Monthly Archives: January 2011

Another Reason to Source Close to Home

According to this recent article over in eyefortransport, maritime privacy costs [the] global community up to $12 Billion a year (with excess insurance costs alone eating up to $3.2 Billion). In addition, at the end of 2010, around 500 seafarers from more than eighteen countries were being held hostage by pirates, despite the fact that over 238 Million in ransom (including a ransom of 9.5 Million for a South Korean oil tanker) was paid to Somali pirates last year. Ouch!

Furthermore, despite the facts that navy presence (from more than thirty countries) has reduced the rate of successful hijackings, pirates have doubled the number of attacks and expanded their range. In addition, even though merchant seafarers deserve our protection, 85% of pirates pursued and captured end up being released because the countries who catch them don’t have the jurisdiction to prosecute. And over 2600 seafarers have been held hostage in the last three years alone. The 19th century belonged to the mafia. The 20th century belonged to the mob. Looks like the 21st century belongs to the new pirates. Is the risk to life really worth sourcing lead point toys and melamine milk from global destinations?

Low Cost Country Sourcing Is Not a Magic Bullet

As per this recent article in CPO Agenda from the Boston Consulting Group on how you reap what you sow in low cost countries, not all industries are gaining the full benefits of sourcing from best-cost countries. Sectors with highly complex products or stringent safety requirements … are finding that most suppliers in developing economies fall far short of the quality standards and process excellence of suppliers in the developed world –and that the risks of using sub-standard inputs far outweigh any potential cost savings. More importantly, a problem with just one of a product’s parts or ingredients can lead to recalls, PR nightmares, and brand erosion –all of which extract an extremely high cost that significantly exceeds any savings the organization had hoped to extract.

However, if the right choice is made, which must take into account manufacturing flexibility and economic density (which Dick Locke elaborated on in his posts last week), and the right amount of effort is put into making low-cost country sourcing work, significant and measurable benefits can be realised. But it will take more than a few RFXs and a site visit or two to make things work, because an organization can’t just transfer home-country quality systems and processes to offshore production facilities as low-cost country suppliers often have different capabilities (and equipment). Everything will have to be customized (or redone) end-to-end to get good results. That’s why most attempts have failed (and why most companies with plants in low-cost countries still source raw materials and components from foreign suppliers, because they haven’t figured out how to get quality from local suppliers).

So, assuming the organization has chosen the right low-cost country and right supplier(s), how does it go about extracting quality and reliability? It starts with an appropriately devised supplier development program that will increase the capability and reliability of its suppliers. According to the Boston Consulting Group, such a program must:

  • Target a Small Number of Suppliers
    as the organization won’t have the resources to support a large supply base
  • Focus on What Matters Most
    as there will be a lot of problems — perhaps an overwhelming number — but not all will be critical
  • Align the Organization
    because supplier development must live within Supply Management, not Quality Control, as only Supply Management can take the business away if suppliers don’t shape up
  • Choose the Right Development Approach
    according to the supplier’s level of motivation, capability, and cultural style; the organization may be able to get away with a “check-in” approach, may need to escalate to a “SWAT team” approach, or may need to put a dedicated team on site (see the article for details)
  • Engage and Motivate Target Suppliers
    and align penalties and incentives
  • Have a RoadMap
    and make sure the approach to implementation is defined, disciplined, and followed
  • Measure and Track Results
    because follow-through over the long term is critical

These are all good tidbits of advice, but the most important thing is to make the necessary resource commitments to a long-term supplier development effort because, despite what the article may imply when it says that an organization can see measurable benefits in as little as six months, it will generally take an average organization years to realize the desired benefits.

When it Comes To Transportation, North America is Getting Further Behind by the Day

Why? Because, if you ask a random North American what the fastest mode of travel is, he will say “plane” and when you ask him what the slowest mode of travel is, he will say “train”. And now that “safety regulations” require an average traveller to be at an airport at least 90 minutes before takeoff, if not two hours, when you add that to time on the tarmac and waiting for luggage at the other end, an average trip is at least two to three hours longer than flying time.

In comparison, you can get on the train, sit down, be moving in ten minutes, get off, and go. And if the train moved as fast as a plane, it would be faster. Much, much faster. And there’s no reason that it shouldn’t be. China has High Speed Rail (HSR) that travels at speeds up to 270 mph (the Maglev line in Shanghai, while the Harmony Express goes 250 mph). And now China is spending 745M US on domestic HSR expansion to build 19,000 miles of railway over the next five years.

And China is not alone in High Speed Rail. Japan has been doing it for years and Taiwan is also a big supporter. And it is not just Asia. HSR is also big in Europe. Germany has at least 10 lines that go 250 km/h or higher and HSR is spreading across Europe.

And now there is talk about a HSR line between Beijing and London that would go through Paris, Berlin, Warsaw, Kiev, St Petersburg, Moscow, Yekaterinburg, Astana, Irkutsk, Ulan Bator, and Khabarovsk and get passengers to their destination in a mere 19 hours.

Just imagine what HSR could do in the US. At 250 mph, Bangor (Maine) to Los Angeles (California) would only take 11 hours. If these lines could do people or cargo, there would be no need for internal air travel, or for inter-regional truck transport. After all, flying time (which requires at least 1 connection) is 8 hours and adding in airport wait times, it’s much more than 11 hours.

But the US, like Canada (who probably can’t afford it since only a few cities have enough population to make it worth while), won’t even think about it. As a result, Europe and Asia are going to get an edge while North America falls further behind.