Monthly Archives: June 2007

Global Operations Model Building

Accenture recently released a short paper on how to build a successful global operations model in which they described six key capabilities that are required for a winning global operations strategy that is worth a quick review.

The article notes that bringing together the worlds of product, market growth, and operations strategy is a prerequisite to success in both new and existing markets because it ensures that operating models meet both needs. … A holistic approach to a global operations model, one that addresses and integrates all aspects of global operations, is crucial.

Although there is no one-size-fits-all approach, six key capabilities serve as a foundation for every successful operations model.

  • a globally integrated sales and operating planning process
  • a procurement, manufacturing, distribution, and R&D network
  • tight links with customers and suppliers that achieve visibility
  • logistics partnerships to ensure efficient and time-effective market sourcing and penetration
  • effective supplier recruitment, certification, and alignment programs
  • a go-to-market strategy for emerging markets

The article also notes that the strategy can be different for different markets and different products. It points out Zara as an example which primarily uses on-shore manufacturers for the production of its fashion lines that change rapidly and off-shore manufacturers for basic products, like T-shirts and underwear, where fashion trends are stable and change rarely.

Furthermore, defining the operations model initially requires a careful consideration of the trade-offs as well as the identification of gaps that a new model will need to address.

In short, success isn’t just picking a single buzz-word, strategy, or discipline, but taking a holistic view of your supply chain and insuring that each core function is appropriately addressed.

JLP Responsible Sourcing Part I: Introduction

Back in February, the John Lewis Partnership released the Responsible Sourcing Supplier Workbook that I’m betting was downloaded by most of you who knew about it, being the good little socially responsible citizens that you are, but not read – since you opened it up, saw that it was 80 full pages of dense material (as it wasn’t written in the Big – 5  take – a – six – page – white – paper – and – turn – it – into – a – twety – pager – by – using – lots – of – white – space – and – pictures style), and put it away for later when you had the time (which, of course, never materialized).

However, it’s too important to ignore – so I’m going to help you, dear reader, by summarizing the key points in a series of twelve short and to-the-point blog entries over the summer that cover the main points on a more-or-less section-by-section basis. Then, you’ll not only know what’s in the report, but what sections are key for your organization.

You can thank me by leaving a comment that states

  ( 1 ) how much you appreciate the educational focus of this blog and

  ( 2 ) that you hope to be able to continue reading it everyday* to tell my prospective sponsors that you really do exist (and that this is a valuable place to invest those community dollars) and that the ever-increasing bandwidth utilization reported by the hosting service I use isn’t just a figment of their imagination**). Furthermore, if you haven’t done so recently, you can fire off an e-mail and tell all if your colleagues about all the great blogs you read in, and around, the procurement and sourcing space and help us innovative bloggers prove that it is the blogs, and not the stale trade rags, that define where it’s at.

The JLP believes that responsible sourcing is about ensuring the people that make and supply the products they sell are treated fairly and with respect. This covers a number of issues, including how much they are paid, how long they work in a day, whether the workplace is safe, their ability to voice concerns to management, and the environment in which they work.

According to JLP, responsible sourcing is important because it’s good for your business and because it’s good for your relationships with customers. Contented workers are more productive (as evidenced by the included case study of a Sri Lankan garment manufacturer), unnecessary costs (from accidents, work stoppages, lower productivity, etc.) are reduced, risk to reputation is significantly reduced, and you have a much greater chance of meeting your customers’ expectations. (This last point is crucial when over 90% of consumers believe that retailers should ensure their products are manufactured in a fair and humane way.)

Furthermore, a responsible supplier adheres to a Code of Ethics and a responsible buyer insures that each of it’s supplier adheres to the Code. The JLP Code, which is a great start, states that:

Suppliers are expected to:

  • establish management systems for executing compliance
  • task a senior manager with the responsibility for ensuring compliance
  • maintain records that demonstrate compliance
  • communicate the code, and its requirements, to all stake-holders, be they internal or external
  • take steps to ensure their suppliers and sub-contractors comply with the Code

Suppliers are to comply with:

  • all applicable laws in the countries in which they operate and all relevant ILO (International Labour Organization) conventions
  • all policies in the Responsible Sourcing Code

In our next post, we’ll tackle the first major issue addressed by the workbook, the employment of children.

* The harsh reality is that a professional blog with an educational, analytical, or business focus with a high-frequency of publication is not sustainable over the long term unless it is directly or indirectly revenue generating for the blogger (unless the blogger is independently wealthy or has an unnatural gamer’s ability to go seemingly forever without sleep). It’s the most likely reason why so many (potentially) great blogs have (almost) disappeared over the last year. (And since I’m not going to expose you to ads, collect your information for resale to targeted marketing lists, merchandise, or turn this into a purely pay-to-play endeavor, as there are enough of those out there already, an open-sponsorship mode, following in Spend Matters‘ footsteps, is really the only way to go.)

* This blog is now averaging around 3,000 hits a day and close to 1,500 unique page views and traffic is still increasing steadily (and we are talking whole percentage points every week).

Confusing Times for Oompa Loompas

Cadbury is trying to become synonymous with the color purple, dry weather has harmed the development of cocoa crops in West Africa, and this could lead to a global deficit of 145,000 tonnes, and Bioversity International has begun a new project on sustainable and organic farming in a remove area of Nicaragua to improve future yields. This follows recent news that Hershey is closing its last Canadian factory, that they have to compete against individuals selling marijuana-laced chocolate candy, and that they also have to add desert chocolate to their repertoire.

I don’t know how they keep it all straight – but at least we won’t be surprised when we start seeing synthetic marijuana-laced cocoa-free purple chocolate made using 100% sustainable practices.

Innovation is Relative

A recent CRM Today article, which quoted Gartner, noted that Emerging Markets are Increasingly Driving Global Innovation, that developing nations are adopting innovation and technology faster than mature markets, and that China and India are innovating at a faster rate than ever before. But the title misleads one about the truth, which becomes somewhat clearer in the article, that this innovation is relative to their current state of development.

For example, the article notes that in highly constrained environments, which might include poor infrastructure and low affordability, there is an acute need for products that can serve the local market better, rather than products designed for the developed world. For example, mobile phones which require less power and have built-in connectivity, are more suitable for emerging markets than PCs. They are also cheaper than PCs and more adaptable to the emerging market environment. Gartner predicts that mobile phones will outnumber PCs by a factor of 15:1 in developing markets by 2010.

Furthermore, even though China and India have the ambition to lead the IT industry in the global market, as the article notes, India is still lacking in infrastructure and China still has huge cultural barriers to overcome. As I noted in Can China Be Innovative?, a huge obstacle is the nature of China’s educational system, which stresses conformity and does little to foster independent thinking. This is also a country where new product development is equated equal to copying something someone else does, but doing it slightly cheaper and / or using a new color. Furthermore, as I pointed out in Is Low Cost Country Sourcing to China Really Innovative?, even though media reports in 2004 indicated that China produced 600,000 engineers compared to the 70,000 produced by the United States, more than 290,000 of the Chinese degrees were subbaccalaureate and studies by organizations such as the McKinsey Global Institute have indicated that multinationals find that less then 25 percent of the graduates are employable which indicates that the number of employable graduating engineers in China from a multinational perspective is roughly equal to the number of employable graduating engineers in the U.S.

So even though I can understand Gartner’s prediction that by 2015, IT engineered for developing economies will drive 20 percent of disruptive IT innovation worldwide, I will only agree if innovation is taken in a context relative to the local economy. In other words, I think China, India, and other developing nations, with their huge appetite, will increase their rate of innovation, to the point where they may even exceed the rate of North American and European innovation, but that innovation will be relative to where they are today and that, as such, they can not be banked on as sources of innovation for our developed economies. Not to say that they won’t stumble on a few breakthroughs along the way that will really help us out, just that I wouldn’t bank on it.

Smock on Sourcing Strategy

Sourcing strategy is a mental chess game that leaders play before going to market. It’s about understanding what you really want to get from the supply base, analyzing the potential suppliers, and then deciding how to approach the market with the chosen suppliers. Technology can help in this effort. The key is to choose the tools wisely and use them well.
   Douglas A. Smock, Robert A. Rudzki, & Stephen C. Rogers
     Supply Chain Management Review, May, 2007

Last month, Douglas A. Smock, Robert A. Rudzki, & Stephen C. Rogers authored a great piece on Sourcing Strategy – The Brains Behind the Game over on Supply Chain Management Review that should be considered a much-read.

The author’s note that seasoned supply professionals … recognize that technology tools- and their application to a retuned supply base in search of “on-demand” value- revolve around applying electronic and Internet-based tools to the classic strategic sourcing process on various “spend pools” or categories. Important: The process, not the electronic tool (e-tool), is the key to ongoing value mining.

Strategic sourcing is an ongoing effort to accomplish three things:

  • To understand
    the analysis of markets, suppliers, internal capabilities, needs, competitors, and industries : Understanding Leads to Strategy
  • To decide
    the tactical “go-to-market” part, which is often confused with strategy-determination of which tool to use, e.g., request for proposals (RFPs), auctions, online negotiations, face-to-face interaction
  • To manage
    perhaps the toughest to accomplish in a world in which the rules are not constant and the targets and scoring systems are changing as the customer expectations of value and the competition’s actions shift

Furthermore, understanding suppliers within key supplier industries- especially suppliers that are or could be strategic to a firm-is important. Taking supplier relationships to a higher level is a seminal factor in becoming an on-demand enterprise. Face-to-face personal interaction is critical in “knowing” suppliers, but having a way to monitor a supplier’s overall corporate situation is equally vital. And, understanding why things happen with suppliers the way they do means understanding where the vital points exist in the supply chain and who has power over those pivotal points. This effort requires thinking skills.

Although it’s quite long for a magazine article, it’s well worth the read as these are just a few of the insights it offers.