Monthly Archives: July 2006

Si, Se Puede! (Yes, Procurement is Able!)

While browsing through the European Leaders Network portal earlier this month, I came across the article Firms yet to realise procurement potential and then the article Increased competition for procurement professionals in rapid succession. To me, the connection is obvious. As Tim Minahan points out in Supply Excellence, great supply management organizations use a simple strategy to stay on top: buy the best talent available.

The first article notes that a recent study by PA Consulting Group found that only a quarter of leading organisations have realized the full potential of best procurement practice and that current firms are focusing too much effort on reducing procurement overheads, which does not deliver significant benefits. After all, as the study explains, “The disproportionate focus on reducing procurement overheads risks undermining the ability of many organisations’ procurement functions to deliver significant sustainable benefit.”

The quoted study concludes that CEOs and CFOs must invest in procurement capability through restructuring the procurement function in order to achieve a genuine transformation. This transformation can be achieved by extending the capabilities of their staff, rotating them to increase awareness, and recruiting to fill identified skills gaps.

However, what it overlooks is the importance of having top performers on your team to lead the way and mentor your junior staff. The reality is that top results often come from efforts led by top performers who have the best ideas and the most relevant experience and expertise in the job they do. I believe that is the main reason competition for professionals is heating up, as pointed out by the second article, which notes that competition for procurement professionals has hit an all time high.

The second article references the 2006 Salary Survey by recruitment company PSD and supply chain consultancy State of Flux that found competition for high-calibre procurement professionals has risen as more companies demand candidates who have well rounded commercial skills in addition to their purchasing backgrounds. The survey found that salaries in the technology and banking sectors are up ten percent while regional senior salaries have risen five percent.

Given the constantly increasing demand for experienced procurement professionals and the limited talent pool, what can you do? Focus on retaining the top performers that you already have and on moving them up into senior roles where they can help you groom your future all-stars into top performers down the road. After all, as Dr. Joseph Robert Carter, the Avnet Professor of Supply Chain Management and Department Chair at the W.P. Carey School of Business at Arizona State University, says, the key to great supply chain performance is to 1. Train your existing team. 2. Repeat step #1.

*Si, Se Puede!, a famous quote attributed to, Cesar Chavez translates as “Yes, we are able!”

And the (technology) brain-drain is finally official …

Today Emptoris finally announces what we’ve all known for a long time (see David’s post on eSourcing Forum back in February), that it has acquired MindFlow Technologies, a leader in inbound supply chain planning and sourcing optimization.  I’m going to refrain from commenting at this time*, but say that I’m pleased that a North American company acquired MindFlow, because in today’s economy, brain-drain is a global phenomenon and I personally think that the last thing you want is your country’s best and brightest packing up and moving halfway around the globe after a merger or acquisition!

The press release should be up on their site by the time you read this, so you can check it out at your leisure.  They are also announcing a new service offering, Overdrive, to help companies drive adoption and accelerate the business impact of Emptoris solutions.  The offering includes assessment tools, adoption workshops, analytical reporting, and access to a knowledge sharing user community with benchmarking metrics.  I’m sure my fellow blogger Jason Busch over at SpendMatters will have a few gems to offer on this last topic, as it’s part of his vision for next generation on-demand spend management solutions, so I’d keep a close eye on his blog to see what he has to say. 

Personally, I think Overdrive is a step in the right direction for Emptoris.  They’ve done a great job acquiring companies with leading solutions in various areas of sourcing, and recently produced an integrated solution through SAP NetWeaver, but technology is only part of the solution.  Knowing how to apply it for maximum benefit is the other half.  I’m interested to see what happens next.

* However I did comment on Jason Busch’s take, Old News Keeps Flowing, which I recommend you check out.  (CombineNet has even chimed in!)

Staying Green

About a month ago in my Sourcing Innovation series, I wrote a post entitled Green with Envy that described the many benefits a buying organization can achieve by “going green“.

It looks like this trend is here to stay. In Wired’s recent article Carbon Killers, they point out that for some companies, going green is generating serious greenbacks.

GE has currently pledged to roll back their greenhouse gas emissions 1 percent by 2012 (as compared to a projected rise of 40 percent). Why? In addition to reducing waste, reducing energy costs, avoiding environmental taxes, and reducing production cycles, green policies are starting to pay huge dividends in public relations and marketing buzz. For example, FedEx has announced plans to cut emissions through the use of hybrid delivery trucks. Furthermore, the global market’s appetite for green technology is heating up. If you are a US multi-national, chances are you want to do business in Europe and Asia, regions that have not only accepted, but are enforcing, the limits on greenhouse gases imposed by the Kyoto Protocol. (With 164 countries agreeing to the protocol, it’s not something you can ignore if you want to do business globally.)

After all, with the climate already changing thanks to global warming, as per this recent CNET news article, the smart money eyes climate change. The smart companies are trying to mitigate risk and seeking out opportunities in fields such as clean energy. Climate change and associated policies that arise to deal with it are going to fundamentally alter the makeup of many world economies. Companies that fail to embrace this coming change will probably lose out in the long run, therefore going green now is a good way to ensure a successful future.

Fortunately, going and staying green is becoming a whole lot easier with technologies produced by companies such as Atlanta-based CoalTek Inc.. CoalTek has developed a patent-pending technology that can convert raw-coal into “designer coal”, by way of electromagnetics, that contains less moisture, ash, sulfer and mercury. This allows the coal to burn more efficiently and cleanly, reducing energy costs and pollution. CoalTek is not alone. Denver-based KFx Inc. is also in the clean coal market. Furthermore, earlier this year Southern Co. and the US Department of Energy launched a $557M coal gasification project in Central Florida designed to produce the “cleanest, most efficient facility” in the world when it is completed in 2010.

Furthermore, as the CNET article points out, like health issues related to asbestos and tobacco did in the past, climate change could lead to lawsuits and target companies that either contribute to global warming or did not take sufficient steps to address regulations.

Merger & Acquisition: The New R&D?

Last Friday, I talked about The Wired 40 and questioned whether SAP belonged in a list which included the likes of Salesforce.com and Google.

Well, as the name implies, there are 40 companies in this list, and some of them, like Cisco, News Corp., and Pfizer may have essentially bought their way onto the list with their acquisitions of smaller, more innovative, companies, as described in Buy It Now. Cisco acquired 107 companies over a 12-year period, including cable-box maker Scientific Atlanta, to become the market force it is today. News Corp. bought MySpace‘s parent company and Pfizer bought biotech firm Vicuron Pharmaceuticals. (Furthermore, eBay bought Skype, Salesforce.com bought Sendia, Google gobbled Dodgeball, Urchin Software, and Upstartle, and Yahoo acquired Konfabulator, Webjay, Upcoming.org, Flickr, and del.icio.us.)

Furthermore, with the IPO market still sagging and the Post-Enron regulations increasing the cost and difficulty of going IPO, many small firms are now playing the acquisition endgame. Companies form with the sole intent of selling to Yahoo, Google, Microsoft, SAP, or SalesForce.com.

It’s essentially mature Crowdsourcing for large-organizations, except the organizations are going after collectives, in the form of small companies, that have already identified and made progress on the problem the large company is encountering instead of individuals. And since Networked Person is slowly taking over today’s knowledge-based economy, with her ability to virtually form new R&D collectives with her wi-fi blackberry transmissions, I think M&A based R&D may be one of the primary forms of innovation in large organizations for some time to come.

(Sourcing) Innovation Always Matters

Last Thursday in Global Sourcing: Does Innovation Matter?, Jason Busch of SpendMatters responded to my invitation in my post Is Low Cost Country Sourcing to China Really Innovative? of the previous Wednesday to comment on my take that “the hurdles and landmines of manufacturing in — and exporting from — China will ultimately catch up with the low labor rates that make the region so attractive in the first place“. The gist of his response was:

(1) It’s irrelevant whether a Spend Management activity is “innovative”, all that matters is the cold facts should speak for themselves and the savings or efficiencies gained from the activity should outweigh the risk it introduces.

(2) Companies contemplating China outsourcing still have much to gain, particularly with respect to supply base localization efforts in China aimed at building local manufacturing capability to penetrate the Asian markets.

(3) Low cost country sourcing, which has essentially been around since the concept of “trade” began, is not about a place or country, but the process of being able to move quickly to take advantage of opportunities as they arise in Asia, South/Central America, Eastern Europe, and maybe even Africa.

(4) Companies newly embarking on low cost country sourcing will find China to be nearer to the end then the beginning of the opportunities curve, with the implication that those countries actively using China for low cost country sourcing already still have the most to gain.

With respect to Jason’s first point, I have to agree that the cold hard facts should speak for themselves but disagree as to Jason’s statement that “innovation is irrelevant”. Innovation should be at the heart of every activity you undertake, and fundamentally, any new action you undertake is probably innovative to you. What is debatable is the degree of innovation. After all, innovation, which can simply be defined as “ahead of the times”, is all relative – to what you do and what your competitors do. Sometimes it will even be undertaking an initiative that generated a known failure for your competitor or an initiative that everyone thinks was past it’s prime ten years ago. Being innovative is not just inventing new tricks, its finding new ways to do apply old tricks, and knowing when to do so to reap the rewards.

With respect to Jason’s second point, I agree that the possibility exists, but firmly believe that it is not a cold hard truth. Not all companies will be equipped to take advantage of the opportunities that exist and navigate their way around the quagmires of wage inflation, skilled employee retention, energy crisis, and over-extended infrastructures. Furthermore, freight costs are increasing around the globe, not just to, from, and in North America and parts of China can still be quite distant from other parts of Asia. (After all, it is the largest country in Asia, excluding Russia, and the third largest country in the world.)

Moving on to Jason’s third point, although the concept of sourcing from low cost countries can be traced back thousands of years, low cost country sourcing has taken on a whole new meaning in the past thirty to forty years. Traditionally, you sourced products globally that you could not produce, or produce in sufficient quantities, locally. Generally, exceptions were only made when it was prohibitively expensive to produce the products locally. After all, before the rise of fast ocean liners and air-freight, it took a long, long, long time to get product from Europe and Asia to North America, and the risks of catastrophe (storms sinking ships, piracy, etc.) were much, much greater. And it is only recently that the leaders in global sourcing have evolved the concept from sourcing from a region to sourcing from an opportunity, a concept I fully agree with – after all, it is a very innovative transformation of the concept of low cost country sourcing.

And with respect to Jason’s final point, I agree fully. For many companies, China will soon be on the way out as new opportunities make their way in.

The puck has been returned.