Daily Archives: September 17, 2009

Uh-oh … Looks like Chinese tire manufacturers are going to take a hit for health reform

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Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

In “U.S. Adds Punitive Tariffs on Chinese Tires” (NY Times), Edmund L. Andrews states that:

The tariff, which will start at 35 percent this month, is a victory for the United Steelworkers union, a crucial ally in President Obama’s health care overhaul.

and that

the decision signals the first time that the United States has invoked a special safeguard provision that was part of its agreement to support China’s entry into the World Trade Organization in 2001. Under that safeguard provision, American companies or workers harmed by imports from China can ask the government for protection simply by demonstrating that American producers have suffered a “market disruption” or a “surge” in imports from China.

It also looks like the Times has an editing problem. It’s not a punishment at all, unless you regard a penalty for mere success as punishment. The tariff isn’t connected to any misdeed by a Chinese company.

And the connection to health reform is rather tenuous. The union would continue to support reform even without this tariff.

At least this step is better thought out than former President Bush’s tariff on Chinese steel. That wasn’t connected to any misdeed either. Because the tariff applied to the steel only, and not to products containing the steel, it made it more efficient to build steel-containing products outside of the US. I don’t think this one will hurt the US car industry like the previous tariff hurt US steel fabricators.

It’s an unfortunate trend though. Rather than take the time to build a case against Chinese tire manufacturers on the normal grounds (dumping, safety violations, pollution) they took the lazy way out. There’s no way for the Chinese companies to defend themselves. The only response can be retaliation.

Dick Locke, Global Procurement Group and Global Supply Training.

When Will Organizations Learn That Complex Software Is Not Easy!

A recent article over on Procurement Leaders titled “software procurement blunder grounds vital military helicopters” has me fuming.

First of all, it contains the phrase “procurement blunder” when the blunder does not appear to be the fault of the Procurement department, but the fault of idiots higher up.

Secondly, it contains the statement that an organization should “cut costs by developing its own software“.

I guess I should step back a minute and summarize the article. The UK MoD (Ministry of Defense) purchased eight (8) Chinook Mk3 helicopters in 1995 from Boeing which were delivered in 2001 at a cost of £259 Million. As of 2007, they were still not deployable because they could not be flown in poor visibility or at low altitudes because they were missing key operational software. This software, which would only have cost £50 Million (which is only 2.5% of the purchase price of the eight helicopters), was not included in the purchase because the UK Treasury demanded the MoD cut costs by developing its own software.

This is just nuts in so many ways. For starters:

  • Over 90% of software projects fail to come in on time and on budget.
  • Complex software systems, especially operating systems, typically require thousands of man years to develop. Red Hat 7.1, which only has to operate a PC and not a complex military helicopter with dozens of systems and hundreds of controls, required about 8,000 man years of development effort.
  • Complex (operating) systems can only be built by senior developers, which, fully burdened (with salary, benefits, hardware, and software costs), will cost you about 200K / man year.
  • This says that 100 M (slightly more than £50) only buys you 5,000 man years.
  • Even if your programmers knew exactly what to do, it’s doubtful you could even match the market cost of an already developed system which is being amortized over a large group of buyers.
  • The only way the MoD could make the helicopters flyable was to spend untold millions stripping them down to Mk2a configurations, which also delayed their deployment for 2 or more additional years.

But, more importantly, you’re trying to save pounds by pinching pennies! That never works! It would have been much more logical to try and find ways to reduce the purchase price of the helicopters by 2.5%. For example, could the purchasers have worked with Boeing to help them execute more strategic sourcing projects to reduce Boeing’s cost in a savings-split? Could UK MoD manpower have been lent to Boeing? Since most purchasers believe in the old maxim that you can take 10% off of the cost of anything, how hard would it really have been to reduce costs by 2.5% to cover the software costs if Procurement was allowed to be creative instead of having to deal with idiocy pushed down from the top?