systems architecture so although the numbers may be right in a rough sense when one looks closer at the category I suspect that certain subcategories are more prominently represented than others.
In any case, this development will create quite a challenge for IT-procurement – especially when it comes to consultancy services. In fact, the development has gone as far as to prompt Stockholm University to offer courses in Computer Science focused on managing IT-services in low cost countries. For purchasing the major challenge will be to win the confidence of the internal stakeholders, acting as the margin hunter whose only task is to negotiate lower cost per hour will inevitably see a rift open up between IT and purchasing no matter how strict the corporate guidelines describing processes are. Any slack of quality will be seen as a reason to sidestep purchasing – turning any project into the battle of the C-s. And chances are that the remaining management will side with the IT-side of the story instead of opting for the (in theory) right side (when it comes to purchasing policy).
So how does one assure quality when purchasing IT-consultancy services?
One rather simplistic answer was given to me by an experienced (and almost cynical) senior purchaser. His blunt answer was this:
Go for the small boutique firms, any extra cost per hour will be saved due to the fact that they are forced to deliver results. If they don’t their reputation is in jeopardy and due to their size their reputation is their only selling point. In essence they need to deliver on every single assignment since they are judged solely on the last assignment. Exploit the fact that they have no room for failure.
Posted in Best Cost Country Sourcing, Global trade, Low Cost Country Sourcing, Outsourcing | 1 Comment »
April 24, 2009
In the light of all the recent automotive news; least not WSJs report on Chrysler’s plans for bancrupsy or Roland Bergers gloomy outlook for automotive suppliers who are unable to compensate for cash shortages, little new money available from owners of capital markets, withdrawn credit coverage and have no customer support to count on what so ever – this press release from Schaeffler Group sheds light on what some suppliers are doing to negate the impact of the downturn.
The purchasing cooperation [between Shaeffler and Continental]… …is to optimize cost of materials and achieve an annual triple-digit million benefit through access to the steel markets and component suppliers as well as investments and non-manufacturing materials.
With a combined purchasing volume of €20 billion, Continetal and Shaeffler predict they will benefit about $6,6 billion in synergy effects resulting in a savings potential of €350-400 million over the next two years. Most of the synergy effects are expected to come from the complimentary purchasing focus that each company has.
While Schaeffler’s annual purchasing volume of as much as 1 million tons of steel brings it direct access to steel producers, a high level of competence in this segment and also very good purchasing conditions, Continental’s strength lies in the purchase of mechanical and electronic components. Both companies have a well established portfolio of suppliers. The joint access to the partner’s purchasing expertise makes it possible for both companies to benefit from the improved purchasing conditions.
And what is more, Continental’s suppliers will obtain far better access to global steel markets than they presently have separately. In return, the Schaeffler Group will benefit from Continental’s large supplier portfolio which will now also be available to that company.
In addition the two companies see a high potential in bringing home savings for non-manufacturing materials as well. Tough times bring out the best of us, and it’s going to be interesting to see where this co-operation will go in the future.
Posted in Best Cost Country Sourcing, Organization, Spend management, Supply Chain | Leave a Comment »
March 27, 2009
Recently the once heralded business saviour global sourcing has started to receive a backlash. Purchasing.com has “The 9 hidden costs of global sourcing” as their March cover story and IBMs recent “The smarter supply chain of the future” report suggests that globalization has contributed more to revenue growth than to cost savings and efficiency. The report claims that many companies are encountering issues with global sourcing including:
- Unreliable delivery (65%)
- Longer lead times (61%)
- Poor quality (61%)
Add to this the increasing protectionist leanings of parts of Western Europe and the US one can sense a clear pattern of backshifting in the supply chain.
But is this backlash really deserved; and is it really closer always better.
I would say no, just as I felt that the unquestioned enthusiasm for global sourcing was that only way to go a few years ago. The flock mentality that led many companies into Asia and that is now leading them homewards reveals a lack of long term strategy and – in some cases – a lack of complete understanding of what the real business value of efficient purchasing is.
Purchasing.com blogger Michael Higgs nails this spot on (in one sentence, mind you) in one of his recent posts: “I would say the biggest fault I have found is that companies get overzealous and either don’t put anything outside the U.S. or they put everything.”
So don’t let the talk about the decline of global sourcing obscure the real target; market prices, expected quality and supply chain flexibility. If you get these parameters right, it doesn’t matter if your supplier is in Mexico, China, Portugal, Slovakia, Sweden or the US.
Posted in Best Cost Country Sourcing, Business | 1 Comment »
March 16, 2009
A few weeks ago BDO Seidman, LLP released the results of their annual BDO Seidman Technology Outlook Survey and some of the results were quite startling (worrying even, if you see it from a free trade vs. protectionism angle).
According to the survey; 62 percent of the responding US companies outsource services or manufacturing. A pretty typical number according to our experiences from the European perspective; the startling results come when the respondents were asked where they will go to find the market for this outsourcing:
- 22 percent answered the US
- 16 percent answered China
- 13 percent answered India
Douglas Sirotta, a Partner in BDO Seidman’s Technology Practice explained the numbers by saying the following:
“This year we are seeing three global factors that are causing U.S. technology companies to pull back from traditional outsourcing locations, led by the recent boom and bust of the worldwide economy. Satyam’s fraud case and the terrorist attacks in Mumbai are causing a lot of companies to reconsider operating in India. And supply chain and shipping cost issues in China are negatively impacting the attractiveness of outsourcing technology operations to the Far East.”
But that’s not the only reasons for the backshoring; Business Week reported that the Indian government is worried that protectionism and the regulations that rule the US stimulus package (as well as tax-reforms) are also part of the equation.
Whilst I can agree with the worries expressed by the respondents of the BDO survey; supply chain risk must be part of the equation when one seeks to outsource even non-core categories; the worries of the Indian government is of even greater importance. Protectionism should not have to be a factor that has to be considered when managing a global supply chain.
Posted in Best Cost Country Sourcing, Business, Global trade, News, Outsourcing, Strategy | Leave a Comment »
January 16, 2009
After posting their first annual loss in 70 years, Toyota is about to break another (previously airtight) boundary by sourcing steel from Korea timesonline.co.uk reports:
Brokers described the gambit, which plays heavily on the current strength of the yen versus the Korean won, as a “scene-shifting” moment for corporate Japan and the cosy lattice of domestic-only relationships that date back many decades.
The move is expected to send shockwaves through the Asian automotive industry where only Japanese steel used to be seen as good enough for a Japanese car. And the favourable exchange rate may mean that other Japanese industries start looking westward to retain profitability.
It just goes to show that a crisis can be the real deal when it comes to bringing out the best of us and doing away with traditional – and outdated – practices.
Posted in Best Cost Country Sourcing, Global trade | Leave a Comment »
January 12, 2009
After a long, long holiday break, Purchasing Transformation is back on track.
With the Detroit Auto Show in full swing, the auto manufacturers are out in force showing off their hopes to saving their industry, it’s sad to note that even the manufacturers that have been somewhat safe in the outskirts of the slowdown are experiencing external troubles.
When KIA Motors established their European plant in Zilina 2006 they aimed to create the most efficient automotive plant in the world. And looking at the results of 2008 the probability is rather high that they’ve succeed.
With everything running smoothly the plant spits out a new car every 60 seconds and production was increased by 38 percent in 2008. But what really impresses is the quality of the vehicles produced. KIA has nearly 300 quality controllers on the site and according to plant manager In-Kyu Bae only 35 percent of the funds budgeted for guarantee issues have been used, though hard to control, this figure points to great quality of the production.
Too bad then that KIA and their competitors in Slovakia have gotten caught in the middle of the Russian/EU gas-war and have announced that they need to shut down their plants for a few days due to power shortage.
Posted in Best Cost Country Sourcing, Risk Management | Leave a Comment »
