Category Archives: Dick Locke

Interpreting Japanese Communication

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

Note to readers of the Purchasing Certification Blog: most of this post appeared in this morning’s post on Japan’s Supply Chain Recovery: Interpreting The Estimates.

I’ve been watching and reading the various sources of information coming out of Japan and trying to interpret it after filtering it through the cultural differences that can impede communication and sometimes action. I see one apparent difference and am concerned about another potential difference.

One consistent complaint is that the various spokespeople in Japan seem to be understating the seriousness of the radiation hazards. It’s very likely that this is due to a cultural difference that strongly affects communication. The difference goes by various names, and I call it a “need for harmony”. It could also be called a “low score on a frankness scale”. A strong cultural need for harmony can make it difficult for people in that culture to deliver bad news directly. They will often resort to various expressions such as the Japanese “honto ni muzukashii“. That literally means “truly difficult” in English. However, people in Japan will correctly take it to be a very frank statement that something will not happen.

A classic example is in the Japanese Emperor’s speech to the nation announcing the surrender at the end of World War II. It included “the war situation has developed not necessarily to Japan’s advantage”. This was after two nuclear bombs and a total collapse of manufacturing and logistics.

While Japan is especially strong in this need for harmony, it’s a fairly widespread characteristic among Asian and some Latin American cultures. Keep in mind that Japanese may be perceiving the messages differently than Westerners.

The second difference is just a concern at this point. There’s a well known cultural difference called “Uncertainty Avoidance”. It influences the willingness of people to make decisions without being sure of the outcome. It makes people much more comfortable with routine situations and incremental improvements than they are with dealing with the unexpected. While Japan is extremely high on the “Uncertainty Avoidance” scale, I really haven’t seen any indication of lack of creativity in solving the problems.

Now, for those of you who are trying to gauge potential supply disruptions:

If you can manage face to face meetings that’s clearly the best way to handle it. You’ll have to judge the danger of traveling to a particular Japanese supplier of course. Second best is video conferencing, so you can watch facial expressions and body language. Third best is telephone. In all cases, send some questions ahead of time by email. In questioning, be sure to probe assurances of continuing supply more deeply than you would with people from a frank culture such as Germany or the US. It’s best to ask open ended questions such as “how are the roads to the airport” or “how are your suppliers in the affected area” than questions that can be answered with a simple yes or no such as “is everything OK”.

You should also keep in mind that Japanese communicators are usually not being dishonest when they seem overly reassuring. It’s just that their culture makes it difficult to say some things too directly and they are seeing themselves as courteous.

Dick Locke, Global Procurement Group.

“Trendspotting”

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

the doctor requested that I look at Panjiva’s new product, Trendspotting, which they are advertising on their site and blog. It has some good points, but it also has many not-so-good points that will ultimately render it unusable for many purchasing people.

Let’s look at the three main features:

“Crack the HTS code.”

The world really does need an HTS-to-your language translator. I don’t think there’s one into English, and this definitely isn’t one. From their demo page, put in “computers” and see what happens. You won’t find anything. OK, that’s a trick because I know that the entire global customs community calls them “automatic data processing machines.” So, type that in the search box.

You get a list of potential HTS codes. Here the system shows its US-centricity. I’m in Mexico, the internet knows I’m in Mexico (when I go to Google.com I get their Mexican home page) but Panjiva gives me the special 10-digit US codes. That’s still helpful in the goal of finding the right countries if you are in North America. It’s not so helpful if you are somewhere else.

“Find countries”

Pick the first HTS code (8471.30.01.00) and click “Trends.” You get some really helpful data on laptop imports. You can see that the two primary sources are China and Malaysia. You can see their trends. This is really a handy sourcing tool. However you can get the same data free from the US International Trade Commission‘s web site. I’ve been advocating doing that for about 14 years in my seminars. The USITC site is less graphically pleasing and slightly harder to use, however. Panjiva did a good programming job.

“Find suppliers”

Here it really falls apart. You would expect to find Lenovo and Foxconn as suppliers of laptops. They’re not listed. However, you do find Autoliv China Inflator Company Ltd, who makes airbag inflators. What’s going on here?

It’s a data source problem. They list companies for one of two reasons. One is that a company shows up as a sea freight shipper of automatic data processing machines on a public data base. There’s no such data base for air shipments. Very few laptops travel by ocean.
I’ve been using this kind of data for more than a decade. It has two more big problems. First if the words “automatic data processing machines” (ADP machines) show up on import documentation, the exporter gets listed. That gets items that connect to, contain, or are parts of ADP machines. Second, many companies have set up legal entities in China that purchase for them. The Chinese entity (i.e. HP China) buys the goods, and ships them to HP US. HP would show up as both the exporter and importer and you would never find the name of the manufacturer.

Of course, your results could be different than mine. Try it on a product where you know what the countries are and where the suppliers are and see what happens. Maybe it will work better for you than for me.

Thanks, Dick.

Economic Density and Flexibility are Critical to Your Supply Chain, Part II

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

In yesterday’s post I discussed how I’d just read the umpteenth recent article saying that buying from China is on its way out and that, like all of its predecessors, the article had a grain of truth but suffered badly by being far too general. The reality is that China was never the right place for some purchases and will be the right place for others for a long time to come.

In order to understand what purchases from China make sense, and what purchases don’t, one needs a framework. The framework I use is based on forecastability, which divides products into functional and innovative products, and economic density. Given these two dimensions, one can derive the following two by two matrix.

  Functional Products Innovative Products
High Economic Density 1 2
Low Economic Density 3 4

As indicated in yesterday’s post, the best country and logistics selection strategy depends on which quadrant one finds oneself in.

In quadrant 1, you could afford air transport but you won’t often need it. You should plan around surface transport and expect to occasionally have to use some emergency air freight. Here you should go for the world’s best suppliers. “Best” means lowest total landed cost, among other criteria such as quality and environmental aspects.

In quadrant 2, you must to use air freight for flexibility. Again, you should look for the world’s best suppliers. As long as there is a big international airport near you and the supplier, no place in the world is more than a day or two from your operation. “Best” still includes landed cost and the other criteria but now includes supplier flexibility.

In quadrant 3, you can’t afford air freight, so goods will move by ocean or some other surface method. You should look for the lowest landed cost suppliers but will probably find that freight costs will constrain your decision to relatively nearby suppliers.

In quadrant 4, you should stay close to home. You can’t afford air freight and you lose too much flexibility using ocean freight. These are the products that never should have been purchased from China in the first place. They include fashion goods and goods with a high degree of seasonality such as Christmas gifts. “Close to home” may not mean in your own country, of course. For example, the entire country of Mexico is closer to Chicago than San Francisco is. This is where the “nearshoring” makes sense.

Finally, what will not leave China soon? For one thing, electronic assembly work will be there a long time. The quest for best suppliers has led to a concentration that only China has and perhaps only India can equal. Foxconn alone has more than a million employees in China. To put that in perspective, the CIA World Factbook says that Vietnam has a labor force of 48 million people. Of that, 15% work in “industry.” That’s about 7.5 million industrial employees. Just to resource to Vietnam Foxconn would require employing 13% of Vietnam’s current industrial labor force. That’s not going to happen anytime soon.

Thanks, Dick.

Economic Density and Flexibility are Critical to Your Supply Chain, Part I

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

I’ve just read the umpteenth recent article saying that buying from China is on its way out. All the articles I’ve read have a grain of truth in them but suffer badly by being far too general. As I see it, China was never the right place for some purchases and will be the right place for others for a long time to come.

The articles need a framework to differentiate between types of purchases. Here’s mine.

I divide purchased goods two ways. The first way is by forecastability. Here I use the terminology originated by Marshall Fisher in his classic analysis “What is the right supply chain for your product?” He divides the products your company sells into two categories. One category he calls “functional” products. Those are easily forecastable and change relatively little from year to year. He uses bleach as an example. The second category he calls “innovative” products. Those are new products being brought to market. There is no competition (a good thing for sellers) but they are essentially unforecastable … a bad thing for buyers trying to support that product. Examples are fashion goods, some innovative cars and newer computers.

His point is that buyers need different supplier selection criteria for the different categories. For innovative products, he believes flexibility is more important than cost. If you can’t ramp up quickly you lose highly profitable sales. If you can’t ramp down quickly you write off a lot of inventory. And, you can’t afford a long transit time.

The second way I divide purchased goods is by what I call “economic density.” Simply put, what is the value of the purchased goods per kilogram? You can afford to fly high economic density goods but low density goods have to move by surface transport, usually ocean. One thing to keep in mind here is that there is a concept called “dimensional weight” where the freight costs of some goods is based on their physical volume, not weight. That’s the reason why laptop computers move by air from China to the US but desktops are usually assembled in North America.

Putting those two methods of division together gets the consultant’s favorite graphic: a two by two matrix. The best country and logistics selection strategy depends on which quadrant you are in.

  Functional Products Innovative Products
High Economic Density 1 2
Low Economic Density 3 4

Each quadrant requires a different strategy if an organization is to extract maximum value from its supply chain. Tomorrow’s post will discuss each quadrant in detail.

Thanks, Dick.

GSP going away January 1, 2011

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous contributions are still archived.)

The U.S. Congress recessed without passing the legislation required to
continue the GSP program beyond January 1, 2011.

You do know what the GSP program is, don’t you? If not, you might
consider acquiring some training. It’s a program called the Generalized System of Preferences (guide) under which imports from about 135 developing countries have been given duty free treatment by the US. Due to congressional
inaction, US importers will now be facing higher duties on many goods. Goods
that were now eligible for duty free treatment will jump to the level
that would be paid for goods from developed countries starting January
1st. Among the 135 countries, the most notable are India, Thailand,
Turkey, Indonesia and the Philippines. There is probably a lot of
material already in the pipeline.

This is the third time within my memory that this has happened. The last
two times, Congress passed enabling legislation quickly after returning
from recess. The made the legislation retroactive so people who paid
high duties got them refunded. However, the next Congress is a bit
unpredictable, with a lot of new members who are likely to be
anti-import. Stay tuned.

Dick Locke, Global Procurement Group.