Archive for the ‘Supply Chain Management’ Category

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It’s the time of the (sourcing) season

December 4, 2008

Over on Supply Excellence, Ed Bockman has authored a definitly worthwile post discussing the paradox of a buyers market where buyers are scared to act. He writes:

In my observations from the trenches, I think you can chalk up the hesitation of many organizations to a mix of once-bitten-twice-shy jitters, patiently waiting for “the bottom”, overstocked inventory of direct materials and a lack of demand for their finished products.

In times like these it might be useful to recall that the downturn that we are seeing now is not only due to an extrordinary financial situation but owes much of it’s depth to a significant structural shift. Old ways of doing business are on it’s way out the door and this is in fact adding fuel to the fire.

The good thing about changes such as this is that new markets will replace the old. The bad part is that change hurts; and as humans we strive to resist change (and many of us do this until no other opportunity is available). If we don’t see major rewards on the other side; chances are that we’d rather stay put instead of getting our feet wet.

So as a reminder I’d like to offer some success stories from past structural shifts:

  • In the mid eighties Cisco Systems completely changed the telecom industry and in doing so put a high number of telecom developers, manufactures and works out of business.
  • General Electric was founded and started to flourish during the Long Depression of 1893-97.
  • Kellogg’s became a household staple during the Great Depression of the 1930s. An era that also saw the Golden Age of Hollywood.

So this is indeed magnificent times for two reasons. From a business perspective those that can exploit the structural shift are in a golden position. From a purchasing perspective; those that exploit the current situation can deliver great value to their corporations. I recently co-authored a perspective on this subject entitled “Sourcing in a Downturn” which discusses ways to identify tactics to exploit the effects of the current situation when sourcing IM&S. Hardcopies of the perspective is available free of charge from www.ibxgroup.com.

Posted in Business, Strategy, Supply Chain Management | 4 Comments »

Supply chain tangle will make it hard for GM to sell brands

November 27, 2008

As December 2nd draws near rumours about the GM survival plan are flourishing (in Swedish here: Svenska Dagbladet). In the Swedish media; urgent cries for a buy-back of Saab – mostly due to an overt belief in that Saab still is a Swedish car.

For anyone familiar with auto design and the automotive supply chain this can’t be further from the truth.

The fact is that GM will have a hard time dishing out any of their brands to opportunistic buyers. In trying to catch up with the Asian automakers; platform and parts consolidation has been accelerated to such a point that (from a Swedish perspective) the front-wheel drive is one of the few things that separate a Saab from say a Chevrolet or a Cadillac or an Opel.

Sad to say; the previously so heralded supply chain efficiencies might become a hurdle to high to master if GM should try to sell of some of it’s brands.

Posted in Business, Supply Chain Management | 2 Comments »

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 »

Dollars & Sense

November 11, 2008

Bill Taylor, co-author of the much appraised book: Mavericks at Work, posted his take on the current financial crisis on his blog some weeks ago. He provides 4 pieces of advice which I think makes a lot of sense and are very much applicable for supply chain management due to the high number of external stakeholders:

1. Don’t just remake your balance sheet, reassert your mission statement. This crisis is as much about values, trust, and business integrity as it is about declining stock prices and limited credit. Be sure to remind your colleagues, your customers, and the world at large why what you do matters, why you started the company in the first place, and what kind of impact you’re trying to have on the world. Here’s a question I always ask CEOs to think about: “If your company went out of business tomorrow, who would miss you and why?” Well, since plenty of companies may go out of business, remind everyone around you why staying in business matters.

I just listed the first one here – have a look at the full post on Bill Taylors site.

Posted in Organization, Strategy, 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.

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

Are You Part of the Problem?

October 29, 2008

A recent invitation to the Gartner 2009 BI Summit opened with the following quote:

Through 2012, overcoming complex organizational dynamics and having the skills to use BI more broadly will become the most significant challenge to the success of BI initiatives and implementations.

This is a rather, let’s call it generic, summary of the challenge facing BI in the future but there was also an interesting estimation based on recent Gartner surveys:

Gartner estimates that no more than 20% of business users actually use BI proactively.

There is room for interpretation here, since proactively would mean using it the right way. Still, 20% – that is a horrible number.

So what is the problem? I am assuming you read the invitation and got Gartner’s take on it but lets look at it from a procurement perspective instead of a more generic one.

Everybody involved in eProcurement implementations know that just providing access to a system does absolutely nothing in itself and I think this is especially true for BI. It is a term that is often linked to a very specific application, rather than being the umbrella term for the surrounding policies and processes associated with making a decision based on the system output it should be.

This is the main problem I think – If you do not know where you are going or why, speeding up will not help you (I’ll spare you the automotive metaphor jokes).

There are a lot of factors to take into consideration before starting out on an implementation project (or launching a retake of a previous one):

  • Are your organization ready for fact-based management? Management must willingly accept that facts, unlike opinions carry the same value regardless of position
  • Look into your KPI structure and make sure its not tied to old constraints on data availability – Plan for Benchmarking right at the start if you are not already doing it
  • Focus on usability and empowerment is great but make sure everyone will be working towards the same goals by enforcing a mandatory reporting framework
  • Secure both experience, time and money for ongoing change management and organizational development efforts, BI is the tool not the goal

The list could just go on and on but I think those are the main factors to consider – if you do not, chances are you are part of the problem (and Gartner’s remaining 80%)

All things being equal though – I think it is fair to assume that the vast majority of BI implementations where run with the help of an external partner. In the light of that, I think it is a good idea to be weary of the lone genius or guru approach often promoted at e.g. BI Summits. I will support that by a quote (my bold) from the Harvard Business Review ‘Decision-making’ feature (Issue #1, 2006):

The business world is among the few places where the term “guru” has primarily positive connotations. But a focus on gurus masks how business knowledge is and ought to be
developed and used. Knowledge is rarely generated by lone geniuses who cook up brilliant new ideas in their gigantic brains. Writers and consultants need to be more careful about describing the teams and communities of researchers who develop ideas. Even more important, they need to recognize that implementing practices, executing strategy, and accomplishing organizational change all require the coordinated actions of many people, whose commitment to an idea is greatest when they feel ownership.

This particular section is titled: Celebrate and Develop Collective Brilliance – I think the real challenge for BI in the future is to support that statement.

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

The Right to Choose – Why Pooling IM&S Doesn’t Work

October 27, 2008

Last Friday I was in a meeting with several senior managers at IBX when the question of IM&S pooling came up. As pros and cons were discussed from both strategic and pragmatic angles one of the participants finally blurted out:

The only (IM&S) commodities for which pooling works are those which are so standardized that specifications have become obsolete (such as gasoline), for all other commodities, specifications quickly become so essential (and diverse) that trying to pool even within your own company quickly becomes overwhelming. Pooling across company borders is simply not doable.

As usual I was taking notes of the discussion and as I let my eyes wander across the table I started to realize that maybe he was right, because in front of me were four purchasing professionals who preach the gospel of standardization and consolidation on a daily basis; yet all were taking notes in different notebooks. And if there ever was a commodity that should be seen as a poster child of standardization it is office supplies – after all; we’re mostly talking about pens and paper here; it’s so non-core that even the most liberally minded purchaser could think of it as potentially “five-year-plan:able”.

As the discussion continued I used the notebook example to illustrate the complexity of the issue; when asked all of us had different reasons for choosing our notebook of choice ranging from “it was in the office storage” (which I suppose was the most correct answer from a purchasers point of view) to “I got it for free at a conference” (a good answer from a cost perspective) to my defence of my Moleskine; “I honestly believe that I take better notes in this notebook than in any other” and then I added “and it makes a statement”.

I suppose the quality of the notes taken in the notebooks are only vital to those that assume their notes are core-business; a group of people that are (and should be) quite small to be honest.

Walking away from the meeting one question was lingering in my mind: why is it so hard to standardize IM&S?

Could it be that the same libertarian philosophy that has enabled global trade at the same time work against procurement by emphasising people’s right to choose?

Posted in Business, Procurement, Supply Chain Management | 2 Comments »

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 »

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