Daily Archives: February 28, 2011

Don’t Go Gaga Over Global Trade Numbers

Global Trade may be growing, but it’s not growing as fast as the WTO wants you to believe. You have to take the long term view. Global Trade may have increased 13.5% last year, but this followed a year where it dropped 12.2%. Just like an elastic will snap back when released, it is only logical to expect that global trade would snap back to pre-recession levels once the world, and the US in particular (which alone controls 25% of Global GDP) started to work its way out of the recession. And that’s all it did … snap back. (If it was at 100$, and it dropped by 12.2%, then it was at 87.8$. If that increased by 13.5%, the net result would be 99.65$.)

With more and more companies trying to go global and join the outsourcing economy, and with more and more hi-tech manufacturing shifting overseas, it’s only logical to expect that global trade will continue slow, steady growth whether it makes sense or not, but we’re not going to see exponential expansion anytime soon. As a result, while Global Trade Management software (GTM) sales will pick up in the US where advance filing, denied party lists, and other requirements are making GTM almost impossible without software support, GTM software is not likely to see the same sort of increase in demand in other countries. (Security regulation is also increasing in Europe, but not at the rate it is in the US, at least for the moment.)

In other words, GTM is a solid investment for buyers and vendors alike, but don’t look for rapid growth predicted by the ARC Advisory Group, in this article on realizing global trade management potential, just yet.

How Should You Calculate Cost Reduction?

As per a recent article over on Supply Chain Digest on how there are many roads to the same goal when it comes to calculating procurement savings, there are almost as many methods to calculate cost reduction as there are people to do the calculations. And while some will be better than others, many, depending on one’s point of view, will be about the same from an objective (trending) viewpoint. This lead one to ask, independent of organizations and balance sheets, if there is one method, or a set of methods, that are arguably better than the rest of the pack.

Without a stick to measure against, there will be no way to judge effectiveness, so we will start by introducing a set of sticks, namely:

  • Objectivity:
    The calculation should be formula-baesd and (completely) objective, not based on subjective approximations.
  • Trend(& Benchmark)-Compatible:
    The calculation should be repeatable on a monthly, quarterly, and yearly basis and lend itself to the plotting and identification of trends.
  • Index-Based:
    Where market data is required, the calculations should be based on index data, not single supplier bids.

This says that, of the list of 26 methods of setting savings targets, from a recent CAPS survey that was printed in the article, the following six are probably more effective than the others:

  • annual sourcing effectiveness planning that identifies projected spend by commodity, region, etc. and then establishes savings opportunities from consolidated leverage, value engineering, negotiation, etc.
  • based on history and market intelligence
  • based on projected commodity price trends, demand growth, competitive pressure, etc.
  • “bottom up” approach based on projections of new purchases, expiring agreements, and pricing trends
  • historic performance and spend volumes (projected) against corporate overall cost targets
  • historical spend data, and CAPS Utility Industry and Cross-Industry benchmark data