Daily Archives: February 12, 2010

Buying Across Borders … How Hard Could It Be?

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.)

Professors Hausman and Lee of Stanford University have written a paper titled How Enterprises and Trading Partners Gain from Global Trade Management: A New Process Model for the US-to-China Trade Lane. (Free registration required.) It’s been getting a lot of attention on the supply management blogs.

In the paper, they present a flow chart of 106 process steps needed to identify a potential supplier and to place, receive and pay for a cross-border order. One hundred and six! Wow! How can a two-day purchasing training program cover that? Well, I dug into their flowchart and here’s what I found:

  • Six steps are ‘optional’ and are mainly error checking and correction
  • Thirty-one are necessary for domestic transactions as well as international transactions. They cover issues such as issuing a PO, counting the goods and putting the goods into stock.
  • Seventeen are only necessary if the buyer is using letters of credit. (Shame on those buyers.)
  • Seven are only necessary if there is special “trade financing” arranged through a bank or other lender.
  • Fourteen are very specific to China. The supplier executes all of those steps.
  • One only applies to quota goods
  • One only applies to specific consumer products

That leaves 29 steps that apply to all global transactions and wouldn’t be needed for a domestic transaction. The supplier executes seven of them, and the buyer or the buyer’s agent executes 22. The training aspects seem much more manageable than the 106 step statement implies. Actually, most of those process steps are executed by a freight forwarder and a customs broker. Training for buyers mainly consists of explaining what those companies do and what an appropriate standard of service is.

I also noticed that the chart completely neglects one very important issue: Exchange rate risk protection. That will require close coordination inside the buyer’s company. They probably left it out because the yuan is pegged to the US dollar. Overall, I wasn’t very impressed with the chart. The overall paper extolled the virtues of a Global Trade Management system. That’s a good idea for any company with significant international purchasing.

Dick Locke, Global Procurement Group.

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HBR’s Breakthrough Ideas for 2010 are Good for Your Supply Chain, Part III

The Harvard Business Review recently ran a great article on Breakthrough Ideas for 2010. While many of the ideas aren’t new (as a few can easily be traced backed decades), for many, their application would be. But more importantly, their application could fix a lot of problems in the world today.

What really struck me was how they all had good supply chain equivalents that could help you revolutionize your supply chain. So, in this post, I’m going to tackle the last three ideas and explain how their supply chain equivalents are ideas you should strongly be considering if you haven’t implemented them already.

  1. Hack Your Way to Innovation.
    Thinking outside the box doesn’t help if what you really need is a sphere. If the current system isn’t working, you need to fix it. If you’re not sure how, then hack at it piece by piece, keeping what works and throwing away what doesn’t, until you get the results you need. After all, this kind of work-around isn’t new–your company has been hacked from the inside for ages. What is new is that the cheat codes are becoming public, and there’s nothing you can do about that. There’s only one successful strategy for a hacked world: If you can’t beat ’em, join ’em. Change the debate within your company to leverage what your hacker employees know.
  2. Apply a Bubble Model to Every Industry You Do Business In.
    As every major market has demonstrated during the last decade, there’s sustainable growth, and then there’s a bubble … and when you start treating a bubble like sustainable growth, you are headed toward a supply chain disaster. Now, while it might not be possible to predict every bubble, and definitely won’t be possible to predict with accuracy precisely when a detected bubble will burst, research coming out of the National Bureau of Economic Research and behavioural finance studies suggest that you can identify bubbles as they form with significant accuracy. Then you can take steps to increase measurement and monitoring and decrease production cycle time to allow you to quickly alter projections and plans as you approach a likely burst point. At the very least, this will prevent you from getting stuck with millions of dollars of inventory. It will also keep morale high as you’ll make more informed staffing decisions and avoid adding headcount you’ll have to lay off later.
  3. Take Business Organization Lessons From Hong Kong.
    Just like too many countries are stuck with rules that slow down inflows of technology, prevent successful urbanization, and stifle personal ambition, too many companies are stuck with processes that slow down inflows of technology, prevent successful adoption of innovative applications, and stifle professional growth.
    As the article points out, you start by launching an anonymous corporate division to act as a Center of Excellence (it could be one-in-the-same with the R&D lab in the beginning). You start with a charter that lists the rules that will prevail in the company to come and allocate space (land), employees, and resources. Assign only staff that want to be part of the COE, accept the charter, and bring with them a vision of the great company to come. They will invest not only their time, but their energy, experience, and education in the location of best-in-class technologies, processes, strategies, and paradigms that will ultimately make your organization a better place.

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