Monthly Archives: November 2013

Will Supply Management Save the US Economy? Part II

In Part I, we noted that the information industry (defined as processors, producers and distributors of data, informational, and cultural products) shed over 750,000 jobs between 2001 and 2011, making it the sector that accounted for the second biggest loss of jobs after manufacturing, as per this recent interactive info-graphic on America’s Incredible Shrinking Information Sector. We also pointed out a recent WSJ article on Where Job Growth Will Come Over This Decade and noted that, despite the claims put forward in the article, the sectors mentioned are rather unlikely to add the 12M+ jobs the BLS (Bureau of Labour Statistics) is predicting, and stated that even if the jobs materialized, the sectors won’t save the US economy on their own. But we didn’t explain why. So today we’re going to dive into the sectors one by one.

Health Care
The boomers are becoming older and their need for health care is increasing. The BLS is predicting that 5.5 M jobs will be added between 2010 and 2020 and given that the number of people in the US aged 65 and older is going to double in the next 30 years (as chronicled in America’s Aging Population from PRB) from over 40 Million to over 80 Million, the US is definitely going to need a lot more health care (and senior care) workers. While SI is not sure if the sector is going to add that many jobs in the next decade, it’s a safe bet that the healthcare industry will add that many jobs in the next two decades.

Leisure and Hospitality
The BLS is predicting that 1.3 Million jobs will be added in this sector. While SI doesn’t expect much of an increase in international travel to the US like the article does, and thus doesn’t expect any new jobs in the sector for this reason, it does expect that this job growth will occur as a result of the retiring boomer population. Most of the retiring boomers have money, realize they can’t take it with them, and don’t want to leave too much for their heirs because “they had to walk uphill both ways through waist-high snowdrifts when they were young and then had to work all day to earn a dollar when they got out of school” and believe that hard work is good for you. So they are going to spend their money and enjoy their retirement, which means people will need to wait on their tables, maintain their golf courses, sell them theatre tickets (as some of them don’t like that new fangled technology that requires you to punch buttons on your phone to buy a ticket), and show them to their seats. While these are not the most glamorous of jobs, they are jobs nonetheless.

Medium Skilled Jobs
The trades aren’t going away — plumbers, electricians, builders, chefs, etc. will always be needed, and these jobs can’t be outsourced. As the population steadily increases, and old buildings get older, there will be a slightly greater need for these jobs tomorrow than there are today. While the growth might not be high, it will be there.

Business and Financial Operations
According to the article, the BLS expects the field to add over 1.1 Million jobs like credit councillors, financial examiners, and compliance officers. With regulations getting more intensive and reporting requirements continuing to multiply like Fibonacci’s rabbits around the globe, the compliance industry is definitely going to boom and could create almost this many jobs on its own (which is good because there’s already a plethora of credit councillors out there and SI doesn’t expect too many jobs to be added in this industry).

Professional and Business Services
According to the BLS, this sector, comprising consultants and other professionals skilled in areas such as legal services, accounting, and advertising, will generate 3.8 Million jobs this decade. There will definitely be growth in this sector as companies continue to farm out more back-office functions, as financial reporting regulations get more complex, and as (global trade) laws continue to get more complicated, but SI has a hard time believing that 3.8 Million jobs will be added unless something changes. And most of the consulting jobs will just be replacing jobs that disappear from the other sectors — so, without a pressing need, most of the new jobs will just be cancelling out jobs lost in other sectors. However, it is certainly a better sector to focus on than Manufacturing, IT, or Traditional Media!

Technology and Information Services
According to the BLS, this decade will add over 750,000 jobs (and effectively replace the jobs that were shed last decade). As far as SI is concerned, this is a pipe dream. While there is a greater need for Business Intelligence, most of the work is going to be outsourced to cheaper countries. And the jobs that are created in the information-security analysis space (in the government and its contractors) are barely going to make up for the non-classified private industry jobs that are going to be shed to lower cost locales in India, China, and the EU. While there shouldn’t be any more decline overall, the rapid growth of the 90’s will not be repeated.

In other words, most of the jobs are going to be in health-care and in service sectors that support the retiring boomers (about 2/3rds by SI’s estimation). And with a steadily increasing population, in the long run (with some estimates adding another 100 Million, or more, to the US population over the next 30 years), the boomer retirement is not going to create enough jobs over the long-haul. So what’s going to save the US Economy?

Come back tomorrow for Part III and SI’s thoughts on the matter.

Will Supply Management Save the US Economy? Part I

The US Economy is in trouble. Not only has manufacturing been declining steadily, but, as per this recent interactive info-graphic on America’s Incredible Shrinking Information Sector, the information industry (defined as processors, producers and distributors of data, informational, and cultural products) shed over 750,000 jobs between 2001 and 2011, making it the sector that accounted for the second biggest loss of jobs after manufacturing. In addition, the customer support industry shed over 74,000 jobs, traditional publishing shed over 263,000 jobs (and 21,000 more in the last two years), and telecommunications dispatched with a whopping 567,000 jobs.

In other words, the sectors that account for over 1/4 of US GDP have been shedding jobs faster than a swarm of shetland sheepdogs combined with a syndicate of sussex spaniels sporting on a sunny day in Spain. And there can be no rebound if new jobs don’t appear to replace the old ones somewhere.

But these sectors aren’t coming back. It will be decades before it will be cheaper to manufacture most products, especially dense Consumer Purchased Goods, at home. With the innovations in wireless technology, we need a lot less telco lines, and even less transmitters, to service the same number of customers at service levels well beyond what could be expected even five years ago. Programming can be done anywhere, by anyone, and there is always someone willing to do the same job cheaper in a developing country where a US dollar is worth considerably more than the local currency. Thanks to the internet and semantic technology, there is more content at a journalist’s disposal than ever before and research is almost automated. And online (which includes over the phone) customer support can be done by anyone in the world who speaks the same language. While we can expect the job declines to level off in media and telecommunications, just like they have done in the information sector, the jobs are not coming back.

So where will the jobs be? According to a recent WSJ article on Where Job Growth Will Come Over This Decade, they will come from:

  • health care
  • leisure and hospitality
  • medium skilled jobs
  • business and financial operations
  • professional and business services
  • technology and information services

And the article is partially right, but these sectors won’t add the 12M+ plus jobs that the BLS (Bureau of Labour Statistics) is predicting, and won’t save the US Economy on their own — at least not without a slight change in focus in a couple of the sectors. Why? Come back tomorrow for Part II and a discussion of the WSJ article predictions.

John Mavriyannakis on the Future of Procurement: Part II

In Part I, we described the 4 major trends affecting Procurement today that were identified by Deloitte in its research and consulting initiatives (and which have been addressed in publications that include Supply Chain Strategy, Winning With Your Supply Chain, and Charting the Course: Why Procurement Must Transform Itself by 2020) that were summarized nicely by John Mavriyannakis, a Senior Manager at Deloitte Canada (and the Practice Leader in Sourcing, Procurement, and Settlement), in his recent presentation on Empowering Modern Procurement that was given as part of the Coupa One Vision Roadshow in Toronto

Specifically, John Mavriyannakis identified the following four trends:

  • Margin Pressure
  • Supply Chain Risk
  • Government Regulations
  • Talent

As a result of these trends, it is clear that today’s supply managers need to:

  • control margin pressure,
  • mitigate supply chain risk,
  • stay ahead of changing regulations, and
  • win the war for talent.

But that’s not going to be enough for a Procurement organization to succeed in the long term in the dynamically changing global marketplace. If they wish to survive, Procurement and Supply Management organizations need to rethink mission and capabilities. Specifically, they need to:

  • get strategic

    and establish a formal organizational presence that ties metrics to company performance,
  • transition

    to re-aligned processes and responsibilities that focus on business outcomes,
  • task talent cross-functionally

    to enhance the procurement capability of the organization as a whole, and
  • tie it all to technology

    that blends service and management tools that are easy to use and that allow for the right level of control.

While keeping in mind that they need to get to the 2020 Procurement and Supply Management organization in just 6 short years (which is no easy feat given that the average transformation time that is required for a Global 3000 organization to become a world class Procurement organization, according to The Hackett Group, is at least 5 years). In 2020, Procurement, according to Deloitte, is going to (need to) be:

  • the keepers of the global supply and demand perspective,
  • the nexus of finance, operations, and supply chain,
  • risk forecasters,
  • the arbiter of risk vs. reward,
  • the value-generation unit that is the treasure trove of ideas, and
  • talent rich.

And SI fully agrees with all but the last of these predictions. In addition, it partially agrees with the last prediction that Procurement is going to need to be talent rich to achieve the goals that are set before it, but given the lack of investment in talent to date in the average Procurement organization, SI isn’t sure that the talent is going to be where it needs to be in 2020. Even though talent has been in the top three Procurement issues for at least the last three years, it’s still in the top three budget items that are cut every year in these tough economic times, even though a small investment in talent can lead to a (very) large return in savings in a Procurement organization. (For example, one of the first companies to certify their entire department with the SPSM designation offered by Next Level Purchasing, a 1 Billion furniture manufacturer, doubled their annual savings only one year after completing the certification on the department level. That’s a double digit ROI multiple in one year! Compare that to the 2X or 3X you might get from automating manual processes.) Basically, the most successful Procurement organizations in 2020 will be talent rich, but the average Procurement organization will be struggling at the current rate of training and talent induction into our space.

John Mavriyannakis on the Future of Procurement: Part I

John Mavriyannakis is a Senior Manager at Deloitte Canada and the Practice Leader in Sourcing, Procurement, and Settlement who recently gave a presentation on Empowering Modern Procurement as part of the Coupa One Vision Roadshow in Toronto. Through its regular CPO Surveys, CFO Surveys, and its Source-to-Procure experience across 1000+ projects for 300+ clients, which made it #1 in the Procurement Consulting provider in the global Procurement Consulting marketplace, Deloitte has built up a considerable understanding of the current state of Procurement (which it has captured in a number of publications, including Supply Chain Strategy, Winning With Your Supply Chain, the CFO Surveys, and Charting the Course: Why Procurement Must Transform Itself by 2020).

According to Deloitte, Procurement today is dealing with 4 major trends, which are going to continue for the foreseeable future:

Margin Pressure
Margins are getting tighter and organizations need to be looking at least ten years ahead to determine future (labour) arbitrage opportunities, which are becoming increasingly more difficult to leverage as emerging economies emerge and produce middle classes with higher wage expectations (and transportation costs increase to make up the difference). In addition, the fact that price volatility has increased 57% in the last 12 months hasn’t helped matters any.

Supply Chain Risk
Due to the increasing interdependence and extensiveness of supply chains, risk is increasing, as illustrated byt he fact that 85% of surveyed organizations experienced at least one large scale disruption in the last 12 months. The increased risk is a big issue given that companies announcing supply chain disruptions had a 30% lower supply chain return compared to the benchmark group.

Government Regulations
Regulatory compliance issues have resulted in high-profile, high-cost shutdowns in recent years and with 2/3rds of CPOs admitting that their companies are only in the early stages of compiling information required to meet the recent SEC reporting changes, this is not a good state of affairs as the SEC reporting requirements are only one of a plethora of reporting requirements an international company that is importing and exporting on a daily basis around the globe needs to be compliant with.

Talent
Given that 76% of CPOs feel that their staffs’ skills need improvement or have a significant gap, talent is on the radar in a big way. And not just any talent — with 91% of the 60% of CPOs planning to change their operational model announcing a shift to center-led or centralized supply chain operations, this means that over half of the talent that is required needs to be effective in these type of Supply Management models.

So what does this mean? We’ll discuss tomorrow in Part II.

What do the recent NSA revelations and the US Patriot Act Mean for Procurement?

Earlier this week, on Spend Matters UK, we saw a guest post from Jessica Warren of Hubwoo that asked what the US surveillance programme means for procurement systems and people. It asked some good questions, and gave some good answers, but it missed the most important question. However, before we get to that, we’re going to provide some background and a few other important pieces of information to put everything in context.

The post, written largely from the EU perspective, notes that the requirements of the European Data Protection Directive (95/46/EC) defines rules for the transfer of personal data outside the EU to ensure the best possible protection of personal data when it is exported abroad and that the transfer of personal data to non-EU countries that do not meet the EU “adequacy” standard for privacy protection are prohibited.

The EU is not the only political body to take privacy seriously. Canada has the Personal Information Protection and Electronic Document Act (PIPEDA) that recognizes the right of privacy of individuals with respect to their personal information and the need of organizations to collect, use or disclose personal information for purposes that a reasonable person would consider appropriate in the circumstances and the Privacy Act that extends the laws of Canada that protect individual privacy to government institutions. These laws imply that personal information cannot be provided to any party that is not bound by laws at least as strong as the Canadian laws (which are also augmented with additional regulations in the provinces of British Columbia, Alberta, and Quebec). So storing Canadian data on US servers that can be seized by the US government at any time for any reason under the Patriot Act could also be a big no-no.

Another thing to remember is that hosting in the biggest Canadian Data Center that will give you the best deal, which used to be the default answer if you wanted to service North American clients with fast response times and ensure Canadian and EU privacy protections were in force, is not necessarily enough anymore, even if the data centre adheres to the U.S.-EU Safe Harbour Framework. (The Safe Harbour Framework was originally designed to provide guidance for U.S. organizations on how to provide adequate protection for EU personal data so that US companies could store and process EU data without violating EU laws. Even though the intent was sound, the execution was weak, as the first case under the framework was not brought forth until 2011, and the framework has come under significant criticism under two external reviews by the EU in [2002 and 2004] and one by Galexia [in 2008].)

Why can’t you just ask that your US solution provider store the data in Canada and be done with it? The US Patriot Act. This diabolical piece of legislation gives the US government the right to demand any data held by any company governed by US law, no matter who or what the data pertains to, how or when it was acquired, or where it is physically stored. In other words, even if your US-based solution provider stores your data in Canada or Germany, the US can still demand that data. (Even Microsoft had to admit that regardless of where it stored it’s European Customers’ data, it could not ensure such data would not be turned over to the US government. [Source])  It’s not enough to just ask the provider whether or not it can guarantee that your data is safe from the Patriot Act as most services providers don’t understand the full extent of the power granted the US Government by the Patriot Act and many believe that if they are on the Safe Harbour list then that ensures their customers have adequate protection, which is not the case.  (That’s why a European Parliament Committee is recommending suspension of US-EU Safe Harbour. [Source]) Furthermore, if such data is stored in a data centre that participates in Safe Harbour, even if it’s on Canadian soil, you’re more-or-less in a double-jeopardy situation as that data centre, by participating in the program, has agreed to adhere to US regulations and will immediately hand that data over on official request!

This says that the most important question is not where is my data hosted but

1. What law governs the data you store on my behalf?

Simply put, if the company is bound by US law, it doesn’t matter where your data is, it is still subject to the US Patriot Act, and can be demanded by the U.S. Government at any time.

If your organization is subject to EU or Canadian privacy directives (which, in most provinces, prohibit the export of private data outside of Canada), after you have verified that US law does not govern the data stored on your behalf, then you ask:

2. Where is my data being stored?
2b) If you are storing my data in Canada, has the data centre opted into a US Safe Harbour program?

If privacy is a concern, not only do you not want your data stored in the US, but you probably don’t want it stored in a Canadian Data Center that has opted into a US Safe Harbour program (and agreed to enforce requests made under the US Patriot Act). (Note that there are a number of data centres in Canada that have not opted into this program that are still really good choices for servicing your North American operations.)

3. Is the storage provider (which might be a data centre contracted by your solution provider, as most Sourcing and Procurement SaaS providers do not manage their own data centres) bound by laws at least as strong as the privacy laws my organization is bound by?

If the answer is yes, you’re good to go.

There’s also three lessons here for US-headquartered Sourcing and Procurement Vendors who want to go global (and conquer Europe).
Specifically:

1) Move your headquarters somewhere else.
   The UK would be a good choice if being located in an English speaking country is important to you.
2) Open a Canadian subsidiary to manage your North American service delivery operations.
3) Use a Canadian Data Center that does not participate in the US Safe Harbour program to store your customers’ data.