Monthly Archives: October 2014

Procurement Trend #31: Increased Competition

Today we continue our coverage of each and every “future” trend that we debunked in our Future of Procurement series that falls under old-blues and ongoing news. Before all is said and done, we’re not only going to make sure that you not only understand why the historians are still talking about these ancient trends, but why they are still relevant to many Procurement organizations stuck in the past with the historians as well as what your organization needs to do to prevent getting sucked into the historical time vortex as well. So on to trend number thirty one!

As per our original series, while an idiot, and maybe even an imbecile might not be aware that Globalization is, obviously, going to lead to increased competition (and that as the pace of Globalization increases, so does the pace of increased competition), but even your everyday dull-witted dimwit is going to realize this, as is everyone of average intelligence (and it’s pretty unlikely that you’re going to find anyone of lower IQ in a senior management or Procurement position [with the possible exceptions of Texas and Florida]). As a result, not only is this trend as old as globalization, but it has been obvious for almost as long.

So why are the historians still pegging it? What are some of the primary reasons?

  • Emerging markets are new Emergent Markets

    and even emergent markets are outsourcing

    China is no longer emerging, it is now the world’s second biggest economy, regardless of whether you take the UN, IMF, or World Bank GDP calculations as gospel, Brazil is the seventh, Russia is the eighth, and India is the tenth. In other words, the BRIC are all top 10 economies. If that’s not an emerged market, I don’t know what is (especially since Canada and Mexico, the latter of which used to be buoyed by American near-sourcing, have been knocked down the list. Canada is not even top 10 anymore! [the doctor blames Harper.])

  • A New Set of Emerging Markets are Rising

    and even Africa is seeing investment

    A few years ago, people were talking about BRICS. Most because they saw the beginnings of the rise of South Africa, which matched the beginnings of the rise of the BRIC a decade or so ago, and a few because they were forward looking. But now that the BRIC has emerged, focus is shifting to the MIKTS (Mexico, Indonesia, South Korea, Turkey, and South Africa). As a result of the continual rise in transportation costs, labour costs in China, and automation, progressive American multi-nationals are realizing that near-sourcing to Mexico is not only the low-cost opportunity, but increases JIT capability in their supply chain. Indonesia is the new China and Vietnam for traditional manufacturing. South Korea, while very technologically advanced, is not as prominent as Japan or China as an outsourcing destination and, thus, provides additional opportunities for forward-looking multi-nationals for high-tech outsourcing. And Turkey, like Poland, has considerably lower labour costs than Western Europe but still has top-notch manufacturing standards and capabilities that not only meet Western European standards and capabilities, but in some industries, such as steel, exceed those capabilities. (For example, 1 US Dollar is approximately 2.3 Turkish Lira, and minimum wage in Turkey equates to about 4.3 Lira per hour, while the minimum wage in their neighbour Greece is about 2.5 times that, and the average Turk makes about 2,000 Lira or $800 US a month).

  • Developed Markets are becoming hyper-competitive

    and sometimes the only option is global expansion

    Despite the irrational beliefe by some US leaders that markets can grow forever (because, theoretically, population can grow forever), from a global perspective, relatively speaking, market share at any given time is a zero-sum game. Your economy grows at the expense of another economy. At any given time, the are a fixed number of people on earth with a fixed number of hours to contribute to create a fixed amount of product — which means at any given point in time, there is a fixed global gross domestic product. So if your economy is getting more for that product than another economy is getting for an equivalent product, then your market share is growing at the expense of that market.

    So it should come as no surprise that now that reality has sunk back in and companies realize that market growth is limited to population growth, markets are becoming hyper-competitive as each company wants a bigger share of the fixed pie.

So what does this mean for you?

  • Emerging markets are now Emergent Markets

    Don’t look for outsourcing cost savings from these markets, look at new customer opportunities and opportunities for nearby, or even local, production to keep global transportation costs and transportation delays down.

  • Third World Markets are Now Developing Markets

    If you must outsource, you need to look to the MIKTS, not the BRIC. If you still believe there is labour arbitrage, cost savings, etc. by outsourcing, then you have to look at Mexico, Indonesia, Turkey, or South Africa or get ahead of the curve and figure out what markets will be developing markets in 10 years.

  • Developed Markets are Becoming Hyper-Competitive

    Savings is not the answer — someone bigger can use leverage to save more. Value is the answer — value to the consumer, value to the company, and value to the supplier. So look for value generation in everything your organization does.

Procurement Trend #32: Globalization

As per yesterday’s post, we need to discuss in detail each and every “future” trend that we debunked in our Future of Procurement series on old-blues and ongoing news. Until you not only understand why the historians are still talking about these trends, but why they are still relevant to many Procurement organizations that are stuck in the past with the historians, as well as what you need to do to prevent staying in the past with your organizational “peers”, we can’t risk ignoring them simply because we’re fed up of them. We have to make sure that each and every organization that wants to claw its way out of the past and into the present has the knowledge it needs to do so. So without further ado, we move on to trend number thirty-two.

As per our original series, globalization began soon after trade between nations. As far back as 3,000 BC Egypt was trading with Mesopotamia, which was near the end of the known civilized world for most Egyptians at that time, for pottery, lazuli, and obsidian. Then, about 3,000 years later, the Silk Road connected China to India, Africa, the Middle East, and Europe — and that was the known world at that time. Globalization has been with us for thousands of years and isn’t going away either.

So why do so many historians keep pegging it as a future trend? There are a number of reason, but among the top three today are:

  • Post-Panamax Ships and the Panama Canal Widening
  • 767s
  • The New Silk Road

So what does this mean for your organization? How do you blast out of the past and into the present in preparation for planning for the future?

Post-Panamax Ships and the Panama Canal Widening

Current Panamax Ships can accomodate 5,000 TEU (twenty-foot equivalent units), and can hold the equivalent of three-plus football fields, but with the widening of the Panama Canal, expected to be completed next year, the canal will be able to handle post-Panamax ships with a cargo capacity of up to 13,000 TEUs. That’s a 260% increase which will bring the cargo capacity up to about eight football fields. That’s over 20 million pre-packaged ready to sell iPhones on a single ship. Assuming Foxconn can pump them out fast enough, one ship and all of North America’s iPhone needs are met for an entire quarter!

It means that even with increasing oil prices and transportation costs, it will still be cheaper to outsource production of certain goods because the cost per unit will be essentially zero in certain compact high-value goods categories.

787s

Can’t wait 33 days for ocean freight? You don’t have to! The new 787-10 Dreamliner has a 124.4 meters of cargo capacity, which is over 3 TEUs of cargo capacity that can be moved halfway around the world in less than a day! For compact, high-value goods, this also results in outsourcing continuing to be profitable and logical for certain categories despite rising oil costs and rising labour costs in Asia.

The New Slik Road

Despite the almost utter lack of coverage from western media, the new China, Russia, and Germany trade partnership is going to usher in a new era in Eurasian trade, strengthen both the European and Asian economies (and Russia, India, and China in particular – the “RIC” in “BRICS”), and offer a plethora of new opportunities for global expansion both in terms of sourcing and selling — and Procurement organizations need to lead the way. Russia, China, India, and the EU account for about 42% of global GDP, and even though it’s still too early to tell precisely what impacts the new trade agreements are going to have, there’s no way that they are not going to be uber-significant. Not only does it have the potential to biggest boon to supply chain finance this year, if not this decade, but it’s going to change the way you think about trade. In other words, you have to totally reevaluate your global sourcing and procurement strategies to make sure they still make sense in this new era of trade.

That’s two down and twenty-eight to go. It’s going to be a long trek, but we’ll do it!

The Procurement Marketplace and the Power of Compliance

When it comes to Procurement, compliance is very important.

  • Non-Compliance with contracts is the biggest reason that 30% to 40% of negotiated savings never materializes.
  • Non-Compliance with standards and regulations often results in poor product quality, unusable inventory, or, even worse, seizure of goods by customs.
  • Non-Compliance with insurance and financial regulations could leave you on the hook for million dollar lawsuits and your CEO and CFO on the hook for criminal charges.

Compliance is also very hard to enforce in the average organization because your resources, time, and visibility is limited and it’s easy for anyone and everyone to fly under the radar whenever and however they want to.

But there is something you can do about it.

The Power of Compliance To find out, join Sourcing Innovation and Vinimaya at 13:30 PDT / 16:30 EDT / 20:30 BST this Thursday, October 16 for our webinar on The Procurement Marketplace and the Power of Compliance, hosted by Don Carrington and the doctor, where we will fill you in on how you can go about improving your organizational compliance.

Attendees will be the first to receive Sourcing Innovation’s New White Paper on The Procurement Marketplace and the Power of Compliance. Register now for The Procurement Marketplace and the Power of Compliance and get a leg up on your competition!

Procurement Trend #33: Governmental Regulations

As we indicated last week in our posts that attempted to explain why the “futurists” are still stuck in the past where Procurement is concerned, and why we needed to spend thirty posts on the subject, we are going to discuss in detail each and every “future” trend that we debunked in our Future of Procurement series on old-blues and ongoing news. By the end of this series, you will not only understand why the historians are still talking about these trends, but why they are still relevant to many Procurement organizations that are stuck in the past with the historians and what you need to do to prevent staying there with your organizational “peers”.

As per our original series, government regulations have been enabling and restricting trade since trade between nations began. It’s always been an issue, it always is an issue, and always will be. It’s going to be an issue until the end of humanity, but is not a future trend as it’s been an issue since the dawn of humanity.

So why do so many historians keep pegging it as a future trend? There are a number of reason, but the top three today are:

  • Environmental Regulations
    Regulations like WEEE, REACH, and RoHS are coming fast and furious around the globe and are limiting what you can produce, export, import, and sell. And, in some cases, tying you to the product from cradle to grave (as sometimes you are required to take the product back at end of life and safely recycle or dispose of hazardous materials).
  • Free Trade Regulations / Free Trade Zones
    Preferential Trade Agreements such as NAFTA make certain types of trade more profitable or less costly than other types of trade and free trade zones can delay taxation until sale time or even eliminate the unnecessary collection and reclamation cycle (which is timely and costly) for goods passing through to another destination country, but only if you know how to use them to your advantage.
  • Trade Security Regulations
    Regulations like 10+2, part of the US CBP ISF, that require 24 hour advance notice of manifests can cause significant delays for companies that are non-compliant and even result in seizure and forfeiture of goods.

So what does this mean for your organization? How do you blast out of the past and into the present in preparation for planning for the future?

Environmental Regulations

You need to be current on the regulations that affect all of the products you are producing, importing, or exporting. This requires bill of materials (BoM) level visibility into each product produced and detailed lists of each material regulated by one or more regulations that your organization has to adhere to as well as software that can automatically match BoM raw materials to regulatory material lists and alerts you to a potential conflict before the product is produced and becomes useless to your organization because it contains a raw material that prevents it from being imported into the target market.

Free Trade Regulations / Free Trade Zones

You need to identify all of the regulations that impact your global trade, index them by product, and use them to your best advantage. In addition, you have to cross index your product categories against the HTS Codes to produce the best products for importation into the target country at the best locations to get the lowest rates. For example, “gloves” can be found under codes 3926.20.40, 4014.19.50, and 4203.21.60 and the tariff rates are 6.5%, 14%, 5.5%, or, if the good is coming from a country with a preferential trade agreement, 0%.

You also need to identify all of the free trade zones in each country you plan to import/export into/out of and make sure that your global trade routes flow through them when appropriate. Having to pay tariffs weeks, or months, before the product is sold poses a serious hit to your cash-flow, especially if the tariff is on a good destined for re-export, as it could be a year or more before you are able to reclaim the tariff the organization is exempt from! So you need to use the Free Trade Zones whenever you can.

Trade Security Regulations

You need to put systems in place that not only ensure that all documents are filed that need to be filed, but that all information required is automatically collected and all documents that need to be filed are automatically produced and filed with this information whenever possible. Furthermore, when information is missing, an appropriate person needs to be immediately alerted so that the documents get in on-time every time.

And that, dear reader, is why this issue stays on the “futurists” lists and what you need to do about it to make sure you don’t join your competition in the past they are all stuck in.

50 Years Ago Today Russia Took Us One Step Closer to Inter-Planetary Supply Management

But we still aren’t there yet!

I know I keep ranting and raving about this, but considering that 51 years ago General Dynamics told us that a mission to Mars could be launched in 1975, and yet, we still haven’t gone beyond the moon, it is more than a little disheartening. But then what can one expect when the budget allocated to NASA in 1971 was less than one half of the budget in 1966 and NASA’s funding dropped from 4.41% of the federal budget to 1.61% in a mere five years, and has been on the decline since. (By 1975 it was under 1% and only broke 1% three times since, reaching 1.05% in 1991, before dropping back down to 0.94% in 1994.) In comparison, the defense department consistently gets about 18% of federal spending, which is not only, relatively speaking, about 4 times the amount spent by most countries on defense but 18 times what NASA gets. (I’m not saying the US shouldn’t spend at least as much on defense as anyone else because it should even if your goal is peace as you never want to be caught with your pants down. I am saying that maybe some of that R&D research budget should be redirected to more useful pursuits. We’re running out of rare earth minerals and other raw materials here on earth. Maybe we can mine Mars and, someday, with enough advances in technology, build bio-domes that will allow us to live there as well.)

So what happened 50 years ago today? The Soviet Union launched the Voskhod 1. While the seventh manned Soviet space flight might not be a memorable one for most people, it was the first flight to carry more than one crewman into orbit, the first flight without the use of spacesuits, and the first flight to carry either an engineer or physician into outer space. It also set the manned spacecraft altitude record of 336 km (209 mi). It was another step towards GD’s goal of a manned mission to Mars … which never happened. Sigh.