Archive for the ‘Business’ Category

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The rise and fall of global sourcing

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 »

Protectionism starts to factor into supply risk management

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 »

Four Obama rules for successful management

March 11, 2009

D&M All Business recently ran a piece on what business leaders can learn from President Obama’s practices. Obama’s management style continues to awe many observers; but one of the most startling acknowledgements is his consistency. No-drama Obama had a plan for leadership which he has stuck to since setting his eyes on the presidency.

Among the four issues addressed by All Business we’re gonna pass on “He is unflappable” and “There Is No Room For Drama”; whilst this advice is good for management in general, the remaining two are more in line with the challenges facing global purchasing today.

He Listens To Others

Knowing your stakeholder requirements is key to successful IM&S purchasing; and this is especially important when it comes to service procurement. Know when to listen and when to speak up will decide how you are perceived; it will also ensure that you learn the foot work of your internal customers.

He Motivates People To Work Together

Cross functional category teams is another key methodology that separates procurement leaders from the laggards. Being able to lead and motivate across borders and cultures will further strengthen the ability for these cross functional teams to succeed with their targets

Posted in Business, Organization | Leave a Comment »

Community focused risk management

March 10, 2009

I must say I found this Industry Week spotlight piece on managing risk in multi-enterprise supply chains quite intriguing. Arguing that old ways of managing risks are outdated in a world of horizontilized companies; the author proposes a shift to community based risk management in order to manage the challenges of outsourced manufacturing. 

As a step on the way to a more community focused mindset; five key issues are addressed:

  1. Community KPIs
  2. Community forecasts
  3. Community assets
  4. Community data
  5. Community technology

To conclude; the author offers the following piece of advice:

…with risk comes reward and a well-managed community supply chain will deliver the advantages product companies need to not only make it through this volatile market, but also set themselves up for long-term financial success.

Posted in Business, Risk Management | 1 Comment »

The sourcing window of opportunity

March 5, 2009

Yesterday Markit Economics published their PMI for the services sector and if the record lows are not attention grabbing enough, the data also show that suppliers are acting quickly to offset plummeting demand.

The eurozone PMI slumped to 39,2 in February (from 42,2 in January) as the composite employment submeasure hit a survey low of 40,8. While this will place additional strain on already tight government budgets (a great overview of the state of the European deficits is available here); it also shows that the window of opportunity for sourcing services is closing rapidly.

It’s been said numerous times in the last few months, but it is definitely time for action.

Posted in Business, News, Sourcing | Leave a Comment »

Getting out of the supply chain basement

March 4, 2009

ISMs eSide Supply Management newsletter recently ran a piece entitled “The Road to CPO — and Beyond” in which A.T. Kearney partners John Blascovich and Mike Hales detail the evolution of the CPO and offers different paths for purchasers climbing the corporate ladder (full report is available directly from A.T. Kearney here).

The authors acknowledge two typical paths to climb; either functional or business; but the underlying sentiment is that in order to move up the ladder, purchasing (or the purchaser who wants to move on up) needs to shift focus from cost to value.

This echoes what IBX CEO Leif Bohlin recently wrote in recent issue of the IBX newsletter called “It’s the time for purchasing”. He argues that with the increased focus the current downturn has put on purchasing; it’s time to step up to the challenge; to act like value creators; because if you become a value creator no, that’s how you will be perceived when the economy rebounds and the spot light strays away and sets it’s focus on it’s more traditional targets (marketing and r&d)

The focus of the business world is on purchasing; don’t miss the opportunity to let them know that purchasing is so much more than just squeezing margins and policing contracts.

Many companies are – and will – slow down their product development in this downturn; so don’t let the opportunity pass, pick up the phone and tell who ever is responsible that you can use the r&d resources to get better value for your money.

Posted in Business, Supply Chain Management | Leave a Comment »

Business-union compromising

March 3, 2009

Yesterday’s breakthrough (shock if you as some, long awaited if you as others) agreement between Swedish union IF Metall and their counterparts is currently the big issue in Swedish business press: the union agreed to 20 percent wage cuts (locally) in an action to save businesses.

Unionization is a hot topic; not just in the supply chain sphere where unions in some case are considered a supply chain risk. But what often forgotten; not just in this case but in many other cases (in business as well as in the homes and on the streets); is that in any situation all parties have obligations as well as rights.

Unfortunately; in the everlasting clash between unions and business representatives; this is most often illustrated by one party saying “I have the right to fire who I wish” while the other party counters with “I have the right to more pay”. While the union agreement in Sweden is still being debated it does put the finger on the issue of compromise and it’s place in any negotiation. Win win situations will never come about without some compromising.

Former Israeli Prime Minister Levi Eshkol has often been quoted saying: “When necessary I make a compromise, and if that is not enough I make another compromise, and yet another compromise until I have it my way”. In today’s shaky economy; skillful compromises may be a true success factor.

Posted in Business | 1 Comment »

Supply chain rumors stall production at SAAB

February 26, 2009

As more and more information slips out regarding the Detroit/GM crisis; the different divisions are running into (un)expected supply chain issues due to the massive restructuring programs that are taking place.

As part of the restructuring, SAAB filed for reorganization in Sweden last week and as a result the SAAB plant in Trollhättan faced production disruptions relating to suppliers threatening to stop deliveries. And if that wasn’t bad enough, Swedish media  claimed that the Swedish Customs had stopped SAAB from using certain parts (as SAAB had not paid customs for these) due to SAAB’s credit rating. Media also reported that Schenker logistics had stopped all current deliveries while renegotiating contracts with the ailing car maker. While some of these claims were played down by all parties as time passed; the damage to the brand has already been done.

The whole thing is turning into a supply chain nightmare as media, suppliers, regulators and logistics providers all pour extra pressure on an industry in a state of meltdown. In this extraordinary state; managing the media adds further complexity to managing the supply chain.

Posted in Business, Supply Chain | 2 Comments »

If outsourcing doesn’t work, can one sell the procurement function?

February 23, 2009

This weekend, while flipping through the pages of the Sunday paper (and lazily watching the Swedish winter athletes excel at various world championships), I ran across a most curious advertisement; at the bottom of the front page of the business section there was an ad that read: Sell your IT department.

Not outsourcing the IT department, sell it. Now, I have little knowledge about the price of an IT department, and even less knowledge if there are any potential sellers out there. The one thing I know is that there is – in fact – a potential buyer of IT departments.

This led me to thinking if there is actually a market of selling other departments as well. Outsourcing has been flourishing in various sectors for decades; IT being one of the most prominent examples. While outsourcing of procurement has yet to catch on, the ad about selling your IT department posed two questions:

  1. Can one sell the purchasing department?
  2. And if so, what would it be worth?

Just for the record, I’m not a even strong advocate for purchasing outsourcing due to the strategic importance of direct material purchasing and the often very complicated matter of indirect materials and services, but that shouldn’t stop someone from actually considering what may – at first – seem like an undoable thing.

Consider for instance the following scenario; Manufacturing Company A has a low indirect/direct materials ratio, so low that they’ve made the strategic decision not to bother with their indirect spend at all. Now, most purchasing theorists may argue that even the smallest amount of spend makes a difference; and in theory they’re right; but considering the amount of effort required and the minimal benefits someone with their feet firmly planted in the mud will probably come to the decision that it’s to little bang for the buck.

That’s definitely not the case for Service Company B; they have nearly no direct material costs at all – their cost structure is based on personnel and indirect materials. Now ponder the scenario where they want to boost volumes. Most companies look themselves in the mirror and try to do the best with what they’ve got; minimize maverick spend, increase e-procurement coverage, train staff, increase contract coverage etc.

Would they get a better deal if they actually bought the potential IM&S spend volume from Manufacturing Company A? My gut reaction is that it probably wouldn’t work, but that does not say it’s undoable. So the real just might be; who will be the first to take the plunge into the unknown?

Posted in Business, Organization, Outsourcing | 1 Comment »

The Undercover Purchaser

February 20, 2009

I recently finished reading The Undercover Economist by Tim Harford (You might recognise the name from his always humerous columns in The Financial Times). In my opinion this is one of the best business books published in years and a highly recommended read.

The book is basically a view on everyday life seen through the keen eyes of an economist. It is a well-written summary of all the things you (most likely) forgot from the dull text books on macro (and micro) economics or rather all the things you should remember, or know about if you never studied economics.

Mr. Harford starts out by providing the foundations in terms of basic supply and demand relationships and their implications. Through a series of both funny and relevant real life case studies the reader is then guided deeper and deeper into the layers of modern economic theory where quite a few of them are highly related to purchasing (like how to not get duped in an auction through amongst other things the application of game theory as an example).

I think it is becoming increasingly important to remember the impact of modern economics on the realm of purchasing and the ‘deductive reasoning’ argumentation style that often holds such a big part in it.

I do not want to take anything out of the experience of reading this excellent book so I will opt for a quote from the introduction and hope it inspires you to learn more:

This is a book about how economists view the world. In fact, there might be an economist sitting near you right now. You might not spot him – a normal person looking at an economist wouldn’t notice anything remarkable. But normal people look remarkable in the eyes of economists. What is the economist seeing? What would he tell you, if you cared to ask? And why should you care?

You may think you’re enjoying a frothy cappuccino, but the economist sees you – and the cappuccino – as players in an intricate game of signals and negotiations, contests of strength and battles of wits.

The quote above triggers the obvious question in the context of this blog: How do you know when you are sitting next to a purchaser procurement professional?

Posted in Business, Global trade, Procurement | Leave a Comment »

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