Archive for the ‘Low Cost Country Sourcing’ Category

Is procurement to blame for corruption business practices in low cost countries?

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 »

Were onion sourcing the root to McDonalds closure in Iceland

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 »

IT-procurement – the global giants vs. the boutique firm

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 »

Siemens Barbera Kux speaks out on Siemens supply chain challenges (and what she plans to do)

April 1, 2009

Frankfurter Allgemeine Zeitung ran a piece titled “Siemens trennt sich von 74.000 Lieferanten” where Siemens Head of Supply Chain Management (and Chief Sustainability Officer) Barbera Kux really spoke out about Siemens spend and what she’s got planned for the next few years (big kudos to German journalistic traditions for going so deep).

Once you get past the numbers (which are duly disclosed: total spend, DM/IM&S split, number of suppliers, reduction targets, etc it’s all there) one of the most interesting parts of the story is how Ms Kux and Siemens aim to deal with consolidating spend and exploiting the synergy effects.

Siemens have set up a Supply Chain Management board headed by Ms Kux which includes the CPOs of Siemens three largest business segments (Industry, Energy and Healthcare) as well as the Managing Directors of China and the UK and the CFO of the Industry sector. While there is little possible consolidation of DM spend between the three segments, the boards goal is to lower the complexity of the supply base and exploit the possible synergy effects to a maximum. The composition of the Supply Chain Management Board also reflects the internal policy stating that supply chain, finance and development all need to co-operate more.

Ms Kux concludes that she’s very confident that she will succeed with her targets at Siemens as she’s done it before at Philips. Bringing that amount of experience into the equation is probably one of the reasons she was appointed to the managing board of the German giant as the first woman in 160 years.

Posted in Business, Governance, Low Cost Country Sourcing, Supply Chain Management | 1 Comment »

When suppliers are not (the only ones) to blame

February 17, 2009

Sometimes I wonder if the complete failure of certain supply chains isn’t for the better.

Recently the Chinese ministry of commerce announced that 922 toy exporters in Guangdong province closed shop in 2008, out of the 3,089 toy exporters in 2007. While there are many reasons for this (India recently imposed 6 month ban of Chinese toys come to mind); let me offer this particular anecdote.

My 10 month old daughter received an electronic toy penguin from a friend of the family a few days ago. It has a couple of buttons on its stomach which when pressed causes some lights to flash as it plays a random melody. All in all; it’s a pretty average example of what can be found in any Toys’R’Us across the globe. Of course, it was manufactured in China. Now to the peculiarities:

  • It can’t be turned off. To paraphrase a well known tag phrase; it’s a gift that keeps giving (parents a headache).
  • And so far, the most frequent of the random melodies played is “Take me out to the ball park”. And let’s just clarify one thing; it’s a traditional toy penguin, bearing none of the trademarks of the Pittsburg-based baseball team.

So here I am; with an electronic toy that can’t be turned off, which plays “Take me out to the ball park” if anything moves in its vicinity. And this profanity (for lack of better description) is sold in Sweden – a country with little more than 800 registered baseball players – so the potential target audience who might enjoy a penguin which can play “Take me out to the ball park” is limited, to say the least.

Yet someone, somewhere, has made a business decision that there is probably a market for this toy and set about to source a supplier who can produce it; a distributor who can distribute it; and organized a sales force to bring it to the public.

With the toy in hand; the whole set up seems like a really stupid idea to me; unfortunately I doubt that this sentiment is shared among the workers that now struggle to find work in the affected regions.

Posted in Low Cost Country Sourcing, Personal | Leave a Comment »

Another case of CSR gone wrong – the down sourcing dilemma

February 9, 2009

A few days ago, yet another CSR-related media storm hit the Swedish press. According to TV4:s Kalla Fakta, several leading outdoor apparel (among them Fjällräven) as well as leading home furniture and bedding companies (IKEA among others – press release – in Swedish) have used down plucked from live geese for their products despite stating clear policies against this practice.

This may not strike the eco-aware as any big news as the question of sourcing ethical down has been raised and discussed on a wide range of forums in the past few years. But the impact on the affected brands is still harmful.

IKEA now offer refunds to those that feel discomfort because of the issue and are now taking a close look at their supply chain. Leading Swedish retailer Åhlens have pulled all down and feather products from their shelves until further notice (press release in Swedish).

And maybe even more interesting, Fjällräven – who was recently awarded Signum Priset 2009 for outstanding trademark management and protection – face even stronger competition from their strongest Swedish competitor Haglöfs use this CSR controversy at their advantage on their website stating that they do not use down plucked from live birds.

Whilst little is actually known from a scientific standpoint about the live plucking practice this little CSR issue still has the power to shake up a market.

For those interested in the practice of sourcing down in an ethical manner, small UK outdoor specialist Alpkit did some digging in May last year with very insightful results well worth reading to get a hand on view of the hardships of finding out what ethical sourcing actually requires.

Recycling down
Ethical down sourcing pt. 1
Ethical down sourcing pt. 2

Posted in green procurement, Low Cost Country Sourcing, Marketing, Risk Management | 2 Comments »

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 »

Supplier Risk Management 101

September 24, 2008

With all the supplier quality scandals rising these days it might be time to refresh everyone’s memory of supplier risk management 101.

Most of the stories that are hitting the headlines (and the bottom line results of those involved) can easily be traced back to the failure of understanding the extended supply chain risks involved or addressing these risks early enough in a constructive manner.

One problem that arises when you look at risk management is that many companies only look at the physical flow, and forget (deliberately or not) potential risks in the extended supply chain as well as financial risks. All levels need to be covered and a strategy has to be available if anything occurs and you need to execute accordingly.

Supplier Risk Management Framework

Supplier Risk Management Framework

This basic model can be used as a framework when assessing your risk management strategies, since it takes a holistic perspective on the risk management issue. At the same time it’s important to remember that no risk management strategy is final; practice makes perfect, and sometimes you might need to get a bloody nose in order to find the best-fit strategy for your operations. But with the appropriate strategies and processes in place, the impact will be minimized.

Risk management is very much on the agenda at the moment, so expect the blogosphere as well as big firm analysts to exploit and dive into this subject with vigour in the upcoming months.

Posted in Best Cost Country Sourcing, Low Cost Country Sourcing, Risk Management, Supply Chain Management | 1 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 »

Teddy Bears With Quality

September 4, 2008

This summer I read an article in Financial Times about Steiff, the German company that claims it made the first teddy bear with moveable arms and legs in 1902. A hundred years after the foundation, the teddy bear company followed the outsourcing wave and moved parts of the production from Germany to China. Now, five years later, they are bringing the production back in-house. They have learnt that cost is not everything. Martin Frechen, co-chief executive, says “The things we wanted to be done were not the things the Chinese were used to doing” and “We have learnt our products are better if we make them ourselves”.

What I like in Steiff’s product strategy is the striving for quality. They tried to enter a lower price range and therefore sourced from China. They then identified a lower quality in the production and brought it back in-house. I think this high quality thinking is a good counterweight to the many discounters that are dominating the toys market.

Posted in Best Cost Country Sourcing, Low Cost Country Sourcing, Supply Chain Management | 1 Comment »

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