Category Archives: Best Practices

Too Bad the US Post Office Did Not Follow Royal Mail’s Lead

The US Post Office is in dire straits. So dire that, as per the transcript of this PBS.org Newsmaker Interview from December 5, 2011, on how the “U.S. Postal Service Faces Big Changes Amid [its] Struggle to Deliver on Profitability”, the post office is planning to shutter almost half of the nation’s mail processing centres next spring. Given that it is currently 15 Billion in debt and owes about 5 Billion for retiree health benefits, it needs to save 20 Billion fast and it’s solution is a significant restructuring that it hopes will allow it to save 2 Billion next year and 20 Billion by 2015.

This is pretty drastic, and we’ll talk more about it in a bit, but it’s also surprising given that it’s counterpart across the pond, Royal Mail, at the same time, was discussing the results of its first major Procurement Transformation in “Special Delivery”, which ended in 2009 and saved 300 Million pounds. This was followed by a cost management program that doubled the savings number about a year later, which led into a second major transformation project, currently underway, where Royal Mail expects to save significant dollars yet again. 600 Million pounds, or roughly 1 Billion dollars, is very significant when you consider that the Procurement organization only influences about 1.7 Billion pounds of spend out of the 2.3 Billion pounds spend by Royal Mail. That means that, in roughly a 4 year period, as the transformation initiative was only announced in 2006, the organization averaged about a 9% savings a year in the public sector where it is under tight public procurement law, compliance, and regulatory demands. When you think about it, this is an absolutely amazing result.

In contrast, the U.S. Postal service is projecting a 14 Billion loss this year if it does not get legislative relief. 14 Billion! (Note that last year’s budget gave them 11 Billion legislative relief! Source: Red Dog Report (“obama budget includes 11 billion post office bailout”) And that this year’s budget is recommending another 11 Billion in relief. Source: Washington Post [postal service on tap for 11 billion bailout]) And this is the tip of the 238 Billion budget deficit it is predicting over the next decade if it doesn’t cut costs. (Source: United Liberty [united states postal service faces 238 billion budget deficit]) Given that it’s annual budget is about 68 Billion, based on expected Revenue for 2011, this represents a 20% loss! While Royal Mail was saving 9%, the US Post office was losing 16%, on track to lose 20% this year (and, based upon the projection of a 238 Billion deficit if nothing is done in 10 years, probably 30% plus in a few years).

Now, it’s tough when you have to deal with a drop in regular first class mail that amounts to 27% when compared with volume levels 10 years ago, especially when that is your primary source of revenue, but this drop was visible years ago, and efforts to reduce costs could have been underway years ago. The network should have been optimized 6 years ago, re-evaluated, and then optimized again last year. And, like Royal Mail, which was also dealing with increased competition and revenues declining at 5% a year for similar reasons, it should have focussed on vehicles and operations, business services, facilities management and property, IT and telecoms, and sourcing and demand management to do what it could to keep costs in line as much as possible year over year. Since network reorganizations of the type that the U.S. Post office has to undertake can take years, some losses were unavoidable, but this blogger finds it hard to believe that 14 Billion in losses were unavoidable. And, like Royal Mail, it should be making a hugh effort in Supplier Performance Management to help suppliers keep their costs down.

However, the most fascinating fact that is overlooked in all the news reports is the lack of focus on Supply Management. Back in 2007, the U.S. Postal Service licensed CombineNet’s advanced sourcing platform. While for years this platform, in the doctor‘s view, had usability issues in that self-service just wasn’t an option for most organizations, as per SI’s extensive coverage on CombineNet back in 2006/2007, when they were undergoing their first major transformation of the decade, this was one of the most powerful strategic sourcing decision optimization platforms on the planet. If the U.S. Post Office was properly applying this platform, the doctor believes they should have been saving money hand-over fist. After all, Royal Mail used Iasta, which only introduced its advanced sourcing platform in the 2007 timeframe, about 7 years after CombineNet, and saved big-time. (Note that this is not a knock against Iasta, as the platform they introduced was rock solid, but an attempt to make a point that the platform CombineNet had was seasoned and powerful enough to do what the U.S. Post Office needed it to do, including re-optimizing the entire U.S. Post Office service network.)

Supply Management can save just about any organization, but the organization has to be willing to use Supply Management, and the tools and techniques Supply Management brings to the table, and used Supply Management aggressively if the organization is serious about staying above water.

11 Ways to Improve Your Supply Chain Management

Late last year, Enterprise Apps Today had a great article on 11 Ways to Improve Your Supply Chain Management. A few of these are not repeated, or not listened to, enough, including:

  • Throw Away Your Spreadsheets
    As Sourcing Innovation has reminded you, Spreadsheets, which are riddled with errors and outdated information, Will Cost You Billions! Billion dollar accounting errors have resulted from spreadsheets on more than one occasion!
  • Manage Information, Don’t Use Information Management
    If the system doesn’t facilitate proper collection, identification, and analysis of the information required to make an informed decision, and make such easy to do, it’s not the right system for your supply chain operation.
  • Monitor the Performance of Each Partner in the Supply Chain
    Whether that partner is up stream or downstream. Waiting until a shipment is missed or a customer is late with a payment is too late to begin a problem diagnosis or issue resolution.
  • Remember that the Supply Chain Doesn’t Begin at the Warehouse or End on the Store Shelf
    More important than ensuring products are stocked on the shelves is that those products are [considered] desirable by your customers. If the product ain’t selling, it don’t matter that it’s stocked. It’s all about the end customer, and making sure the product is what they want from the raw materials up, with no child labour or sweatshops in the equation.

Any Blogger Can Benefit Your Brand — But It Takes a Great Blogger to Benefit an Organization!

Late last year, Apparel ran a good article on How Bloggers’ Influence Can Benefit Fashion Brands that is worth a read by all Supply Management Professionals because blogs can be used to influence more than just consumer trends in brand preference. They can be used to influence trends in technology, transition, and even talent management — the three T’s of the modern Supply Management organization. How? We’ll get back to this — first we’ll discuss the article.

The article notes that leading creators and distributor of fashion are working with bloggers big and small in both traditional media (TV, Radio, etc.) and new media to get their brands out there. Why? Because, despite the rumblings that “blogs are dead” now that we have the Twitter-Generation who believe that conversations can happen in 140 characters (and to whom I respond ha ha ha Ha ha, ha ha ha Ha ha, ha ha ha Ha ha, heh-heh-heh-heh-heh-heh-heh-heh-heh), they are doing better than ever. The links have shrunk (thanks to temporary link shortening services), the virtual access locations have changed (as many people read them in a central online access point like Google Reader or their own RSS feed manager), and the promotion strategies have shifted (from SEO and sites like Digg to Facebook, LinkedIn, and Twitter promotion), but blogs are stronger than ever. Established authorities are read day-in and day-out and draw a more regular audience than some newspaper columnists as more and more people go on-line for their daily dose of content. Plus, since bloggers have more freedom to choose whom they do and do not work with, and what they do and do not promote, than advertisers, readers can trust that the blogger is promoting his or her opinions and not that of the company (unless the two happen to sync up).

And the proof that blogging is mainstream is in the pudding — if there are agencies that can make a profit simply through the promotion and management of independent bloggers, willing to work with companies and brands they identify with, that shows the acceptance of the medium. No one stays in business supporting a medium that isn’t supported. And since more of these firms are popping up, it’s obvious that blogging is mainstream — even if it isn’t on Facebook.

But the real point is that many people trust independent blogs for advice more than they trust mainstream media, which needs to be heavily supported by advertisers to stay in business, and, in essence, often needs to promote some of those views and products whether or not the media outlet personally supports or identifies with the views and products it is promoting. This is what gives blogs power of influence, and that power of influence is not limited to brand. It extends to technology, transition, talent management, and other forms of thought leadership. An idea astutely put forward on a blog can often take hold faster than an idea put forward by a vendor who obviously wants to promote a product or service. And that’s why organizations need to work with great bloggers to advance the level of practice in their industry. Unless the blogger can put forward the idea in a clear, well-thought out, and defended manner, the message will be lost and the organization will be better off focussing on brand (and sales) than thought leadership.

But fortunately for Supply Management organizations, product, and service providers, there are a number of great bloggers in this space. And if these organizations are as great as the bloggers, they will learn to make better use of them both as outlets for best practices and inlets for thought leadership in their organization.

That’s my virtual 2 cents. Any differing opinions?

Want Supply Management Pros? Avoid the Culture Clash!

Chief Executive recently ran a good, but short, article on Talent retention that said “More than Money: Culture is the Key to Employee Retention” that is worth a read by every Supply Management Director looking to recruit and retain talent, which, due to a lack of talent development programs, is in short supply at many Supply Management organizations.

Noting that in this economy, however, companies can’t afford increased salaries and lots of perks for employees, the article also notes that, however, that though employees do care about how much they’re making, there are many other things that you can do to keep employees engaged and motivated, which includes corporate culture.

Quoting a USA Today article that covered GreatPlaceToWork.com’s list of the 25 best multinational workplaces, the article noted that companies with exceptional workplaces have three things in common:

  • employee trust in management
  • pride in the company
  • camaraderie with colleagues

This is because everyone wants a positive work environment. The article points out the obvious when it notes that you should treat your employees with respect, and that employees who have pride in what they do can make up for other organizational shortcomings, and misses the obvious that employees want to feel empowered, want to feel like they are contributing, and want to look forward to getting up and going to work in the morning. This requires all three of the elements of culture outlined above, and, in the doctor‘s view, also requires

  • employee accomplishment

A dedicated professional wants to feel, at the end of the day, that he or she accomplished something and made a difference. This is why your talent must be trusted by management to work on meaningful tasks, empowered to do so, given the support they need to succeed, a peer group that has common goals, recognition of their results, and pride in their work. Hit these nails on the head and your chances of recruiting and retaining top talent go up a notch or three.

The Case for Onshoring … Is A Damn Good One!

Upon a closer look, offshoring is not always the right answer for all products, especially those sold in America. For one thing, labor costs in general are shrinking as a share of the total cost for many items. Moreover, average factory wages in many developing countries are rising, as is the demand for America’s sophisticated just-in-time, cost-saving, logistical systems. When common shipping problems are added into the mix — natural disasters, security threats, political instability, theft and other risks — more manufacturers are concluding that the savings offshoring had promised are just not there.
Guy Morgan, BBK Managing Director
from “The Case for Onshoring” (Industry Week)

You’d almost think he was trying to get in the doctor‘s good book! Truer words could not be spoken and I could not have said it better myself.

And these words are true whether you are talking manufacturing, software development, back-office functions, or call-centre outsourcing. We’ll review some high points of the article and then discuss these other points.

I think the author is right when he quotes Harry Moser, retired chairman emeritus of GF AgieCharmiles, who argued that many companies began moving production to low-cost countries mainly because they thought everyone else was. The worried that a competitor might gain a cost advantage; and, in the process, they put a limit on their thinking by fixating on a component’s sticker price rather than considering its total cost. But this leads to problems, especially since as per a 2009 analysis by Archstone Consulting and Duke University, most manufacturers use “rudimentary total cost models” that ignore 20% of the offshoring’s cost. And when you add to this the fact that the prices for Asian manufactured products have risen 15% to 20% in the past 4 years, there aren’t that many cost advantages.

And then, as the author astutely points out, you need to factor in excess inventory to replace poor-quality products and insure against late shipments, stolen intellectual property, rising fuel costs, environmental impact and more … which all adds up to more cost!

Add it all up, and it’s often cheaper to produce your product in North America. And this is sometimes the case even if you have to produce it in or near a major city that you would normally consider to be a high-cost locale!

It is time for the home-shoring renaissance that the doctor has been predicting since 2007 (which is well before the Boston Consulting Group figured it out, as mentioned in the article, but we’ll forgive them because they’re still ahead of the curve). What everyone is forgetting is that, despite higher labour costs, good ol’ (North) American ingenuity and innovation always leads to much higher rates of productivity and lower component costs in the end that always more than cancel out the labour costs. The proclamation that some U.S. states will become among the most cost-effective locations for manufacturing in the developed world is a correct one and it will happen. The only question is will your organization be one of the few who will lead the way and reap the greatest rewards?

And if you want to get an idea of how big those cost savings associated with onshoring could be and you’re in manufacturing, checkout the FREE TCO Estimator associated with the Reshoring Initiative over on ReshoreNow.org. It’s not perfect, but with 29 cost factors, it’s a good start.

As for the other industries I mentioned, you’ll save money bringing those back as well.

If your software development is outsourced to India, there are big savings to be had. Labour costs are still rising and the average skilled worker now costs (at least) 40% as much as his American counterpart. You might say that he’s still cheaper even after communication, remote management, and reduced productivity costs are factored in, but, if it’s innovative development, he’s not — especially if you reshore to Canada. Up here, we have the Scientific Research & Educational Development tax credit which can refund you up to 75% of approved research and development costs. And if you need money up front, it can always be stacked with the National Research Council’s Industrial Research Assistance Program. And since, up here, a software development resource costs at most twice as much as a resource in India, after these programs are applied, our world-class developers, who speak your language in your time zone and understand your business, cost half as much.

With respect to back-office functions and call-centres, there are a large number of small, rural, towns with low costs of living that would thrive off your operation and staff it at very affordable rates. And while the North American minimum wage might be three or four times as much as a prevailing wage for an English speaking call center or back office resource in Asia, when you consider that many calls will be resolved significantly faster as both parties will understand, and be comfortable, with each other from the first “hello” (as many North Americans aren’t comfortable with Asian call-centre support and have problems understanding their accent), the higher labour cost is negated with higher productivity. Plus, and this is key, no long-distance costs, no remote infrastructure costs, and significantly lower training costs (with much lower turnover). Win, win, win.

Bring the work back home. Unless you’re a Fortune 500 (like Apple) with demand for your product so big that it has to be made in a city (like Foxconn), and in the top 0.01%, it will be more cost effective to do so. And the higher quality and lower risk will make it all worth while.