Monthly Archives: June 2012

Who’s in Worse Shape? The USPS or Royal Mail?

According to this recent article on Accounting Madness in the Economist, Royal Mail has racked up a £10 Billion deficit in unfunded pension liabilities alone. Wow! The USPS, which is about $15 Billion in debt, only racked up 5 Billion in underfunded pension liabilities. And we thought they were doing well, as they saved over 300 Million pounds in the first phase of their Procurement Transformation and expect to save over 600 Million pounds in the second phase. Too bad they don’t understand that contingent liabilities are still liabilities and that, if ignored, will just come back to bite you in the thigh, repeatedly, like your friendly neighbourhood boghog.

Who came up with the National Accounts rules anyway? The pension liabilities of unfunded pension plans are contingent liabilities and are therefore not recorded as liabilities in the National Accounts or public sector finances. How can you count the assets, and say you have a £16.5 Billion Surplus, but not count the liabilities, especially when the reality is that you are in a deficit of £10 Billion? It’s just insane.

How much credibility would your Supply Management organization have if you only counted savings and not cost increases? Specifically, if you counted the $10 Million you saved on temporary labour on the balance sheet when reporting your successes to management but ignored the extra $20 Million you spent on oil because you didn’t lock prices in for the long term? Not much. Nor would it be wise to do so. Ignoring losses takes the focus away from where the organization, and cost management, should be focussed. It’s time for good GAAP to be accepted around the world, and, in particular, a GAAP standard that doesn’t allow such big gaps to go unnoticed for so long!

One Million, Nine Hundred Thousand, Six Hundred and Sixteen

One Million, Nine Hundred Thousand, Six Hundred and Sixteen words later (including the words in this post), or Three Thousand Two Hundred, and Fifty Five posts later (which does not count well over a hundred guest posts on other blogs) and Sourcing Innovation (SI) officially turns six. Although still not an extraordinarily long time in net-time, it is exceptionally significant in blog-time when the majority (in the 60% to 80% range) of blogs are abandoned within a month and a study of the top one hundred blogs in Technorati a few years back found the average life of an active blog less than three years!

Growth has continued, and as per last week’s post, SI is trending well above 125,000 visits a month, and the current trend indicates that SI is quickly closing on the 2,000,000 visits a year mark. (the doctor fibbed a little in last Sunday’s post when he said the graph was indicative of an average week. An average week actually has a few spikes in it these days, which pushes traffic close to, or over, 40,000 visits a week on average, as in the graph below.) And its reach on the search engines, and Google in particular, is still outstanding with almost 22% of visits coming from Google alone! (This means that traffic will continue to grow year over year. Why? The best SEO you can get is original content — and at almost 2 Million Words, SI is some of the best content there is!)

So stick around. SI is 24/7/365 and the best there is at Xemplification. Your Supply Chain will thank you. After all, it won’t be long before SI is legendary in the blog space!


60,162 visits in a week

Amazon is Not a Threat to Best Buy, but Amazon, Walmart, & Target Are!

Best Buy is having problems. It’s closing 50 stores and, according to some analysts, could close over 200 stores in the next few years. For some stores, the best they can hope for is that they are mistaken by Chuck’s enemies for a BuyMart in off hours and blown up so that they can at least collect the insurance payout. For others, they are going to find out what Circuit City found out when their circuits started frying.

Why is it having these problems? According to recent articles, including this one in Forbes which says that Amazon is Not a Threat to Best Buy, there is speculation that Amazon, and other big web stores that are offering the same brand name consumer electronic devices at greatly reduced costs are stealing sales and stealing Best Buy’s customers and profits. And while this may be the case for accessories (like USB drives), phones, MP3 players, and even netbooks and laptops, where shipping fees are small (compared to the total cost of the purchase), it’s definitely not the case for larger appliances and electronics product because:

TV profitability is minimal and getting worse online. Shipping costs go up, TV prices go down, and accessories are hard to sell online. This does not make for a profitable business. We continue to believe third party sellers are not selling big ticket on Amazon like they were because they are losing money. Some categories remain great, like cameras and headphones, but ultimately, pick up in store to avoid shipping will work and only become more prevalent post the sales tax arbitrage is over.

Unless I want a previous generation big-screen HDTV and can get a kick-ass clearance deal, I’m not ordering a TV online because the shipping charges will probably be $100 or more, and if something is wrong with the TV, I might have to pay the same again to send it back. It’s not worth saving $50 on the purchase price if I have to pay $200 in shipping. And while the average consumer might fall for a red tag sale where you inflate the base price so you can take 30% off instead of 10%, they’re going to see the grand total and also balk at an online purchase of such an item.

However, this doesn’t make the case for buying that new big-screen HDTV at Best Buy. Sure, they have a bigger selection than most other stores on the showroom floor and it’s usually the case that they have at least one employee per department who knows more about the products than anyone at a big-box department store is going to know about the same product, but, in today’s marketplace where everyone wants to GroupOn the TeamBuy, debt is high, income is flat, and the possibility of losing your job is always around the corner, no one wants to spend more than they have to for a commodity item. So, now that they can see something in the store, decide they want it, check Target’s mobile website, see the same product is 10% cheaper in the Super Target down the street, why would they get it at Best Buy? Especially if they are not purchasing an extended warranty? And if they happened to see that same product at Walmart last week 15% cheaper? Plus, the fact that it’s probably on Amazon for 10% cheaper tells them that if they don’t want it today, at least one big-box department store is going to have it cheaper. So, while Amazon on its own is nothing to fear from Best Buy’s perspective, Amazon & Target or Amazon & Walmart combined are.

Until Best Buy can offer a better buying experience at the same price as these big box stores on all the big (ticket) items they sell, the incentive to buy at best buy is not going to be there. Especially given the state of customer service at these stores recently. Consider the plight of a customer at the Greenville, South Carolina store who was subjected to porn when visiting a best buy store, or the doctor who was repeatedly ignored AFTER indicating he was there to purchase a $200 product at that store on that day. In fact, when I think about it, if they don’t fix their customer service issues, they probably won’t survive long enough for the Amazon-Target or Amazon-Walmart tag-team to take ’em out. Especially since you can’t buy more than one item through their Canadian web store at a time! It’s a shame. They used to be great. Now …

A Great Piece on the Real Drivers of Corruption in India over at K@W

Knowledge @ Wharton recently published a piece on the Real Drivers of Corruption in India and the Rest of the World that is a great read and great food for thought. Corruption is definitely one of the most important and topical issues in India today, and while we might like to think that the Zero Rupee Note would fix the problem, that’s just another one of Mario’s pipe dreams.

But the real insight into the article is that there is no innate difference, just differences of scale between business ethics in America and India. The differences that exist, which can be generally attributed to differences in the development, institutionalization, and capital generation stages of the two countries, are relatively minor and there are significant similarities between business in India today and business in America during the “robber barrons” age (from 1890 to 1934).

And while India has a common practice of using the politico-business nexus of “getting policies fixed, obtaining clearances, and resolving irregularities”, America lobbying, and, more recently, Super PACs (Political Action Committees), which often pour money into the pockets of potential senators and congresspeople than bribery in India ever could. After all, almost all major businesses understand the need to engage lobbyists. That is the price they pay for access to the U.S. Congress to fix policy, obtain legislative clearances, and influence political decision making. When you get right down to it, lobbying is just civilized, legalized, bribery.

However, since India doesn’t have a semi-structured “lobbying” process, the absence of institutional safeguards ensures that the process of influence peddling is a free-for-all. The authors argue that this is why the level of corruption in India is much larger than in America, but if you take a step back, there is nothing innately or structurally different between the American and Indian processes. In both countries, companies give money to people and groups they believe can help advance their cause.

However, the situation in India is now similar to the situation in America a century ago because of the recent waves of foreign capital flooding into India and the creation of a new class of billionaires — overnight — with the granting of spectrum licenses that allowed a select few to offer spectrum (mobile) based telecommunications services to a country with over a Billion people. As a result, the politicians, who made the awardees rich with the license grants, created a render unto Caesar what is Caesar’s type of demand, which was met because of the flood of money these Billionaires had at their disposal. But the truth is that, relatively speaking, the level of corruption in India is not much more than in America, the difference is that India is still in the “Wild West” phase of economic develop, and America has civilized the process of bribing through lobbyist intermediaries who, because they don’t make the Congressional vote, can’t guarantee results — but considering that the reality is that lobbyists who don’t get results don’t keep their jobs …

Best Practices of Trade Compliance

A recent article over on the ISM site entitled “A Steel Thread”, which discussed how import/export compliance management is part of the fabric of today’s global business world and how ignoring it could result in your shipment being flagged for intensive investigation, seized, or destroyed, did a good job of pointing out how federal trade compliance regulations have increased dramatically over the past several years. But this is not why SI liked it. It also did a good job of pointing out the roadblocks to compliance for an average Supply Management organization, starting from the fact that the sourcing and compliance teams often have different definitions of supply chain security. But this isn’t why SI liked it either. The reason SI likes it is because it summarizes six best practices of trade compliance that will significantly help an average Supply Management organization get its global trade processes and policies under control.

The six best practices it focusses on are:

  • Education and Training
    Let’s face it. The average supply management professional is probably not aware of the myriad of compliance and security legislations that an average category could be subject to when sourcing internationally. Training, which overviews the major legislations, the common sourced categories that might be covered under those legislations, and best practices to maximize the chances of compliance is a great place to start.
  • Senior Management Commitment
    We all know nothing takes root without senior management sponsorship, so making sure senior management understands the importance of a good trade compliance initiative and supports it is a great place to start. If you’re having trouble getting support, SI recommends that you start by pointing out the 88 Million Dollar Fine JP Morgan got for failing to comply with trade compliance legislation.
  • Written Policies and Procedures
    Once you’ve identified your best practice processes that minimize the chance of non-compliance, you need to write them down, create checklists, and make sure they are followed. The reality is that if you are found in non-compliance, you will be fined, even if it was 100% unintentional and you did everything you could to be in compliance, but if you can show you did your best, the severity of the fine and punishments levied will likely be minimal. The government agencies responsible for monitoring compliance aren’t out to shut businesses down or make trade unduly difficult, they are just trying to do their job and enforce the law. However, most of the acts only define maximum fines, not minimum ones, and it’s not common practice for them to severely punish good corporate citizens who have a process, follow the process, and do their best to ensure compliance for a small slip-up.
  • Connectivity with Business Units
    Not only is it impossible to do compliance in a vacuum, as the article points out, but it is the business units who often have the detailed data on products and services that you need to make proper compliance assessments. Working with them can eliminate issues before a shipment is even made.
  • Internal Assessment
    As the article points out, an internal self-assessment of compliance practices should be performed to gauge how well regulations are being met and how compliance is connecting with logistics, supply management, sales, shipping and receiving — and it should be done as soon as possible if you haven’t done one, and reviewed annually to see if all bases are still being covered. And it should be very well documented. This will help you if you are ever investigated for possibly running afoul of trade legislation.
  • Third Party Assessment
    In addition, as the article points out, once or twice a year, a “second set of eyes” should evaluate how trade compliance is being handled throughout the company to make sure you didn’t miss anything. This can turn the tide in your favour if non-compliance occurred someone along the supply chain as you not only did your best to make sure you were in compliance, but had a third party that has expertise in supply chain audits do their best to verify that you are in compliance as well.

About the only critical best practice that they missed is:

  • Implement a Trade Compliance Platform
    The reality is that you can’t do all of this manually, or even attempt to track all of the relevant data manually. You need a technology solution to help you — one that centralizes all of the data and makes it all available to all of the people in your organization that need it, as well as to trusted partners that need, and are authorized to use, it.

There are other best practices, but if you start with this list, you will get most of the way there in short order.