Monthly Archives: September 2014

The “Future” of Procurement: Shiny New Shoes, Part II

Twelve (12) days and thirty-two (32) “future” trends later and we are finally ready to unveil the third, and final, trend that is a real, true, “future” trend that will impact your business in the years to come. And this trend is even more unexpected than its predecessors as not only does it not originate within Supply Management, but it doesn’t even originate within business operations. It’s coming from out of left-field but it’s landing dead-center within your organization. So, without further ado, the final, and one of the three (3) true future trends, is the

1. Equal Rights Supply Chains

You’re probably thinking — what do equal rights have to do with supply chains? Isn’t this the LGBT Political Agenda? What do politics have to do with supply chains?

Well, everything. You see, politics have everything to do with supply chains. Even though supply chains depend on finance and information, people still have to do the work, make sure the money changes hands, and the information flows where it is supposed to. People who are only at their most productive when they are happy and content, not unhappy and discontent. And until this minority, and the people who strongly support them, get what they want, they are not going to be as happy, content, and productive as they could be, even if they try to separate politics from work as this is an issue that affects their self-esteem and well-being. As a result, the issue is going to persist in and out of your supply chain until it is addressed.

And it is going to be addressed. And when it is, it’s going to affect your supply chain in a big way. Specifically, it’s going to hit your pocket book. First of all, when equal rights laws finally pass, and more of them will, there’s going to be more healthcare and related costs because all partners, regardless of sex or religion, will have the right to be covered so the percentage of family plans is going to increase. Secondly, if you are operating in any region where these laws have passed and you don’t institute the policy across your supply chain, you’re going to risk boycotts and significant negative media within the region where the laws have passed, and the boycotts and negative media will hurt your organization’s brand and its sales. As a result, your organization probably won’t be able to restrict these benefits to specific locales, but will have to offer them throughout the locales in the same country, or region, where it operates. This means that in many locales, “labour arbitrage”, which should already be a thing of the past, will be a thing of the past. Third, and most significant, if your organization doesn’t treat this issue as a priority, current and forthcoming policies on minority consideration in government bodies could put your organization at a disadvantage in contract awards or limit the public funds that are available to your organization. This means that if your organization depends on public contracts or public funds in any way, this could someday soon be the difference between continued success and really hard times. Fourth, some big companies have already included LGBT business in their list of recognized minorities and their diversity objectives. So if your organization doesn’t also recognize the same minorities and have the same diversity objectives, that’s a black mark against your organization even before you submit the response to the RFP. In other words, if your organization is not at the forefront of the issue, it might just end up getting swept away by it.

We did it! We did it! We did it! Yeah! Hooray! Woo! We did it!

Finally, we will admit that if you dig around, you’ll likely find a few more “future” trends that were discussed in the last year*, but the majority of these that you find that it appears we skipped were trends that were, in all actuality, similar to or subtrends of trends that were already covered, or, in some cases, had absolutely nothing to do with (modern) Supply Management (and shouldn’t even be repeated as they will just confuse the issue even more). If you think the doctor missed a “future” trend that is not similar to, or a subtrend of, one of the trends discussed in this series (that was in a paper, article, SlideShare, etc. written in the last twelve months) that is related to modern Supply Management, leave a comment. If you’re right, we’ll do a “notable omissions post”.

* the doctor specifically restricted his searches to the last 12 months when researching this series.

The “Future” of Procurement: Shiny New Shoes, Part I

Eleven (11) days and thirty (30) “future” trends later and we are finally at the final three (3), and only three (3), that are really, truly future trends, and that qualify for the shiny new shoes category. And, believe it or not, the only trends that not only did not originate within Supply Management but that did not originiate within business operations either. But they are three of the future trends that are going to have a significant impact on your supply management, whether you realize it or not. And only a select few individuals in the space have even recognized their existence. (Since we protected the guilty, we’re going to be fair and protect the innocent — even though a few web searches will reveal their existence. But since only the worthy should have the opportunity to reach out to them, we’re going to make sure that these true thought leaders only get contacted by individuals who at least have enough active brain cells to Google that Sh!t.*)

3. 3-D Printing & Arduino

While 3-D printing is not a new technology, as this year is its 30th anniversary, it was only in the last decade that it became accessible to more than a handful of businesses (when the open source projects began back in 2005) and only within the last couple of years that it has become accessible to everyone (as recent Kickstarter projects have made it possible for every designer to have a 3-D printer on his desk). Now that the technology is becoming mainstream, it’s entering a rapid maturization phase in which it’s going to become better, faster, cheaper, and infinitely more powerful. As a result, prototyping is not only going to become more rapid, but more powerful. Engineers will be able to iterate through multiple prototypes in rapid succession without having to wait 6 weeks for the next iteration from the plant in China. Not only will this support the increasingly shorter and more complex product life-cycles we talked about in ongoing blues trend #14, but it will help reduce failure risk and associated costs, and increase innovation potential as now you can try the product before you commit to a production run. Then, when you combine 3-D Printing with the open source electronics platform Arduino, you’re not just limited to manufactured parts but can prototype entire systems. While a very forward looking thinker would have seen this as the next instantiation of the open-source movement that started with open-source software, it was almost impossible to predict that it would happen so soon.

2. The Share Economy

The sharing economy which, as per Wikipedia, is also known as the peer-to-peer economy, mesh, or collaborative economy, is, to be blunt, essentially, the modern incarnation of the hippie movement where people participate in the shared creation, production, distribution, trade and consumption of goods and services. Examples include bike sharing, ride sharing, home sharing, and crowd-funding to build communal projects. Except this time the ideas are more business friendly, flower power is not needed, and the clock isn’t perpetually stuck at 4:20 (unless you include Craigslist).

However, the share economy, which is currently in the domain of individuals like you and I, and small businesses, is going to migrate to medium sized businesses en-masse as it is going to give these medium-sized businesses access to the latest and greatest technology and economies of scale that these medium-sized businesses will be unable to acquire on their own. Can’t afford to buy that new automation and production system that increases throughput, improves quality, and decreases natural resource consumption? No problem. Form a cooperative with quasi-competitors, build a new factory with the new production technology, and effectively time-share it (for the operating cost). This will put medium-sized businesses on the same playing field as large enterprises and level the playing field in ways that have not yet been thought of. The hippies succeeded and their ideas changed the world — 50 years later.

If you think deeply about it, it sounds about right that it took 50 years for the ideas to take root, evolve, and mature into something that was workable in our society. Why? Because significant shifts in viewpoints take time, and usually generations. For those familiar with Japanese culture, and martial arts in particular, the Japanese believe it takes three “generations” for an art to be perfected**. Somewhere around the time the student of the student of the student of the founder of an art achieves her black belt and begins to teach, the art has reached a point where it has really taken on a life of its own. For old-style arts, where it will often take a student 5 years or more to get their first degree black belt, and then a few more before they get their third and go off to open their own dojo, this will typically take 40 to 60 years as the founder will have to develop the art, teach it, and send his or her students off into the world to begin the cycle of art refinement, transference, and distribution. While not as old as the society of China, the society of Japan is much older than North American society, so it’s no surprise that we’re re-discovering that new ways of living and working often take generations to come to pass. But they do. And this way will have ramifications throughout your supply chain.

And this brings us to the final “future” trend that will have unexpected and possibly profound impacts on your supply management and supply chains in the years to come. A “future” trend that we will … get to tomorrow.

* Don’t give us that look! We warned you day one that having to slog his way through putrid pieces of poppycock really grinds the doctor‘s gears and leaves him with no tolerance for the thick(-headed) and that, as a result, we weren’t pulling any punches in this series. Not one.

** Perfected isn’t quite the right word. The art has reached a point where it has simultaneously been simplified, unified, purified, fully formed, fully embraced, and fully evolved. And even this isn’t quite the right description. It’s a Japanese concept that, like majime, doesn’t entirely translate. It’s domo. Otsukaresama desu for pushing through this entire series with me. We may still be soto with our views, but someone has to lead the way!

The “Future” of Procurement: Like New Remanufactured Shoes, Part II

It only took ten (10) days*, but we’re finally in the midst of counting down the seven (7) “future” trends that are actually new enough, with the right interpretation, to fall into the “future trend” category. Today we continue with a discussion of the final two trends that fall into the like new remanufactured shoes category.

5. Return to Regional and Local Sourcing

This is another “future trend” that’s not really new, as outsourcing and insourcing continually rises and ebbs in a cyclic sine and cosine wave, but this time around, in leading companies, it’s taking on a new form and providing Supply Management with better opportunities than it has had in a long time. The justification for going out is usually lower labour costs, and the justification for coming back is usually lower transportation costs. And the switch usually occurs when one cost or the other cost rises or falls sufficiently to change the total cost of ownership equation. But now, thanks to continual advances in automation, there are more reasons to come back than to stay away.

With significantly less manpower required to produce significantly more automation, and the ability to take communication and complexity cost out of the equation by centralizing R&D and development, not only is regional becoming lower cost than overseas, but with the right creativity, you can often keep costs low and value generation high while sourcing in your own country, often from your own backyard. (For example, if you look at the difference between median household income across the United States, the top state in 2011, Maryland, was almost twice that of the bottom state, Mississippi, and the differentials between big cities and small towns can be even more disparate.) Sourcing at home does not have to be expensive if you pick the right locale, install the right automation, and knock the creativity up a notch. If Foxconn China is outsourcing to Brazil to serve North American customers, that should tell you something. (If it doesn’t, you better go see a medical doctor to have your hearing checked. If you pass that test, then you better go see a neurologist.)

4. Control Tower Model / Omni-Channel Approach

One could argue that the omni-channel approach is an ongoing blues as leading retailers started integrating mail-order, storefront, and web-based channels into a single distribution channel about a decade ago, but the phenomena wherein many of these same retailers are planning their advertising and sales as a unified omni-channel strategy on the front-end vs. simply unifying distribution efforts on the back-end is much more recent. So this is really re-manufactured shoes. But more importantly, the leading organizations have realized that it’s not de-centralized vs. centralized vs. center-led, it’s picking the right strategy for each category and each business unit and effectively managing that through a control tower that monitors, predicts, adapts, and responds to the market as necessary to make sure the supply chain from source (raw material provider) to sink (final end user) flows smoothly and optimally at all times.

In other words, as we pointed out in “future” trend 24 when we were covering old news, you only have three choices for governance — centralized, decentralized, vs. center-led, but there is nothing to stop your organization from deploying multiple models across multiple categories, and the right application of the right model can give your organization a boost in its supply management capabilities. This is the logical next step in a Supply Management organization that integrates governance, risk monitoring, collaboration, systems, business process convergence, supplier management, and supply management strategy under one umbrella. It’s the process of taking everything you’re doing right to the next level. It’s really renovation, not innovation, but a necessary renovation as most organizations have not yet even thought about the potential of a control tower. As a result, fewer still have taken any steps to making this a reality.

Ten days later and we’ve made it to the final three at last! The final countdown! The three “future trends” that are real, not imaginary. The three trends actually worth talking about. The three trends that we are going to dive into … tomorrow!

The “Future” of Procurement: Interlude II

And this is why the discussion of fake “future trends” should stop once and for all!
Even LOLCats in their ninth life have been driven to drink from the discussion of 26 “future trends” so old that they remember them from their first life! They don’t even care that we’ve finally progressed to trends recent enough to be relevant!

The “Future” of Procurement: Like New Remanufactured Shoes, Part I

It only took nine (9) days*, but we’ve finally reached the point where we are down to the seven (7) “future” trends that are actually new enough, with the right interpretation, to fall into the “future trend” category.

7. Supplier Pre-Payment

We’ll admit that this belongs in the ancient category with governmental regulation, margin pressure, and supply chain risk, because pre-payment has been around as long as demand has exceeded supply. So why is this in the like-new re-manufactured shoes category? Because you can pre-pay your supplier. You can pre-pay your supplier’s supplier. Or you can pre-pay the supplier of your supplier’s supplier. The first is old news. The second is ongoing news. But the third, well, that may just be remanufactured shoes. There was a reason that, once upon a time, companies were vertically integrated. That’s because when you could control the costs all the way down to the raw material extraction, you could minimize the cost.

So what do you do when you can’t control all the costs? You control the margin, and you buy when the market is good, or when you have the chance to lock in supply before prices rise even more. And if you buy on behalf of your supplier’s supplier, you can buy raw materials in bulk, often at a lower cost than your supplier’s supplier, and provide these raw materials at no margin to your supplier’s supplier, who is making the components or sub-assemblies, and keep costs down throughout the entire supply chain. Not just your little piece.

And with the right supply chain visibility, you can do more than just identify risks — you can track costs through the supply chain and do true multi-level should-cost modelling, optimize spend throughout the supply chain, and when it’s cheaper to buy on behalf of a supplier, or a supplier’s supplier, or to pre-pay a supplier so they don’t have to go to a loan shark to make payroll, do that. This allows you to take out cost where competitors without the same visibility and forethought can’t. It’s an old, old, old idea, but a new application of this idea can take your supply chain to the next level.

6. Data-based Predictive Analysis

While data-based predictive analysis is not new, as businesses have been doing sophisticated statistical trend analysis for decades (and SAS has been around for over 35 years), the application thereof in Supply Management is relatively new as there hasn’t been much in the way of good data for Supply Management before the implementation of a good sourcing or procurement suite. Furthermore, the applicability of data-based predictive analysis only gets interesting when there is significantly more data to analyze than what is within a company’s four walls, and the ability to access significantly more data is a recent phenomenon.

You see, not only does predictive analysis suffer from the same problems that spend analysis suffers from, but the magnitude is amplified where predictive analysis is concerned. Backing up, it’s impossible to do spend analysis on data you don’t have, and it’s impossible to do trend analysis on a product that is not yet released. In many verticals — fashion, electronics, etc. — product life-cycles are so short that you can’t do a reasonable spend analysis until the product is at end of life and by the time you have enough data to do a reliable trend analysis all you can predict is the obvious: sales of zero. Now, if you have multiple, successive, product lines in the same category — like yourPhone 1, yourPhone 2, yourPhone 3, etc. — then you will eventually be able to predict sales of the successor product with reasonable accuracy, assuming no major unexpected changes in the market. However, you’ll be left in the lurch when it comes time to predict spend and performance on a new product line. That’s why you need considerably more data than resides within your fall walls and that’s why data-based predictive analysis wasn’t really a reality until the last few years as it was only in the last few years that Supply Management products emerged that collected, tracked, and integrated market data with your data. This permitted you to not only do realistic should cost models on new product lines, but multivariate predictive analysis to judge how well, under a certain set of assumptions, your product could do in the market and how well your supply chain could perform (from cost and risk perspectives) under those assumptions. So while this is ongoing blues in the business world at large, it’s recycled shoes for Supply Management. The hand-me-down has the potential to acquire new life in Supply Management.

Are you excited that we’re finally discussing more recent trends, Mr. LOLCat?

* And you wonder why Tard is go grumpy. He knows the truth.