Category Archives: Dick Locke

Are We Moving Away From China?

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Editor’s Note: This is Dick Locke’s third post as a regular contributor on Sourcing Innovation. (His previous guest posts are still archived.) Dick, who has delivered seminars to over 100 companies across the globe, is a seasoned expert on International Sourcing and Procurement who wrote the book.

I just read through AMR Research’s “Supply Chain Risk, 2008-2009: As Bad as It Gets“. It rightly points out that it’s been a scary year. It does do a very thorough job of criticizing China. I know that AMR is just reporting what their clients report to them so I can’t fault AMR for what they say.

Among the things they say

China is the world capital of supply chain risk.

And, because of such concerns,

The move away from China sourcing starts with higher value-added work, boding ill for the Dragon’s ambitions to outdo Japan’s ascent from a cheap labor to high-tech economy.

If such a move has taken place, it’s not apparent yet in the computer industry.

Here are statistics from the US International Trade Commission: HTS 8471 is computers and peripherals. Data is January through April.

 

Country 2008 YTD 2009 YTD Percent Change
Thousands of dollars YTD2008 – YTD2009
China $9,101,153 $8,407,280 -7.60%
Mexico $1,734,089 $1,863,850 7.50%
Malaysia $3,166,961 $1,150,911 -63.70%
Thailand $1,138,875 $818,513 -28.10%
Singapore $953,493 $543,373 -43.00%
Japan $537,601 $383,673 -28.60%
Canada $280,130 $232,428 -17.00%
Taiwan $276,369 $207,521 -24.90%
Ireland $221,564 $171,436 -22.60%
Hungary $244,124 $147,130 -39.70%
Philippines $234,714 $130,273 -44.50%
Germany $125,194 $104,954 -16.20%
United Kingdom $103,245 $94,534 -8.40%
Korea $152,459 $88,018 -42.30%
Israel $47,296 $52,556 11.10%
Subtotal: $18,317,267 $14,396,450 -21.40%
All Other: $290,471 $211,065 -27.30%
Total: $18,607,738 $14,607,515 -21.50%

 

Sources: Data on this site have been compiled from tariff and trade data from the U.S. Department of Commerce and the U.S. International Trade Commission.

Comparing the first four months of 2009 to the same four months of 2008, computer imports into the United States dropped 21.5% in value. Imports from China only dropped 7.6%. China is increasing its share of imports.

I don’t think this is a sign that computer manufacturing is returning to the U.S. However, one sign that nearshoring may be taking hold is that Mexico is one of only two countries whose absolute value of imports increased. It jumped from number three country to number two.

These USITC reports are especially useful when sourcing. Look for both high value countries and rapidly growing countries. Your best sources will probably be in those countries.

Dick Locke, Global Procurement Group and Global Supply Training.

Dick Locke on the Dangers of Protectionism (or is it Cluelessness?)

Editor’s Note: This is Dick Locke’s second post as a regular contributor on Sourcing Innovation. (His previous guest posts are still archived.) Dick, who has delivered seminars to over 100 companies across the globe, is a seasoned expert on International Sourcing and Procurement who wrote the book.

There was a letter in today’s New York Times from Thomas Gibson of the American Iron and Steel Institute that said, in part,


Steel imports are taking historically high market share while the domestic industry is producing at half its capacity. American mills are on hot idle waiting to produce quality steel for America’s needs. Let’s stop being apologists for foreign protectionists and put Americans back to work!

It would be nice if Mr. Gibson said why US industry is at half capacity. Is it Quality? Flexibility? Price? Overcapacity? I certainly don’t know. Maybe he doesn’t either. It must be….(cue the ‘Satan’ music from Saturday Night Live)… Protectionism!

I do know that if the Institute tries to force buyers of steel to use a more expensive or otherwise less desirable steel because it’s made in the USA, it puts users of steel at a competitive disadvantage to their foreign competitors. That hastens the departure of users of steel (for example, the auto industry) to other countries. This isn’t a zero sum game. Protecting a US manufacturer of a basic product hurts higher level industry and the ultimate consumers of that product.

Let’s not go down that path.

Dick Locke, Global Procurement Group and Global Supply Training.

Dick Locke On The Yin-Yang of the Business Universe

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Editor’s Note: This is Dick Locke’s first post as a regular contributor on Sourcing Innovation. (His previous guest posts are still archived.) Dick, who has delivered seminars to over 100 companies across the globe, is a seasoned expert on International Sourcing and Procurement who wrote the book.

Steven Guth proposes that “Procurement pros should be in sales“. He
implies, but never quite says, that procurement pros should have sales
skills. That’s right on. I’ve been there, done that and even got a
tee-shirt. Sales skills are essential, especially if you are in a
corporate central group that is outside of any profit centers.

Here’s the situation. I won’t mention the company name, but I hope
people will figure out who it is. They had a Corporate Procurement group
of which I was a part. I received an assignment to start up International
Purchasing Offices (IPOs) in Asia back in the mid 1980s. Funding those
offices quickly became an issue. It had been an issue all along for the
Corporate Procurement Group, with big annual negotiations and
discussions about how much each profit center would pay to fund the
corporate group. Now we wanted to add more people and expense for an
unproven new function. They might as well have painted a big target on
our backs.

The funding solution we came up with was that we had to generate our own funding and using us had to be voluntary. That meant we had to charge our users a fee and that we were in competition with two other groups. One was reps and subsidiaries of (largely) Japanese and European
companies who had set up a sales subsidiary structure in the US. The
second group was our own company’s buyers and purchasing managers in profit centers who felt they could source, purchase from, and manage
overseas suppliers themselves.

We realized we had to not only charge less than what sales subsidiaries
charged but also less than our profit centers felt it would cost to do
it themselves. We came up with essentially a sliding scale of markups on
purchase orders. Small users might pay as much as 5%. Large users might
pay less than half a percent.

I’m glad to say it worked. The operation was handling more than a
half-billion dollars per year in orders when I left. That’s not to say
there weren’t, err, “learning experiences.” One of our big issues is
that we had selected employees for their purchasing and engineering
skills, and not for their marketing skills. It required a tune up for
several of our people, not excluding me. It took about three years to
become fully self funded. If we had avoided some mistakes we could have
shaved about a year off that time.

It had some very pleasant side effects. We essentially were running a
small business within a big corporation. Our people got lean,
entrepreneurial and very customer-oriented. We quickly developed an
antipathy to bureaucracy. We became really efficient. It also took us out
of the annual budget battle and the annual exercise to calculate what we
were saving. (I refer to that as “lies, damn lies, and purchasing
statisitics.”) We merely had to state that we received x number of
purchase orders per day from people who didn’t have to use us and were
paying us for our services. That kept management happy nearly all the time.

Where is this model applicable? In companies where there is a lot of
independence on the part of profit centers, a center-led purchasing
effort, issues with funding the central department and finally where an
internal department can develop and market an advantage over their
competitors. Check it out, it may be right for you.

Dick Locke, Global Procurement Group and Global Supply Training.

Welcome to Sourcing Innovation, Dick.

Are Your International Procurement Skills Up to Snuff?

the doctor is pleased to welcome Dick Locke of Global Supply Training back to Sourcing Innovation.

My guest post on the issue of keeping talent mentioned a ten-question quiz on global supply management skills. After the post, there was a surge of people who took the quiz. I have to say the results were disappointing. I graded the first thirty answers that came in after my guest posting. The average number of correct answers was 1.5 out of 10. Two people tied for top score with six correct answers. The average number of questions that were answered at all was 5 out of 10.

If I assume that the answers largely came from readers of this blog, I suggest some training is in order before you source outside your home country.

The quiz had questions on cultural differences, legal issues, customs and logistics, foreign exchange risk management and sourcing techniques. I’ll be the first to admit that it’s not a perfect quiz. Two of the questions are US-centric, and one has some wording that misled a few people. However, there were many areas where basic knowledge was obviously lacking.

  • Two people out of 30 recognized my description of the U.N. Convention on the International Sale of Goods.
  • Two people out of 30 knew that forward contracts were the standard way to protect future exchange rates.
  • Five people out of 30 knew that the buyer has the in-transit risk of loss under the CIF Incoterm.
  • Estimates of the time it takes a container vessel to travel from Japan to the US West Coast ranged from 5 hours to 56 days. The average and median were about 18 days. Only one person came within 5 days of the correct answer (9 days for a Panamax or post-Panamax vessel). OK, that one is US-centric.
  • On the brighter side, twenty out of thirty recognized that Japan is a country where people have difficulty saying “no” or giving bad news directly. That question had the best result.

At the risk of appearing self-serving, I think it’s obvious that the people who took this quiz need a skill upgrade on global issues before they work outside of their home country.

As a final note, Dick’s company, Global Supply Training offers training on international procurement issues.

Onegai shimasu, Dick.

Musings on Talent Management

Today I’d like to welcome Dick Locke from Global Supply Training.

Thank you to the doctor for the opportunity to contribute. Here are my thoughts from the perspective of someone involved in the training aspects of globalizing supply management.

I’m optimistic overall. The caliber of people attending my seminars has improved, and the caliber of commentary on supply management issues has gone up. In my field, the nadir was reached in approximately the year 2000 when ISM removed all international content from their C.P.M. exam. The reason? Very few of the companies that participated in ISM surveys sourced internationally. (That included their retail participants, believe it or not.) Since then, ISM essentially reinvented itself and scrapped not only their own Board of Directors but also the whole C.P.M. program. Their new certification is intended to have strong international content.

The reasons that we are seeing better talent, in my view, is that there is

  1. a significantly better recognition of the strategic nature of sourcing and supply chain management and
  2. a better division of those strategic functions from the tactical aspects of procurement.

Sourcing and supply chain management are complex and challenging. Sourcing in a global environment requires skills in analysis, human relationships, laws, regulations, economics and a great deal of flexibility. Complexity and multi-faceted challenges attract talented people as long as the tasks they tackle are achievable.

In the computer industry, we realized sourcing remains a core competency even when manufacturing isn’t. All the computer companies use the same small group of component suppliers and subcontract manufacturers. To differentiate the cost or flexibility of manufacturing products, the computer companies have to be able to negotiate better deals than either their competitors or the subcontract assemblers can.

Now, a couple of caveats.

One is that talent is one thing, knowledge is another. In the United States, Japan, and a few other countries, imports and exports are a low percent (around 18-20%) of the country’s GDP. People can come away from training programs or even university degrees with very little global knowledge. I have a 10-question quiz on international skills on my website. About 4 people per day take the test. Up to a few years ago, people typically got one or two questions right. Now they are typically getting four or five right. While both talent and knowledge are increasing, don’t assume even the most talented professional will know about foreign exchange risk management, for example.

The second is that it’s easy to drive talent away. Talented people don’t tolerate bureaucracy and routine very well. I can think of three types of bureaucracy that need to be contained.

One is just plain rules and regulations. I know of one ex-client with a good reputation whose people couldn’t carry on a substantive conversation on procurement issues for more than a few minutes without reference to their book of rules. Back when I worked at HP, I inherited a department who believed they had to ask companies such as Texas Instruments once per year if they were a small business or not. When suppliers see that kind of silliness, it diminishes the buying company. When talented people see that kind of demand on them, they vote with their feet and walk away.

Another is giving too much power to departments such as legal and finance. As a consultant, I’ve received 30 page contract proposals with a quarter page of statement of work in them. It takes a mighty big potential level of business for me to spend any time on those proposals. If you have a standard purchase contract, it’s reasonable for a legal department to control maybe five or ten percent of it. The rest is pure business issues that your professionals should be able to (and expected to) control. Lawyers are wonderful people but there’s an old saying that “when your only tool is a hammer, every problem looks like a nail”.

I’ve also seen finance departments unilaterally decide to pay suppliers late. Successful heads of procurement must be able to claim and maintain their department’s role as the manager of the relationships.

Finally, I’m a bit concerned about “technological bureaucracy”. Hard-to-operate software can become all-consuming or can result in the technical wizards being given all the recognition. And the idea that all interfaces (such as e-RFX) can be automated can eliminate the human aspect of procurement. That aspect of procurement is vital for business relationships in most of the world. The challenges of doing this will also attract talented people.

So, for obtaining and maintaining talent effectively, here are a few guidelines.

  • Create jobs that talented people will want.
    Don’t try to put talented people into bureaucratic situations.
  • Separate the tactical and strategic functions.
    Tactical problems will too often take priority over stragegic issues. Not only will your strategies not advance, your most talented people will leave.
  • Train your people.
    Talent and knowledge are two separate issues.
  • Fight fiercely against practices that can drive talented people out.