Daily Archives: May 29, 2009

Are Today’s Global Sourcing Objectives Really Disparate?

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A recent article in Industry Week asked if today’s five disparate global sourcing objectives present a conundrum. These days, global sourcing organizations need to:

  • be efficient and innovative,
  • master balancing insourcing, outsourcing and captive offshoring,
  • minimize risk while maximizing savings,
  • transition quickly with minimum disruption, and
  • accelerate results without a learning curve.

And some people might be tempted to argue that you can’t be efficient and innovative, that you can’t minimize risk while maximizing savings, that you can’t transition quickly without causing disruption, that there’s always a learning curve, and that you can’t insource and outsource and get results.

But one can also argue that true innovation increases efficiency, that true long term savings come from good risk mitigation, that good planning allows a quick transition with minimum disruption, that a learning curve can be minimized with a good training plan, and that you can insource and outsource by looking at functions, and not business departments.

In other words, it’s only a conundrum if you make it one.

Dick Locke On The Yin-Yang of the Business Universe

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Editor’s Note: This is Dick Locke‘s first post as a regular contributor on Sourcing Innovation. (His previous guest posts are still archived.) Dick, who has delivered seminars to over 100 companies across the globe, is a seasoned expert on International Sourcing and Procurement who wrote the book.

Steven Guth proposes that “Procurement pros should be in sales“. He
implies, but never quite says, that procurement pros should have sales
skills. That’s right on. I’ve been there, done that and even got a
tee-shirt. Sales skills are essential, especially if you are in a
corporate central group that is outside of any profit centers.

Here’s the situation. I won’t mention the company name, but I hope
people will figure out who it is. They had a Corporate Procurement group
of which I was a part. I received an assignment to start up International
Purchasing Offices (IPOs) in Asia back in the mid 1980s. Funding those
offices quickly became an issue. It had been an issue all along for the
Corporate Procurement Group, with big annual negotiations and
discussions about how much each profit center would pay to fund the
corporate group. Now we wanted to add more people and expense for an
unproven new function. They might as well have painted a big target on
our backs.

The funding solution we came up with was that we had to generate our own
funding and using us had to be voluntary. That meant we had to charge
our users a fee and that we were in competition with two other groups.
One was reps and subsidiaries of (largely) Japanese and European
companies who had set up a sales subsidiary structure in the US. The
second group was our own company’s buyers and purchasing managers in
profit centers who felt they could source, purchase from, and manage
overseas suppliers themselves.

We realized we had to not only charge less than what sales subsidiaries
charged but also less than our profit centers felt it would cost to do
it themselves. We came up with essentially a sliding scale of markups on
purchase orders. Small users might pay as much as 5%. Large users might
pay less than half a percent.

I’m glad to say it worked. The operation was handling more than a
half-billion dollars per year in orders when I left. That’s not to say
there weren’t, err, “learning experiences.” One of our big issues is
that we had selected employees for their purchasing and engineering
skills, and not for their marketing skills. It required a tune up for
several of our people, not excluding me. It took about three years to
become fully self funded. If we had avoided some mistakes we could have
shaved about a year off that time.

It had some very pleasant side effects. We essentially were running a
small business within a big corporation. Our people got lean,
entrepreneurial and very customer-oriented. We quickly developed an
antipathy to bureaucracy. We became really efficient. It also took us out
of the annual budget battle and the annual exercise to calculate what we
were saving. (I refer to that as “lies, damn lies, and purchasing
statisitics.”) We merely had to state that we received x number of
purchase orders per day from people who didn’t have to use us and were
paying us for our services. That kept management happy nearly all the time.

Where is this model applicable? In companies where there is a lot of
independence on the part of profit centers, a center-led purchasing
effort, issues with funding the central department and finally where an
internal department can develop and market an advantage over their
competitors. Check it out, it may be right for you.

Dick Locke, Global Procurement Group.

Welcome to Sourcing Innovation, Dick.