Category Archives: Global Trade

Four Good and One Bad Suggestion For Preparing Your Supply Chain for Volatility

A recent article over on ChiefExecutive.net on Volatility: Predictions and Prescriptions presented five suggestions for dealing with the current market volatility that guarantees both minor and massive disruptions will continue to occur on a global scale, impacting your supply chain(s) to various degrees as they occur. Four of them were quite good. One wasn’t. Since it is important for a supply management organization to face the reality of increased volatility and plan for it to mitigate its risk, this post will review the suggestions presented in the article. Disruptions are going to happen. The only unknown is how bad the disruption will be. Since a disruption is always worse for an unprepared organization, it’s important that an organization do everything it can to be prepared.

The organization should start by:

  1. Expecting Disruptions
    They’re going to happen. Some you will predict. Some you won’t. The more flexible the organization is, the more capable it will be in dealing with the disruption. Plus, an organization that expects to be disrupted won’t be shocked by a disruption and won’t have the additional disruption of having to deal with the emotional impact of not being prepared for the initial disruption.
  2. Feeling the Malaise
    An organization that expects disruptions will, at first, feel uneasy and weary knowing that at least some of its best laid plans will come to ruin. But once the organization gets used to the feeling, and begins to savor it, the preparedness will save the organization in its hour of need because the disruption won’t seem so bad.

The the organization should take heed of the following four suggestions:

  1. Simulate Scenarios
    Once the organization expects disruptions, it can “game plan” how to deal with them. It can identify the different kinds of disruptions that can occur and scope out a sequence of responses to each. And although some disruptions can never be anticipated and “game planned”, if similar disruptions have been addressed, the organization will have a starting plan that should be workable with only a few minor tweaks.
  2. Diversify Geographies
    Many disruptions, such as natural disasters and political turmoil, are localized to a region or a country. A supply chain that multi-sources key products and services from different regions and countries should be in better shape to withstand a shock of a product no longer being available from a supplier in a certain region due to a natural disaster or political disturbance.
  3. Diversify Products and Services
    Not only should geographies be diversified, but so should raw materials, products, and services when applicable. Although the former will often be hard to diversify, as certain raw materials will not be substitutable, services are very easy to diversify and should be.
  4. Deleverage Balance Sheets
    While a leveraged supply chain can generate great returns in good markets, it can be downright risky in bad markets. In a volatile market, it is often safer to sacrifice some ROE in return for safer debt/equity ratios (or inventory/equity) over the longer term.

However, the organization should not listen to the fifth and final suggestion, which is downright destructive:

  1. Enable Rapid Downsizing
    Supply Management is getting more knowledge-intensive by the day and we’re in a serious talent crunch. The last thing you do is get rid of good people, especially those that can often generate savings of 10 to 100 times their annual salary on a single buy. While high fixed costs can be dangerous in times of reduced cash flow, it is much better to get rid of assets (and rent them back if you need to) then to get rid of good people.

Three Good Suggestions from the CTA. Will the RCC listen?

On February 4, the US and Canada, under the leadership of Prime Minister Stephen Harper and President Barack Obama, created the Regulatory Cooperation Council with a two year mandate to promote economic growth, job creation, and benefits to consumers on both sides of the border through increased regulatory transparency and coordiation.

In an effort to focus the committee on priority issues, the CTA (Canadian Trucking Alliance) has submitted three suggestions to help remove costly regulatory barriers to the efficient movement of goods, as per this recent article in Canadian Transportation and Logistics on “CTA offers suggestions to streamline flow of goods between Canada and the US”.

The suggestions the CTA offered are as follows:

  1. Streamline the process for moving “in-transit” goods.
    The rules are different in the US and Canada, with the former requiring more documentation and advance notice ever since the introduction of 10+2 and related security acts. The US rules would need to be harmonized for this to happen, which is a good idea (at least where Canadian goods are concerned) since the US is Canada’s largest trading partner and it would implement the spirit of NAFTA.
  2. Provide the industry with greater flexibility to reposition foreign empty trailers using foreign drivers.
    As per the article, there is a cost associated with current restrictions that require “spotting” of an empty foreign trailer to the pick-up point of its return load home. Unnecessary costs. GPS can track the truck for future audit if there is any question that the truck went off route, and if there’s a concern regarding unauthorized transports, the truck can always be inspected after unloading and before loading.
  3. Cooperate on the establishment of a North American standard for proven fuel saving devices.
    If one country approves a fuel saving device, and the other doesn’t, it could impede the flow of goods from one country to another if the vehicle is stopped at the border. Moreover, given the amount of fuel used by the transportation industry, the goal should be to be as green as possible.

All great suggestions. Will the council listen? And will they take action?

Ariba Vision 2020: Yesterday’s News

The following three predictions from Vision 2020 – The Future of Procurement were totally off the mark and, in SI’s view, could only have been made by someone living in a Procurement cave for the last 10 years as any organization that thinks these define a future state of Procurement has a lot of catching up to do.

03. Work goes mobile
Work has been mobile among the IT crowd for about a decade now and among the (management) consulting crowd for over five years. Just because some organizations are slow to catch on to the fact that modern technology allows you to work anywhere, anytime and keep in touch 24/7 through real-time video conferencing does not mean that it is visionary for an organization to finally latch on to this fact. Furthermore, any organization that takes another 10 years to latch on to this realization is probably not going to be in good shape in 10 years.

19. It’s complicated

Uhm, it’s been complicated for over a decade. It’s been complicated ever since the first Fortune 500’s first started to outsource critical manufacturing processes to India and China a couple of decades ago. And while the risks and complications will continue to change as the focus shifts to different emerging economies, it’s not going to get any riskier or complicated as a whole. There’ll be more awareness of the risks, which will appear to materialize more frequently as more operations are shifted global, but the risks and complications will be fundamentally no different than they were 20+ years ago.

20. It takes a network

Just like it’s been complicated since global sourcing started to materialize among the Supply Management leaders in the late 80s, it’s taken a network ever since the manufacturing giants (in automotive and consumer goods in particular) started outsourcing assemblies to tier 1 suppliers that integrated components from tier 2 suppliers. And the major Consumer Goods companies realized in the 90’s that in house was not enough. P&G laid the foundations for Innocentive in the 90s at the same time Unilever was focussed on developing better supplier networks across its global markets.

The next post will address Today’s Blues.

The Impact of Culture on Transnational Interactions

The newly relaunched Negotiator Magazine has a great article by Charles Craver on “the impact of culture on transnational interactions” that is a great read for anyone looking to improve their CQ (Cultural Quotient). It’s a great companion article to SI’s 2009 series on Overcoming Cultural Differences in International Trade and SI’s 2010 series on Cultural Intelligence (which were both edited by SI’s resident expert on Global Trade, Dick Locke).

In SI’s classic series on overcoming cultural differences, we introduced you to Dick Locke’s eight key factors that govern the differences between your culture and that of your potential business partner (supplier, service provider, customer, etc.), which were:

    • power distance
    • uncertainty avoidance
    • individualism
    • polychronic vs monochronic time
    • personal/impersonal
    • buyer/seller rank
    • importance of harmony
    • importance of face

Charles reviews the common cultural differences of time (and punctuality), personal/impersonal (including the exchange of gifts), the importance of face and harmony, and individualism (and the difference between the approaches taken to negotiations by individualistic cultures and group cultures) as well as the importance of distance (as some cultures will need at least two feet, while others will want to be in your face), respect (including the exchange of business cards in some cultures), social events and cultural exchange (and the need for some cultures to build a rapport through bonding activitis before beginning negotiations), and wealth (and the need for the wealthier party to bring quick benefits to the poorer party) and provides some unique insights that not all Global Sourcing professionals are aware of.

In addition to explaining some key cultural differences that newly minted global supply management professionals may not be aware of, such as:

  • how it is unusual for people in Latin American or Middle Eastern countries to show up on time (as delays of thirty or forty minutes are acceptable)
  • how people from Middle Eastern countries want to be less than one foot away from you when they talk
  • how people from cultures that place great importance on saving face find displays of power to be crude and inappropriate and will hesitiate to initiate law suits or break off negotiations

the article makes a point of noting that a negotiator who speaks the language isn’t enough. The organization needs someone who also understands the culture and the nuances of the language. For example, when the Japanese say that “it would be difficult”, they are really saying they can’t do it. Since they can’t say no and save face, which is important in their culture, they have to convince you that what you are asking is difficult and hope that you will ask for something else instead.

The article also makes a great point of emphasizing the Preliminary Stage where the participants first work to establish a rapport with each other. In this stage, the participants should engage in non-controversial small talk to get to know each other and take advantage of any opportunities presented by the host to explore the city, history, and culture of the country they are visiting. This helps to dispel negative preconceptions and stereotypes on both sides of the table and increases the chances of a mutually beneficial relationship.

The Best Way to Handle Decentralized / Local Supply Management Groups

While a well designed Sourcing / Procurement / Supply Management organization will have as many functions center-led, if not centralized, as possible, in a large multi-national, some groups will have to be regional to be effective and some purchases will have to be local. For example, fashion purchases will have to be driven regionally by someone with a pulse on the market and it does not make sense to ask the central asset management organization in (southern) India to manage snow removal operations in (northern) Canada (unless someone wants to see some really strange looks).

But how does your hybrid center-led Supply Management organization effectively manage these decentralized / local groups for best results? A great post on how when managing complexity, “less is more” over on the HBR blogs had a great suggestion — restrict activies at the group level to a core set of five that enable and enhance business performance. Specifically, focus on:

  1. Portfolio Management
    which activities fall under Supply Management purview
  2. Performance Management
    what are the cost / quality / value goals for each unit and how will the center-led Supply Management organization help the units achieve the goals
  3. Capital Allocation
    what investments can be made in each unit (in terms of technology, process, and people) to deliver the greatest returns
  4. Talent Management
    are the best people working the right jobs
  5. Synergy Capture
    to identify new or large opportunities that should be pulled up into the center-led Supply Management organization

It’s all about the selection of the handful of critical leverage points that will have the biggest impact on success and [a] relentless focus on doing them better. The purchase was pushed out to a local group because it wasn’t of a high enough value to manage centrally or because the central organization did not have the (local) knowledge required to make the best decision, so it needs to focus on the leverage points that will help the local organization, not on the task itself.