Monthly Archives: April 2007

The Top Three IV: Never Give a Blogger Two Weeks …

Never give a blogger two weeks if you want some of them to post in one week. Being perfectionists, they’ll all wait until the second week given the choice. Considering I have commitments from about twenty bloggers, I was hoping that the two week window combined with the law of averages would result in their contributions being roughly evenly spaced out over the next two weeks, but I’m getting the feeling that the majority are going to wait until next week.

On the bright side, Jon Miller of the Gemba Panta Rei, a kaizen blog posted his teaser post on Lean Sourcing yesterday, and there’s a good chance Kevin Brooks will have his guest post ready today. Keep checking. This week might be a little slow, but next week is going to be great!

The Top Three III: The First Guest Blog

With at least eighteen confirmed bloggers and guest bloggers, the big question was, who will go first? Well, I’m happy to report that Lisa Reisman, Managing Director of Aptium Global Inc, has volunteered to go first. Today, I’m pleased to present her “Top Three”.

Maximizing the Savings Potential of Global Sourcing Strategies

In the past few years, we have observed a range of companies that leave tremendous dollars on the table because they have not formalized or streamlined global sourcing or LCCS processes. Why? Organizations who regularly source from low cost regions may have already implemented less than lean global sourcing practices. Lean sourcing practices encompass all of the processes around global trade but exclude the actual item(s) themselves. Cost savings opportunities exist for better global logistics practices, better negotiated trade finance terms and banking deals, and optimization of various international trade agreements, tariffs and treaties as they relate to the items sourced.

Companies with significant overseas sourcing volumes often have accumulated a whole host of costs not necessarily part of the original cost savings analysis. These costs can be in the hundreds of thousands if not millions of dollars, depending on the size of the organization and volume sourced globally. Missed savings – and added costs – have a direct negative impact on the bottom line.

There are ways to address these costs. The first is to examine the largest elements that comprise total cost outside of product cost. In the case of global trade the largest cost areas include: freight/consolidation, harmonized code classification and duties, payment terms and international trade finance arrangements, brokerage and associated customs fees.

There are enough risk factors affecting global sourcing decisions (e.g. currency volatility, political risk, loss of flexibility etc) that companies should be managing all costs that can be controlled.

Managing Volatile Commodities

Companies are struggling to maintain margins and plan their purchases for a full range of metals, metal services and semi-finished products with high metal content due to the ever fluctuating metals markets. Copper, steel, nickel, stainless steel and aluminum all have significant price volatility.

Volatility does not appear to be going away any time soon. The greater the volatility and uncertainty, the greater likelihood that a company may engage in practices counter to running a lean operation (e.g. buy and hold unnecessary inventory)

Companies can deploy many strategies to mitigate commodity pricing volatility which may include commodity indexing and bidding out of the value-add portion, deploying price escalator/de-escalator clauses, allocation of spot, forward, and averaging along with fixed index pricing to smooth peaks and troughs.

Enterprising companies may choose to develop commodity management strategies as a means of not only mitigating risk but also creating competitive advantage (think Southwest Airlines as an example of a company that created a competitive advantage due to advanced commodity management strategies).

Implementing Savings

This is the age-old sourcing conundrum … savings is identified but for whatever reason it is not implemented. It’s significant because many of the savings not taken include incumbent savings, which, of course, is the simplest of all savings to implement. The not-invented-here syndrome is a major impediment to savings implementation.

Many companies do not fully appreciate the opportunity cost of not realizing savings earlier as opposed to later. An annual savings of $130,000 might not be interesting to a Fortune 500 company but in middle market manufacturing, that contribution to EBITDA can be quite significant!

Larger companies talk about change management but we prefer to look at incentive programs. If you structure the incentives correctly, the right behavior will follow. Without allowing employees the opportunity of a little upside for saving money (and savings should be β€œnet” savings), companies will continue to implement less than they could.

The Top Three II: Sourcing Innovation’s Top Three

#3: Culture

Supply chains are global, which mean they cross not only physical country boundaries but cultural ones as well. I’m sure you’re saying that “this is not an issue – big companies have been sourcing globally for decades”, and this is true, but it hasn’t been without hiccups. A lot of effort was required to make those efforts successful, a lot had to be learned, and a lot of companies make the same initial mistakes over and over again.

And most of the problems come down to mis-communication that results not from lack of knowledge of the language, but of the culture. For example, when your Asian supplier says “yes” is he saying “yes, I can do that” or is he saying “yes, I hear you”. It is cultural in many Asian countries to acknowledge that you understand what the other person has said regularly, and in some countries, like Japan, it is considered impolite not to acknowledge every new piece of information with either a nod (of the type that signals “yes” in North American culture) or an affirmation (which translates as “yes”).

Another example is that your “problem, disagreeable” employe might actually be your best employee. In North America, it is often considered impolite to vocally disagree with a decision accepted by the rest of the team or to point out flaws with an executive-approved plan. However, in some Eastern European cultures, it is expected that you voice your disagreements and your reasons therefore and point out flaws when you find them. Furthermore, while some cultures consider it impolite to be blunt when there is a problem, others consider it impolite to be anything but when there is a problem that needs to be resolved.

Without an understanding of the large role culture has to play in your global supply chain, which relies not on IT infrastructure or equipment but people, an organization is doomed to not be all-it-could-be. The answer is to forget about the motivational seminars and drop the same-old same-old instructor-led site-based training classes. The key is to bring people from all of the global offices together on a regular basis to not only get training, but to work together on designing new processes, sourcing materials, and solving problems. By working together, your employees will begin to truly understand each other and build an organizational culture that everyone can buy into.

#2: Complexity

Your supply chain is global, and so is it’s complexity. This presents significant complexity for your supply management team. Who do you source from, when do you source it, how do you transport it, where do you store it, and how do you do it in such a way as to get the most value?

The answer to these problems is sophisticated modeling and optimization technology that allows you to capture all of your various costs and constraints and determine the best scenario to meet the organizational needs.

#1: Visibility

Where’s your stuff? Why? How are your suppliers doing? Are you sure?

In today’s global supply chains, not only do most buyers not know where their products are between the time the product leaves the supplier’s factory and reaches the buyer’s warehouse, but most buyer’s don’t know what risks their products are facing. Are they being temporarily stored at an insecure facility? Is the carrier using routes through zones at high risk of natural disasters?

However, an even bigger problem is that many suppliers don’t know very much about their suppliers beyond the quality and timeliness of goods received. What’s their financial situation? Do they use environmentally sustainable processes in the production of their goods? Do they adhere to fair labor practices? A supplier who goes bankrupt unexpectedly could shut down your production line. Suppliers who do not use sustainable processes are not only not environmentally friendly, but in danger of being uncompetitive should harsher environmental legislations be enacted. Suppliers who do not adhere to fair labor practices could cause you a media nightmare.

The solutions to these problems are supply chain visibility solutions and research before you choose a supplier or a carrier. Be sure to use a supplier risk assessment solution, such as the solution offered by Austin Tetra or Open Ratings before contracting with a new supplier for an important part.

The Top Three I: The Big Bad Blogger Throw-down!

It’s been a while since the last cross-blog series, and a long while since the last big cross-blog series – last summer’s Sourcing Innovation series that ran for thirteen posts, crossed seven blogs, and engaged eleven different authors – but the wait is over! Today I’m pleased to announce that a new cross-blog mega series is starting – “The Top Three”.

In this series, which will run for the next two weeks, your favorite sourcing, procurement, and supply chain bloggers and guest bloggers, including a few of the Enterprise Irregulars are going to discuss the three issues in the sourcing / procurement / supply chain space that they perceive to be the most critical as well as a discussion of why the issue is important, what a company can do about it, and what could happen if it’s not addressed.

Current indications are that this is going to shape up to be a great series! So far, I’ve received confirmations from over twenty authors that they are going to participate, including a few on the periphery of the space, and I’m hoping more will jump in as the throw-down escalates! As a side-note, I’ve invited almost sixty different bloggers, guest bloggers, and prominent individuals to participate, including every blogger I have indexed on my master blog list over on the Sourcing Innovation Website Blog-Roll.

By the end of the series, don’t be surprised if we finally have a good definition of what Supply Management 2.0 really is!

Earth Day

Today is Earth Day and you can find out what’s going on in your area by starting with the Earth Day Network. In the spirit of Earth Day, here’s the next post in my ongoing Green series.

A number of interesting news items have hit the wires since my last green post. The University of Edinburgh has built what it claims to be the first green supercomputer. Fortune published its list of ten green giants, including Honda (the most fuel-efficient auto company in the U.S.), Continental Airlines (for collaborating with Boeing to engineer more fuel-efficient aircraft), Suncor (for measuring the environmental impact of each project), Tesco (for promoting green thinking to its customer and calculating “carbon costs” for each item), Alcan (for investing in clean manufacturing), PG&E (for investing in renewable energy), S.C. Johnson (for continued elimination of pollutants from its products), Goldman Sachs (for its bold climate-change policy in investing), Swiss Re (for developing financial tools to deal with climate change risks), and

Hewlett-Packard (for its eco-sensitivity). And the Gaia Napa Valley Hotel and Spa Resort has gone green.

The green movement is still going strong. The Supreme Court has ruled that the EPA can regulate greenhouse gasses, Ontario is considering joining the U.S. greenhouse gas initiative, and Schwarzenegger is pumping up the green movement in. It’s also going strong in the real estate market – but in a more literal way. According to a recent article, the number of buildings with green roofs grew 25% last year.

On the technology side, a start-up by the name of Ecotality plans to produce a prototype of an apparatus called the Hydratus that produces hydrogen fuel, as it’s needed by a car’s fuel cell, from a reaction between magnesium and water.

Finally, congratulations to Oakland, the cleanest city in the US according to SustainLane’s government site. After all, It’s Not Easy Going Green which, in the case of Las Vegas, means not going green at all!