Monthly Archives: February 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 and Global Supply Training.

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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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All Outsourcing Contracts Should Include Benchmarking Clauses

A recent article over on SourcingMag.com that addressed “why vendors don’t like benchmarking clauses” got my attention, because I believe that, since you’re outsourcing for better performance, that all contracts should have benchmarking clauses to help insure that you get that performance. So I read it, and then discovered that the “benchmarking clauses” being referred to were not really performance benchmarks, but market-cost benchmarks. All these types of benchmark clauses do is exert constant price pressure on the vendor and, as the author notes, create a lose-lose situation for the vendor. And that’s not good.

It’s one thing to expect a vendor to improve performance year after year, and you should, but another to expect them to lower their price every time their competition lowers prices. After all, the competition might not be as good or might not be as familiar with your business, and, therefore, might not give you the same value. Moreover, you should be content to pay whatever price you agree to on day one provided the vendor continues to deliver value. And as long as the vendor improves year-over-year with shorter responses times, higher throughput per FTE, better processes and technology, etc. that vendor is delivering value.

So go ahead and put a benchmark clause in your contract that not only requires performance reviews on a regular basis but reasonable year-over-year improvements as well, because you should expect that. But don’t try to cheat your vendor out of a fair price for services rendered. Not only do they have bills to pay too, but they won’t be very incentivized to beat expectations and get you to best-in-class as soon as possible if all you do is nickel-and-dime them.

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iValua: Tackling End-to-End Sourcing And Procurement, Part II

In my last post, I described how iValua, a ten year old French software and solutions company, has one of the broadest supply management suites on the market today. From RFX to payment, the majority of the key steps in the sourcing and procurement cycle are covered in one of iValua’s many solution modules. And while it is true that most of the modules aren’t very deep, it’s also true that many small and mid-sized companies, and even some of the larger Global 3000’s that don’t have that many complicated buys, don’t need deep functionality where sourcing and procurement is concerned. Over thirty of France’s largest companies use the solution, including Air France Industries, La Poste, and Arcelor Mittal, the largest steel company in the world.

In this post, I’m going to describe some of the capabilities of the product in more detail. But first, some global capabilities. The platform, which is built on .Net, is delivered via SaaS through your browser. As a result, it is accessible anywhere. Many of the screens are built using a widget-based architecture and, like dashboards, the layouts are customizable by each user. The user can sort by, show, and hide any column of any table. Quick search and advanced search is available for every screen (and table), a navigation history is maintained for quick back-tracking, and the user can customize a favorites link for quick access to specific screens and reports. Finally, all data can be exported to Excel and all supported objects (bids, contracts, purchase orders, invoices, payments, reports, etc.) can be imported from Excel as well.

But the best platform-wide capability is the ability for the platform to be integrated to any ERP, Database, or external data source (due to the existence of appropriate abstraction layers in the platform). Before iValua decided to become a provider of a SaaS supply management platform, they were a custom software development shop. As a result, they had deep development skills and broad experience with a number of platforms. Thus, when they decided to focus on supply management, they were able to do custom integrations for each client. Now that they have over 100 customers, they have integrated with almost every major ERP and Relational Database in France, most of the major ERPs and Relational Databases in Europe, and some of the major ERPs and Relational Databases in North America. If they haven’t integrated with your environment yet, it probably won’t take them long to do so. Plus, using their partnerships with Bureau Van Dijk, D&B/Altares, Vigeo, and EcoVadis, they can enrich your supplier related data when they pull your data in.

Sourcing

Sourcing starts with the definition of a project. Once basic information is defined (type, process, owner, dates, and scope), the owner can define a team, create a message center, define currencies, outline a schedule, and keep track of relevant documents. Then the user can invite suppliers, create RFXs with selection and evaluation criteria, track responses, save analysis, create awards, and create an implementation plan. RFXs and Auctions support multiple lots and multiple rounds and the buyer can determine whether or not suppliers can see bids, whether or not the bids are displayed anonymously, and when they can see the bids.

Procurement

In addition to requisitions, budgets, purchase orders, expense reports, invoices, goods receipts and recurring receivables, the procurement application supports catalog-based buying. The system can be integrated with any EDI, XML, or punch-out catalog, which can be augmented with user-defined items (which could include custom items or services defined in contracts). The expense reporting module supports p-cards, advance requests, standard expense, and travel expense reports. In addition, a supplier evaluation form can be attached to every purchase order (in addition to every award and contract) and reports can be run at the purchase order level, award and contract level, and global supplier level.

Reporting

They have a very extensive reporting tool that allows you to look at data over the time periods of your choice (daily, weekly, monthly, quarterly, or yearly), in the organizations of your choice, in the spend category families of your choice, for the suppliers of your choice, along the dimensions, or axes, of your choice in a wide variety of tabular and graphical formats. Basically, the application builds a master spend cube and allows you to view any sub-cube, or sub-cube summary of your choice. While it might not allow you to do arbitrary spend/data analysis, it will more than satisfy your average procurement professional and manager. (And you could always augment the suite with off-line analysis for your senior analysts if you needed.)

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With Global Trade, Training is Only the First Step

A recent article over on Supply Chain Brain by Wayne Slossberg of QuestaWeb on what can global trade management technology do for importers and exporters made a great point when it noted that with regard to the complexity of global trade, training is only the first step.

Keeping up on the latest requirements and regulatory changes looming on the horizon is one thing, but you have to do something about it. After all, there are now 106 discrete steps to global trade in the average transaction, and things are probably only going to get worse before they get better. And with the 10+2 Importer Security Filing now a requirement, and massive fines looming for those who do not comply, a single mis-step can be financially devastating.

You need tools to manage global trade, and spreadsheets (which are costing you billions) are not the answer. They never were, and never will be. You need a platform. Moreover, the savings will pay for itself. I could understand not wanting to be an early adopter, but this is a relatively mature technology now and there are a number of Global Trade Companies with products that can help you. There’s no excuse to wait any longer.

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