Daily Archives: August 29, 2011

Is “Low-Cost Country” Inflation Driving Manufacturing OnShore?

There’s a lot of noise out there about how inflation may be forcing manufacturing back on-shore (to South America, Mexico, and even the Good Ol’ USA), but how much of it is noise and how much of it is (about to become) reality. Leaders want to know, and so does the Hackett Group.

As a result, the Hackett Group has just launched a new complimentary study designed to assess whether inflationary pressures are driving manufacturing out of China, India, and other low-cost countries. It is trying to answer the relevant questions, which include:

  • What impact are rapidly changing cost drivers having on manufacturers?
  • What strategies are manufacturers using to offset these costs?
  • Are manufacturers bringing production closer to customer markets?
  • What are the critical success factors for optimizing the supply chain footprint?

The study is open until September 16 (2011) and all participants will receive a free copy of the research report and an invitation to the presentation of key research findings. As always, responses from individual participants will remain completely confidential and will be used only in combination with those of other study respondents to develop a composite picture.

The study on Optimizing the Supply Chain can be found at this link.

Procurement Mastery in 2015

While far from a complete picture of what Procurement Mastery will look like in 2015, Accenture’s outlook for 2015 in their recent Compulsive Contributors report, identified three areas of emerging excellence which are among the foundations of Procurement Mastery for any organization that wants to make it to Next Level Supply Management. In brief, they were:

  • Excellence in Risk Management
    Disruptions are becoming more common by the day as supply chains increase in length and complexity. If there was ever an appropriate use of the term “the new normal” (there isn’t, by the way), this would be it. Masters have to be very adept at identifying, predicting, detecting, and mitigating risks before they turn into full blown, costly, disruptions.
  • Closed Loop Spend Management
    Leading Procurement organizations work closely with finance, manage supply and demand, and “close” the loop on the end-to-end spend cycle.
  • Analytics
    Using data to understand what you are spending, with whom, on what, from where, what is being obsolesced before it is used, and what might not even be needed in the first place. Using data to understand supplier performance. And using data to predict what might happen next. The masters will embrace, and get value from, predictive analytics long before the contenders.
  • A Transformed Workforce
    There is a talent management process in place that manages the full lifecyle, from recruitment through development to retirement. And the caliber of the talent, as a result of this program, is above the norm.

Risk Detection Can Not Be Automated

No matter how many impressive white papers, including this recent one on Uncovering Surprising Supplier Behaviours Creating Organizational Risk by Atlantic Software Technologies, Inc. (an IBM Software Value Plus Business Partner). This white-paper recommends automation of inbound data classification to expedite throughput because automation of this function enables the organization to redeploy up to 40
percent of staff while increasing processing throughput as much as threefold
. This is important because one cannot assess the true business value of a supplier relationship unless one understands his or her own personal relationship with the supplier. And, in order to really get a handle on the quality of the relationship, an organization has to
be able to collect and analyze data points from the multiple impact points throughout
[its] supply chain, both internally and externally, not just the ones that are easily visible
and retrievable

This is true. And, as the paper points out, if one does not understand the nature and quality of the relationship, one may never know that:

  • a supplier delay, just communicated to one of your employees, will impact
    multiple customers
  • new international suppliers are being tapped to avoid single-sourcing risks, which
    might be causing quality risks
    , or
  • foreign nationals are handling sensitive information prohibited by export
    control laws
    (and this last risk could put an officer of the company behind bars).

But automating the processing and classification of unstructured data is not going to reduce risk. In reality, it’s going to increase risk. In a nutshell, here’s why.

Let’s say that external testing found lead paint on a children’s toy. If you’ve identified “lead paint” as a risk and set up a rule that alerts someone in Quality Control that a review is required, then you might feel you’ve mitigated the risk, as the document will come in, be sent to quality control, see that lead levels are present and well beyond tolerance, and tell Procurement to refuse the shipment. Problem solved. Right? Wrong!

What happens if the test was performed by an individual who speaks English as a second language, who trusts that all misspellings will be handled by Microsoft Word, and who mistypes “lead paint” as “led pant” in the report. Both are legal English words, and if you turn grammar checking off, Microsoft Word will not complain. Is the automated classifier going to catch this? Not likely. While you may remember to program in one or two misspellings, like “led paint”, or an abbreviation, like “ld pnt”, you are not going to come up with every possible misspelling, and you’re not going to want to because, if you include too many, you’ll get a lot of false positives (and misclassifications). If this is a product where tolerance is 0, and the test results are not acted on in time, not only could you be stuck with a multi-million dollar inventory that can’t be sold, but if a product makes it onto shelves, gets bought, and someone gets sick, that’s a lawsuit that could cost more than what it cost to develop and manufacture the first batch of products.

Now, there’s nothing wrong with deploying such technology to scan documents to look for documents of interest that should be reviewed, but it should not be the foundation of any risk management strategy. Good risk management entails identifying relevant risks and having a mechanism for anyone to report when a risk of interest may be materializing. Then someone knowledgeable about the risk reviews the situation and makes the call.