Archive for the ‘Global trade’ Category

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The Concerns of the CEO are the Concerns of the CPO

January 27, 2009

It’s been lying on my desk for quite a while now, but it wasn’t until recently that I actually took the time to dig into IBMs The Enterprise of the Future report. It’s an eighty page global CEO study that IBM performs bi-annually and it compiles answers from 1 130 CEO worldwide; and – from my northern European perspective – the best thing is that respondents are almost perfectly split in three – 33 percent being from Europe, 32 percent being from Asia and the remaining 34 percent from North and South America; so in contrast with many other so-called global reports, this one truly reflects the global CEO and the challenges global corporations are facing. One only needs to remember is that the answers were compiled during the first half of 2008 so the full pressure of the (down)fall of the global economy is probably not in the report.

Still, there are quite a few insights worth sharing.

I’m quite sure that we all agree that we are living in volatile times (in a “white-water world” as one of the respondents is quoted as saying) and topping the list of external/internal forces that keep the CEOs awake at night are:

  • Market Factors
  • People Skills
  • Technology Factors

While Market Factors and People Skills have been top priorities the last 4 years, Technology Factors have passed both Globalization and Regulatory Concerns in the CEO rating according to the report.

This should only come as good news to any CPO; managing a dynamic global market has put emphasis on two things for the purchasing function: success global sourcing is dependant on the proactive  purchasers with an analytical/collaborative bent (as opposed to the more traditional reactive/negotiation focus of yore) and tools that support cross-functional and increase the spend visibility across the enterprise. The concerns of the CEO are the concerns of the CPO, making it easier to align purchasing strategy to overall corporate strategy.

Posted in Business, Change Management, Global trade, Strategy | Leave a Comment »

Don’t Paint Yourself Into a Corner

January 26, 2009

There is great hope – and worry – that trade regulations will be one of the saviours – or accelerators, depending on your view – in this current downfall. An experienced purchaser will probably reduce the risk of either by ensuring a flexible supply chain that can deliver value in any case. Ensuring supply – at market prices, with the wanted quality – is after all a core aspect of purchasing. So why the need for flexibility.

British philosopher (slash anthropologist, slash author, slash semiotician, slash linguist etc) Gregory Bateson once suggested that civilizations will expire by the loss of flexibility, and that flexibility is automatically lost if not exercised.

To me the important passage here is the act of exercising your flexibility. It needs to be done, not just planned for. And in times like these, this is more important than ever. Locking yourself into long, rigid contracts or government induced trade regulations will – in the end – cause a new downfall.

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In a crisis you do what you must – Toyota to source Korean steel

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 »

Are you accepting price increases by default

November 25, 2008

Having been offline for a few weeks due to private matters; the things that strike close to home appear more eye catching to me.

Lately Swedish media has been ripe with articles chronicling the shifting prices of raw materials and the little effect these shift have on price of consumer goods. In on of the articles (Svenska Dagbladet, in Swedish); the global price of wheat is compared over time with the price of flour in Stockholm area stores and the result is that consumers are unaffected; both from a savings perspective and from a buying pattern perspective. They still shop for flour; and pay through the nose for it, regardless of global wheat price fluctuations.

Now the price of flour is dependant on a number of things (albeit the core is the price of wheat); but the interesting thing about this story is that although the consumers are aware of the price fluctuations of the raw material, they silently accept that the profit margins end up in other peoples pockets.

Imagine this from a sourcing perspective; would a purchaser silently accept that negotiated prices are unaffected by the cost of raw materials.

The big dilemma is that in the end we’re all humans; distinguishing between our corporate and private selves is a hard thing to do. And as we privately start to accept increasing prices, how will this affect our ability to not do the same in our corporate roles?

Posted in Global trade, Supply Chain Management | Leave a Comment »

Redefining Sustainability

November 21, 2008

We have recently blogged quite a bit on the topics of the current global recession. I want to share a comment today on sustainability, inspired in part by a recent white paper by Jason Busch on Redefining Sustainability that focuses on the theme that going green usually implies a lot of other benefits by reducing risk and ultimately leads to savings. Highly recommended read.

I agree on most parts of the white paper and the fact that the public relations part of going green should never be underestimated – I think you first and foremost need to look at sustainability as a goal you will achieve by having the right knowledge, processes and company culture/values in place. While company culture or values are not the easiest thing to change, focus should be on ‘doing your home work before going to class’.

Regardless of any green initiative, I am pretty confident that identical or bigger savings could have been realized if the home work had been done in the first case. Why do you need a global recession to reinvent your supply chain? In the words of former Bundeskanzler (’74-’82) Mr. Helmut Schmidt at the recent BME Special Conference on China:

Everybody is talking about China but nobody really knows it

This is spot on I think – reinventing the wheel over and over again or rushing in because China was the ‘next big thing’. It is of course wrong to promote the idea that all failed initiatives should be blamed on lack of home work done, but it should be common sense that it minimizes the risks considerably.

So, do the home work and you might just find sustainability was not all that hard to achieve.

Posted in Best Cost Country Sourcing, Global trade, Supply Chain Management | Leave a Comment »

Volkswagen to go Local in India

November 5, 2008

Continuing on our recent automotive industry theme; German auto giant Volkswagen announced earlier this week that they are going to source materials worth euro one billion for its global operations within the next two years.

The company has been building a plant in Pune, India, which should be operational by the end of 2009 and in a statement to the Press Trust of India Bernd Martin, Volkswagen AG global head of purchase said: “Our target is to give priority to local suppliers. We are planning to source at least 55% of the components for the plant and its production at the start of our operations and take the figure to 70% within two years of that”.

At the same time the German Association of the Automotive Industry (VDA) and Wolfsburg AG announced that it is planning an international auto supplier’s fair in India in early 2009. Wolfsburg AG has co-organized a similar event in Volksvagen’s native city of Wolfsburg together with Volkswagen for the past few years and not only does the auto industry look towards India as a potential market; the city of Wolfsburg has taken notice as well.

This is a clear indication of the fact that purchasing definitely is being used to breach entry into new markets.

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The Effects of Wal-Mart’s Recent Supplier Summit in Beijing

October 24, 2008

Earlier this week; Lee Scott, president and CEO of Wal-Mart Stores, Inc. and Mike Duke, vice chairman for Wal-Mart’s international division addressed more than 1000 of Wal-Mart’s leading suppliers, Chinese officials and NGOs at a Wal-Mart supplier conference in Beijing, China.

Lee Scott sent a crystal clear message to Wal-Mart’s Chinese supply base:

My intention here is to send a message about how serious we are. Meeting social and environmental standards is not optional… And let me say to our own associates, an environmentally and socially responsible supply chain will not be optional for Wal-mart, we will hold our own associates accountable… Make no mistake; we expect from suppliers a firm commitment to meet strict social and environmental standards; to be open to rigorous audits; and to publicly disclose all appropriate information.

He continues to state that suppliers that do not meet the standards set by Wal-Mart are expected to put forth a plan to fix the problem and those who still do not improve will be banned. Mr Scott drove his point home by saying that:

No-one should be under any illusion that moving a factory to another country will avoid accountability.

Before Mr. Scott took the stage; Mike Duke had outlined Wal-Mart’s strategic sustainability goals.

  • To build an environmentally and socially responsible supply chain.
  • To make our stores more sustainable.
  • To bring our customers products that are more sustainable; how they are made, how they are packaged and how they are used.

Wal-Mart has issued a press release detailing most of the points delivered at the summit in Beijing which can be found here. But the best thing is (although it doesn’t show the audience response); videos of both Mr. Scott’s and Mr. Duke’s speeches can be seen in the video section of the Wal-Mart corporate web site.

One can only wait and see which impact this will have on the Chinese manufacturing industry, in the last few years labor costs have gone up 70 to 100 percent, yet many factories have been able to raise their prices because companies such as Wal-Mart are saying no price increases. One indication of what might be in store was published earlier this week. The official Xinhua News Agency reported that 3,631 toy exporters — 52.7 percent of the industry’s enterprises — went out of business in 2008. The causes: higher production costs, wage increases for workers and the rising value of the yuan.

Posted in Business, Global trade, green procurement, Supply Chain Management, Sustainability | Leave a Comment »

The Re-emergence of Nearshoring – aka Best Cost Country Sourcing

October 23, 2008

In response to the latest business trend (as reported by most American business press) backshoring Booz&Co has authored a piece in their strategy+business publication called “Is Backshoring the New Offshoring?”. Their answer is a vague “not yet”. The increasing presence of India’s Wipro and TCS and the backshoring efforts of Dell and American Express might be a sign of things to come but it’s not nearly enough to make backshoring a viable business trend.

So is there a definite trend in offshoring vs. nearshoring vs. backshoring?

From a European perspective the answer is rather clear. As deregulation efforts are increasing in Eastern Europe and the near East; this is where European business is going. And it’s easy to understand why: it’s close, it’s cheap and it’s a great place for doing business.

Just take a look at the results of Doing Business 2009 – the sixth annual in a series from IFC and the World Bank; out of the ten economies making the most regulatory reforms, the top four are from Eastern Europe or the near East (Azerbaijan, Albania, the Kyrgyz Republic and Belarus).

Whilst backshoring might be something to think about for strategic or customers value reasons; I believe that what the press is really talking about (and this is echoed by Booz&Co as well) is plain old fashioned best cost country sourcing. In the words of Booz&Co:

..,companies have begun to rethink their offshoring decisions in a way that ultimately will render “offshore” and “onshore” no longer meaningful or relevant. Instead, companies are making choices about the best place to do a given piece of work — be it offshore, onshore, or nearshore.

Posted in Best Cost Country Sourcing, Business, Global trade, Low Cost Country Sourcing, Outsourcing, Supply Chain Management | Leave a Comment »

Will Omaha Become the Next Shenzhen

October 15, 2008

Take a brief look at the following supply chain migration (GM Supply of Wiring):

  • 1980 – USA/Germany
  • 1990 – Mexico/Spain
  • 2003 – China/Honduras
  • 2005 – Thailand/Ukraine
  • 2008 – ?

Notice anything special?

Over the years GM’s migration frequency increased. Now there are probably many reasons for this but if anything, this is a clear cut example of how important supply chain flexibility has become in order to stay competitive (although one can argue the competitiveness of GM, but I believe that owes more to strategic decisions rather than supply chain practices). To ensure that the supply chain provides the necessary competitive advantages it needs to be constantly monitored by a number country relative cost drivers such as cost of labour, relative purchasing power, cost of energy, health care, relative capital costs, transportation, raw material costs, etc.

These sentiments are echoed in this World Trade Magazine article from a few weeks ago; which – quite surprisingly – points out the US Midwest as one of the places where companies migrate their supply chains.

Omaha might not become the next Shenzhen, but I truly believe that a number of smaller “Shenzhen’s” will develop over the next few years, all with their own specific offers and possibilities. As this happens; we will truly begin to see what global trade is really all about.

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

How Far Can One Take IPR Theft – The Story of How NEC Was Robbed of its Brand Name

September 8, 2008

A story in yesterdays Svenska Dagbladet regarding the widespread counterfeitting and IPR theft (in Swedish) in global trade today led me to this bizarre story starring Japanese electronics giant NEC.

In 2006, Internatial Herald Tribune (among others) reported that a fake NEC had been uncovered in China. What had started as an investigation into counterfeited keyboards and recordable  CD and DVD discs had bloated into something far bigger; and far more bizarre than anyone ever thought possible.

The counterfeiters had set up a parallel NEC with links to over 50 electronics factories in China, Hong Kong and Taiwan. Using the NEC brand name; even carrying NEC business cards; the counterfeit NEC copied NEC products and even went as far as developing a range of consumer products such as MP3-players, DVD players and home entertainment systems. The real NEC even got complaints that they weren’t providing warranties for the fake NEC products.

“These entities are part of a sophisticated ring… …which has attempted to completely assume the NEC brand,” said Fujio Okada, the NEC senior vice president and legal division general manager in a written statement to IHT in 2006.

Now, Chinese authorities have made great improvements in their efforts to maximize IPR protection since 2004, earlier this year the National Working Group for IPR Protection presented an Action Plan on IPR Protection 2008, deploying 280 detail measures in 10 areas. The complete plan can be studied on the Intellectual Property Protection in China web site.

Posted in Business, Global trade, Low Cost Country Sourcing | Leave a Comment »

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