Monthly Archives: August 2023

How Do You Reconfigure the Global Supply Chain? That’s Easy!

Ever since the pandemic, there’s been quite a few articles about this despite the fact we’ve known the answer for well over a decade. (Or at least SI was giving away the answer, for free, over a decade ago, even though it seems no one was listening.) Or at least some of use have known the answer for well over a decade. So why was no one listening? Why is the answer still not well known? Is it not clear? Is the new generation not looking on their own and wanting the answer spoon fed to them? Are the articles with the solution either too generic, too politically correct, too vague or not actionable?

It’s hard to say, but to make sure this article is not too generic, not too politically correct, not too vague, and not inapplicable, we’re going to be very, very specific, as politically incorrect as possible, as to the point as possible, and actionable in our messaging. And we’re going to keep it as short and sweet as possible so that the message will be clearly understood.

 

Unless you are selling the product to China (/Asia), when sourcing,
FUCK CHINA.

It’s that simple.

 

Risk Mitigation 101 for Buyers is to have two sources of supply because risk mitigation 101 in systems design is no single point of failure. But over the last three decades, we have built a global supply chain where all roads simultaneously end in China and start in China. When there isn’t a single product you buy where a component or raw material doesn’t get produced or processed in China, it doesn’t matter that you use two different distributors or manufacturers for the product as the choke point is still China. Thus, if the factories or ports shut down because of China’s ridiculous “zero tolerance” policy to an unstoppable epidemic (which is not even as lethal as the bird flu if a large majority of your population that can be safely vaccinated is vaccinated); if the shipping industry gets overloaded due to a lack of ships, workforce (see yesterday’s article on how strikes are going to be your biggest source of supply chain disruptions for the next decade), or containers (which happens, especially since there are way more ships carrying goods from China than carrying goods to China, semi full ships will not load containers to take back until completely empty, and this results in many ships sailing back mostly empty); or critical commodities or utilities expected locally become temporarily unavailable to the factory, you, and everyone else in the world relying on that product, are shut down.

There’s a reason that North America used to primarily source products not made in the USA from Mexico or South America. If there was a disruption, you found out sooner. If a factory had a fire, you could fly in, assess the damage, and send in your engineers to help fix it — quickly. If not, you weren’t far from alternate suppliers you could fly down to assess, and if suitable, negotiate with. If there was a transportation backup, it was easier to clean up — you weren’t waiting for ships, you just sent down more trucks or ordered more rail cars.

And the answer should now be obvious:

  • Home-source anything that can be grown / mined / produced at reasonable economy of scale in multiple geographically separated locations in your home “region” (i.e. multiple states in the US; multiple connected countries in the EU)
  • Near-source anything that can grown / mined / produced at reasonable economy of scale in a relatively near-by country or region connected by land where the product can be shipped by rail and truck (Mexico / Central America / Northern parts of South America for the US)
  • Far-(Over-Sea)-Source only what can’t be home-sourced or near-sourced, which should just be raw materials or small components (i.e. there’s no excuse to be manufacturing and importing washing machines, refrigerators, and cars which are super bulky and weighty when there are only a few core components that need extreme specialization [where it would be hard to find another / build a new factory] or materials that need to be processed pre-transport

Which means that if you are sourcing for the Americas, the amount of sourcing that you should be doing from China is likely about 10% of what you’re actually doing, which, at the end of the day, gave you short term savings in exchange for long term debt including, but not limited to:

  • customer churn and angst
    (happy customers seeing value fork over $$$ a lot faster and in greater amounts than those that aren’t, and they aren’t happy when they don’t get their products on time)
  • constantly increasing transportation costs …
    containers went from < 5K to > 30K during the height of COVID, and while they have come back down, they’re still 30% to 50% more on average, and since most ocean going vessels still use HFO (the dirtiest oil there is, FYI), and the global port strikes are resulting in significant wage increase (partially due to significant inflation in many countries), they’re going to keep going up, especially once you factor in those
  • high carbon taxes
    (everything you make in China is dirty and the shipping is even dirtier)
  • high IP theft …
    even if most of the products don’t make it out of China, everything you produce in China is copied … everything … and some of the copies are now so good, even high end stores in the US are getting fooled!
  • limited options …
    many of your best options went out of business over the last two decades as you believed the overpriced consultants with their false promises that the savings would last forever (but nothing lasts forever …)
  • increased disruptions
    due to the soon to be three-fold increase in natural disasters annually since the China craze began in the late eighties/early nineties (which is projected to be five fold within a decade or so)

On the flip-side, many of the factories you used to use are still where they were. The workforce is still there. The potential is still there. All you have to do is invest in it. It may mean a partial return to the vertically integrated company where you own (part) of your supplier, as you may have to re-enter into co-opetition through conglomerates where you and a group of your peers each minority invest in a new entity to bring that factory back online (or build a new one), but nothing is stopping you. And it might take a year or two (or three) to bring it back, but you can do it, and greatly reduce your supply chain risk in the long term. And, to make it a bit more personal, when you do this, just like Justin, you will have brought SexyBack

In short:

Unnecessary Outsourcing, especially Unnecessary Overseas Outsourcing, broke the supply chain. If you want to fix it, JUST STOP!

To be fair, we should point out that this article is aimed at the primary readership of this blog, which is North America / (Western) Europe as well as the continents of Australia, South America, and Africa. This article is NOT aimed at Asia, because China is part of Asia, which means if you are buying to support an Asian market, in this situation you should be buying from China (and Fuck the Americas), as per our qualifying assertion near the beginning of this article.

Your Biggest Threat of Disruption For the Next Decade is NOT What You Think!

Disruptions are on the rise. It’s a fact, and if you want proof, just visit the World Economic Forum and check out their Global Value Chain Barometer. While some categories of disruptions are holding steady, disruptions are on the rise overall and not a single category is declining.

If asked what the biggest source of disruptions are, depending on where you are located in the world and what industry you are in, you’re likely to say that the biggest sources of disruption are either
a) war and conflict,
b) natural disasters, or
c) cyberattacks.
And while those have traditionally been (among) the highest sources of disruptions, you’d be wrong. The biggest source of disruptions this year have been strikes and walkouts globally. And as the brilliant Robert Reich will tell you, despite the large number of strikes we’ve seen over the last year, workforce revolts are just getting started.

When you consider

  • the rapid rise in inflation globally, especially around necessities (food, housing, healthcare),
  • the fact that, despite the almost two decades of low inflation, intermixed with short periods of stagflation, the majority of the population in many first world countries were financially struggling before inflation came back, especially given that many were out of work for part or all of COVID and didn’t get near enough financial aid to keep their heads above water, and
  • they’re all scared of AI taking their jobs

Many people are near their breaking point. Strikes are going to keep happening, and repeat every 2 to 4 years (depending on the union contract length) until the underlying issue is fixed. But it’s not going to be fixed!

Why? As the brilliant Robert Reich points out, it’s because of the vast inequality between the (super) wealthy and the average person. In the past 45 years, CEO pay has skyrocketed 1,460% while the typical worker saw a pay increase of just 18%. This has led to a vast inequality between a small group of very wealthy people in a mid-size or large company and the average employee. Until this gap is narrowed, the situation is only going to worsen as more and more laborers reach the point where they’re already broke and have nothing to lose by walking off the job, and strikes are going to become much more common than they were in the past 40 years.

The situation could be fixed easily if CEOs and Boards increased worker’s pay each year a few % above the average rate of inflation for the next few years, a move that would cost most companies only a small fraction of their profit (and still keep the differential pay increase between the average worker and the CEO above a 1000% differential using the same baseline), but it’s obvious this is not going to happen (even though that would still be a ridiculous divide). This fact is best illustrated by the current writers’ and actors’ strike that every single person in the world is aware of where the executives have simply decided to do nothing because the unions will come around when the majority of writers and actors (where 99% don’t make enough to pay their rent and eat without side-jobs) get to the point where they are at risk of losing, or have lost, their sh!tty apartments. (And trust me when I say that they are sh!tty apartments! There are two sides to Hollywood, the side you see, and the run down slums you don’t see where the majority of actors and writers live by doing side gigs while waiting for their big break, which won’t come for over 90% of them.)

It’s an utterly ridiculous situation, especially when it would be trivially simple for any government to fix with a one page bill. (For example, it could be solved if all first world governments were to simply pass a law that, in any company with more than ten employees,
1] No single person in the company can earn more than 100 times the lowest paid worker on an hourly basis during a year across all company payouts including, but not limited to, salary, bonuses, stock grants, share grants, and company paid benefits where the definition of worker would include all employees, contractors, and contractor employees doing any work for the company, which would prevent the company from shifting all low paid employees to a subsidiary to try and get around the law;
2] Any individuals found in violation of this rule would get fined $2 for every $1 in excess of their maximum allowed remuneration for the year;
3] Any officers responsible for compensation who knowingly violated this law could be criminally charged and serve jail time; and
4] These Companies would be required to submit a financial statement of compliance listing the full effective compensation of every worker (down to the janitor in the contracted cleaning firm) as part of their tax returns. Just these four simple rules would prevent most CEOs and their overpaid C-Suites from earning more than 1,500 an hour or 3 Million a year as these mega corps have plenty of minimum wage employees under current remuneration models.)

Furthermore, if a reasonable fix was made (in law) that limited executive pay to more than reasonable levels and thus limited the ability of these executives to grow their wealth to ridiculous levels unless they:

  1. paid their workers more,
  2. increased their net company value (to increase the values of the shares and stock options they earned in prior years), or
  3. started or invested in other companies

… the truth is that such a fix would all be fantastic for the economy as it would force a return to classic growth scenarios (and not the current focus of make money today to please Wall Street, even if it bankrupts the company tomorrow), which would create a much more sustainable economy in the long run. (Markets only crash when they are run up to unsustainable levels. This is a result of Wall Street pushing companies beyond sustainable growth levels.)

But it will never happen, because all the Billionaires would simply spend whatever amount of money they needed to buy enough senators and congress representatives to prevent it from happening (or enough judges to find it an unconstitutional law).

Thus, in the interim, across all industries (not just the entertainment industry the news is fixated on) you will have the greedy out-of-touch Billionaires, whose loss of income from a strike event is so negligible they won’t notice it, starving out union workers until they cave to a new union contract below inflation (while giving themselves a big year end bonus for their trouble). This will not only cause you additional disruptions you weren’t planning for (as strikes linger on for weeks and months), but will increase the inequality gap even further (while the workers get even poorer due to pay raises less than inflation), which, in turn, will set the stage for a whole new round of strikes (and disruptions to your supply chain) in two to four years when the contracts end (that the Billionaire executives will deal with in the same way).

Now, don’t get me wrong, I’m not saying Billionaires are bad (because I shouldn’t need to say it), I’m saying that the actions of the ridiculously overpaid super rich and their sole focus on the almighty dollar have set the stage for the first decade in our lifetime where strike-based disruption events will exceed natural disasters, even though natural disasters have almost tripled in the same time frame (and will continue to increase as long as global warming continues to increase).

the doctor would wish you luck, but even that can’t combat greed!

Ignite Wants to Spark Your Sourcing Success with Actionable Analytics!

the doctor has written about many Spend Analysis vendors over the last decade*, including Ignite Procurement, which is one of the few newer vendors that he expected would soon breakout of their (Nordic) niche and start expanding, something which they are now starting to do having tripled their customer count in the last 6 months to over 200 customers.

The reason for this expectation? They earned their top right status in the Spend Matters Spend Analysis Solution Map when the (quadrant) maps still existed and the doctor was responsible for grading them as a Top 5 Best-of-Breed Mid-Market focussed Spend Analysis player located in Western Europe / the UK.

Founded by ex-BCG (Boston Consulting Group) consultants in 2017, with the first version of the platform launching in 2018, the key players not only have a firm understanding of spend analysis, but what analysis capabilities a customer needs to find their spend waste and their opportunities. Plus, they understood since day one that spend analysis in a vacuum is not that meaningful and is most meaningful in the context of negotiations, supplier management and development, contract obligation management, labour compliance and ESG reporting, for example. Negotiations work best when they are fact based, supplier development efforts are best focussed on those suppliers where improvements would result in considerable cost reductions or value generation, contracts are meaningless if not adhered to (and the resulting overspend completely unnecessary), labour violations in the supply chain can result in huge fines to your organization, and exceeding your carbon caps can be even more expensive (not to mention the fines if you don’t properly report). (And yes, this is a bit of foreshadowing.)

The core of the Ignite “Spend Management” solution is the analytics offering which, like most spend analysis solutions, has two core components:

1. Data Management

It’s very easy to get data into the Ignite Platform. In fact, it can be as easy as dragging-and-dropping a file onto the browser pane as Ignite allows you to define all of your taxonomies as well as your standard file format mappings to those taxonomies. It can then detect if the data is new, incremental, or updated and allow you to add, add only new records, update existing records, or even load the file into an entirely new cube.

When it comes to taxonomies, you can start with your own or built-in and then, during analysis, you can define and redefine taxonomies on the fly, with reclassification as simple as dragging-and-dropping. You can also define and update mapping rules quickly and easily as well, fixing errors or updating classifications as the need arises.

Data enrichment is easy-peasy compared to generic analytic platforms or suites as they support a number of financial metric, industry classification, currency exchanges, commodity intelligence, CO2 emission sources, and risk metric sources out of the box and provide a full integration platform with APIs, pre-built connectors, and timed data pulls (via SFTP, for example) for those who need custom integrations.

The platform also supports multiple tables and spend cubes and allows you to work on global tables and cubes or local tables and cubes for what-if analysis.

But most importantly, it’s one of the few best-of-breed platforms with a fully integrated visual data flow manager where you can define the entire loading, mapping, enrichment, classification, and automated analytics, reporting, and notification process, including automated supplier normalization.

2. Analytics

The Ignite Platform has just about everything you would expect from a modern analytics platform including arbitrary dimension selection, formula-based dimension derivation, easy (powerful metric based) filters, multiple chart and widget types, easy drill down, easy view/report modification, and ad-hoc analytics.

It also comes with a full suite of out-of-the-box analytics to help you identify potential savings opportunities through contracting (off-contract spend), renegotiation, supplier (re) negotiation, supplier benchmark improvements, spend consolidation, invoice management, payment term rationalization, price improvement, etc. Contract coverage, PO Coverage, key supplier coverage, and a suite of KPI reports are also available out-of-the-box (including a spend development dashboard that can go beyond just spend to impacting metrics such as OTD, quality incidents, etc. if you track the data in the supplier management module).

It’s ability to identify supplier-based (re)negotiation and development opportunities is extremely good and based on its proprietary Ignite Matrix that maps “share of wallet” vs EBIT Margin (which it calculates using mandatory government disclosures and integration with appropriate feeds, such as Enin in the Nordics, and appropriate adjustments) and scatter plots the results to help you quickly identify where your business is contributing to a supplier’s high profit margiin (and where the supplier has room to negotiate without jeopardizing its stability).

On top of this they have also built:

3. Supplier Management (Information / Performance / Risk / Compliance)

With its strong data management underpinnings, the Ignite Spend Management platform can store any all supplier related you wish to track and analyze, which not only allows deep spend-related insights by supplier, but performance and risk (metric) insight by supplier, with the ability to track and compare over time.

In addition to providing a full Supplier 360 view across all data captured in the platform, the Supplier Management capability includes standard campaign management where a buyer or supplier management can create questionnaires for supplier data augmentation and collection of relevant data and documents for supplier performance / risk / compliance management.

4. Contract Management (Governance)

Due to its strong data management underpinnings, the platform can also store all relevant contract meta-data in addition to the contract documents and allow users to manage, report on, and automatically annotate spend that is covered by a contract (as well as determine if it was billed, and paid, at the contracted rate using the appropriate payment terms). Also, as with most contract management plays, it can support tasks and alerts and the linking of contracts to tasks and alerts.

5. Scope 3 Management / Carbon Accounting

The best foundation for a carbon calculator / carbon reporting application is a true analytics platform that can support the definition of all of the appropriate Scope 1, 2, and 3 Categories of relevance to the organization and/or required by the appropriate authority to which reports must be made; the integration of data feeds to allow for the appropriate carbon emission calculations; the collection of actual data from suppliers that can supply it; the generation of the appropriate reports with the appropriate calculations for mandated reporting; and the tracking of changes over time. This is precisely what the Ignite Procurement platform supports.

The entire platform is easy to use and the UX is quite modern, but you don’t have to take our word for it — you can see a three minute demo on their webpage … just scroll down to the Meet Ignite Procurement section. So if you’re looking for an analytics platform that can provide you actionable spend insights on your contracts, suppliers, and ESG that you act on to reduce waste and increase value, you should make sure that Ignite Procurement is on your shortlist, especially if you are in its current target marketplace in the EU/UK.

* Not all on SI, many write-ups are on Spend Matters, behind the revised paywall.

SupplHi – A Best of Breed Supplier Management Platform for Industrial MRO

In a recent article, we noted that It Does Not Matter Where You Start, You End with BoB in SXM, and if you in the business of industrial MRO, it’s likely that your BoB will be SupplHi.

SupplHi is one of the broadest, and deepest, solutions we’ve seen for Industrial MRO (and Direct in general, but the fact that they have 90% of the supply base in certain MRO categories makes them extremely suited for that categories, as well as the fact that they have the deepest out-of-the-box categorization for MRO which includes 2,600 categories across 250 families in 45 groups of supply [request download] makes them extremely well suited to MRO), covering (at least) baseline functionality across (at least) 7 of the 10 core areas and information tracking in 2 more (Quality and Performance), a claim that only a select few vendors can make in Direct and, as far as we know, none can make in MRO (Maintenance, Repair and Operation) [for both equipment and services).

SupplHi can be summed out as the Closed Loop Supplier Management Hub for your Industrial MRO Supply Base, which not only allows you to centralize all of the data (if not manage it natively) to support all of the supplier related activities, but also gain visibility through multiple levels of the supply chain while evaluating potential (Tier 1) suppliers for risk, compliance, and performance.

If you tried to read that, you’ll realize that’s a mouthful and tightly packed with impressive claims, so let’s talk about how SupplHi supports the Industrial MRO/Classic Direct lifecycle, and then quickly overview the main features.

  • Discovery: a network of over 100K suppliers that is growing daily focused on Industrial MRO
  • Onboarding: a plethora of features and apps to make it easy to onboard suppliers
  • Evaluation: in addition to collecting information on products AND capabilities, collect and store public/shared information on risk, sustainability, certifications, perform due diligence, etc.
  • Monitoring : track all relevant quality, compliance, sustainability, risk, and performance data
  • Management/Development : performance evaluation, sustainability monitoring (including Scope 3), non-conformity management, and development campaigns
  • OffBoarding : status marking, performance evaluations, (de)qualification, etc.

… and if a supplier corrects an issue (lack of certification), adds a capability (factory upgrade), address a major risk, etc., then the cycle can begin again with (re-)onboarding. It’s truly closed loop — and the (pre-defined) master data management capability is among the most extensive data models we’ve ever seen.

The SupplHi site markets a large number of capabilities (which it calls apps, of which there appear to be 25+, in addition to integration services, ad-hoc services, etc.), but six key capabilities that make SupplHi stand out are:

  • DEEP EXTENSIBLE PROFILE: it’s MDM capability allows it to track any and all data you need to track on the supplier, including products, capabilities, certifications, sustainability ratings, quality (metrics), performance metrics, sub-tier supplier linkages, etc.
  • DOCUMENT MANAGEMENT: all product specs, certifications, (insurance) certificates, contracts, assessments, etc.
  • CERTIFICATION AND BANK ACCOUNT VALIDATION: in the platform, no reliance on a buyer NOT fat-fingering a critical piece of info.
  • MULTI-TIER VISIBILITY: few platforms have this, but due to their deep knowledge of the Industrial MRO space and extensible Master Data Management approach that allows suppliers to identify their suppliers, they can map, and visualize, a typical supply chain to the source suppliers even during the Scouting/Discovery phase
  • SUPPLIER CAPABILITY TRACKING: it can track the types of engineer specialties, the machinery available, international codes/standards supported, sub-tier suppliers by category (down to level 3 in the category tree), policies, energy efficiency, and other data required for a proper assessment of an equipment and/or services Industrial MRO supplier
  • ACTION MANAGEMENT: simple information requests, quality issues, development projects (as part of a campaign), etc. all fall under actions that the platform can manage

In other words, as we said before, it’s broad, it’s deep, it has direct capabilities that only a few competitors posses, and it’s built-in category framework and extensive supplier network make it unparalleled in Industrial MRO.

You don’t have to just take our word for it. You can also see:

It Doesn’t Matter Where You Start, You End with BoB in SXM!

In a recent article, we asked in the battle of Suite vs. BoB (Best-of-Breed), which do you choose, and ended up with the answer of neither, but potentially both, because, as indicated in our article we asked in our post on Where’s the Procurement Management Platform, you need a true platform (that enables the creation of a true source-to-pay plus ecosystem for the various workflows and processes that need to be managed).

As a result, we indicated you could start where you wanted, provided:

  • you could conceivably manage it (if you don’t have any reasonably modern e-Procurement applications, expecting you can dive into more than a couple, learn them, and incorporate them in your daily processes in a short-time frame is completely unrealistic, so you shouldn’t buy from a suite vendor unless you can activate modules over time as you are ready for them)
  • the vendor offers, and publicly publishes, a complete Open API that, at a minimum, can be used to import and export all data the platform supports and should support the execution of core functions (so that you can script in a related module a date/time-based import/refresh process, re-execution of a core function/calculation, and retrieval of updated results)
  • the vendor offers the necessary quick-start services (you need to be able to get going quickly — if it requires a 3 to 6 month onboarding process, you’re dead in the water before you begin from both a first year ROI and adoption perspective)

But where do you end up? It depends. On what:

  • the module (Spend Analysis, Sourcing, Contract Management, Supplier Management, e-Procurement, e-Invoicing/AP, etc.)
  • the organization’s biggest need for workflow/process management
  • the organization’s biggest savings/cost avoidance/value creation opportunities

And for some modules, like e-Procurement, standard sourcing (no optimization/automation), AP (accounts payable), it’s quite hard to make the case for one over the other for an average organization (as it’s not how many features, functions, bells, and whistles, but which of those will actually add value to the organization acquiring the solution).

But for others, it’s crystal clear. And the clearest case is Supplier Management. Why? As per our recent article in our Source-to-Pay+ Series, Supplier Management is a CORNED QUIP Mash, and there’s no way that a suite, which is typically only average across-the-board, is going to be deep enough for the key functionalities needed by an organization (and the majority only address SIM reasonably well, with limited SRM-related capabilities). In fact, you’re not even going to find a single BoB provider that provides leading functionality in more than a few areas of what supplier management can encompass (especially if an organization needs quality, enablement/innovation, orchestration, or other specific direct or service support requirements, etc.). (So do you think you’re finding a suite that does everything? Not a chance!)

So you can start with a suite (that serves as a foundation for comprehensive SIM), or even a module from a BoB provider (that likely provides baseline Supplier Information Management as a Sourcing/CLM/Analytics add-on), but if you are serious about improving supplier performance (quality, compliance, cost of service), you will eventually progress to one (or, for extensive, different, Supplier Management needs, multiple) BoB solutions.