Category Archives: Global Trade

Four Rules of Global Sourcing Excellence

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In Introduction to Sourcing Transformation by Houston, Schwarting, Spieker, and Turner, published in Booz & Co’s “Sourcing Reloaded”, the authors put forward four rules of the road in global sourcing that should not be forgotten in your current quest to lower costs:

  • Pick Your Spots
    Start your sourcing transformation by redesigning procurement procedures in simple, concrete ways that can produce measurable and significant value.
  • Create Total Transparency in Purchasing Costs and Trade-Offs
    Make-vs-Buy decisions, supply chain re-design, and the ramifications of sourcing changes should be clearly articulated so the organization understands the reasoning and buys in.
  • Collaborate Fully with Internal and External Stakeholders
    A robust sourcing process depends on participation throughout the product life cycle, from the concept stage in R&D to the final disposal or salvage of the product.
  • Become an Influential Corporate Leader
    Successful CPOs build confidence by leveraging their position in the executive suite.

Whether times are good or bad, the basics don’t change.

A Procurement Professional’s Guide to International Assignments

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The experience and perspective gained through an international assignment is ever-more valuable in today’s global supply chains and increases a procurement executive’s marketability in the long run. But making an international assignment work requires a well-thought out plan and a lot of flexibility from everyone involved-employer, employee and family.

So what should you do if you are thinking of making such a move? A recent article in Purchasing, which attempted to be “a procurement professional’s guide to international assignments”, had some good starting tips.

  • Does your company have a support structure in place for the region being relocated to?
    For example, IBM has had an established program since the 1980s where employees considering an international assignment were sent to an orientation session that addressed tax implication issues, handling your house in the US, school and church options, etc. Then, there was a look-see trip for those still serious about the idea.
  • Will your family be able to integrate into the community?
    Will there be support groups to help your family when you’re at work and traveling for work?
  • Will you be close to your suppliers?
    Not only should that be the primary benefit to the company, but it should be the primary benefit for you … you should be able to visit your suppliers regularly and develop real relationships on a professional and personal level that will help both your company and you.
  • Is the language you speak spoken there?
    It doesn’t have to be the primary language of the region, but at least a subset of people should speak it commonly as a second language.
  • Are you interested in learning a new language?
    While it may not be a necessity, it will certainly make your life easier if you are willing to learn the basics and soak it in.
  • Can you talk to people who have made the move?
    Find out about their daily lives and if you will be able to relate to their experiences.

It also had a list of do’s from Associates for International Research:

  • ensure that your company has a formal set of policies and practices
  • visit the location prior to accepting the assignment
  • have a clear understanding of the financial implications
  • understand how daily living will be different
  • obtain a proper and complete Letter of Understanding
  • read the relocation policy in advance
  • take care of any major medical or dental needs beforehand
  • get an idea of the expected outcomes of the assignment
  • obtain details on the type of security and medical services that will be offered
  • have an understanding of the tax implications and your compliance responsibilities

Five Keys to Supply Chain Success in India

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I enjoyed the recent short article on “five keys to supply chain success in India” in Industry Week. Not only was it not another article about China, but it tackled the issue of manufacturing supply chains in India — instead of the usual focus on service opportunities (Call Center, IT, BPO, etc. outsourcing).

Noting that India’s economy, unlike many other economies, is continuing to expand (with 6.8% growth in 2008 and a projected growth of 5.5% in 2009), the article notes that there is significant opportunity due to increased demand — provided, of course, you can make your operations efficient. The article offered the following five strategies:

  • Ensure a clear understanding of local principles, customs and barriers.
    Knowing the limitations of India’s transportation infrastructure is critical in adjusting distribution strategies and having the flexibility to adapt to the varying restrictions and needs that exist within India.
  • Establish constant communication.
    India’s communications infrastructure is still inadequate for [most] global companies doing business there. As a result, many large manufacturing companies are allowing their partners, vendors and dealers to have direct access to their internal supply chain management systems in order to increase visibility.
  • Develop comprehensive procedures and processes.
    By synchronizing the multiple dynamics of demand planning and production planning, companies will have the ability to reduce over-stocks and stock-out situations.
  • Ensure the quality of input information.
    Companies need to invest in collaboration, planning, forecasting and replenishment (CPFR) and sales & operations planning (S&OP) solutions, which provide a link between disparate information and allow companies to create plans based on actual demand data.
  • Identify and integrate the right professionals and insist on teamwork.
    The scarcity of a skilled, knowledgeable and committed workforce is a challenge facing Indian companies.

Blogging on International Contracting?

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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.)

After I made a brief comment on international contracting, the doctor suggested that “maybe I could write an expert piece about international contract construction?“.Well, that piece would be way too long for a blog format. I take about an hour on this topic in face-to-face seminars and that’s after a session on cultural differences.

What I can do in this format is give my philosophy and a tactic or two.

Why do people write purchasing contracts? (And not everyone does.) I see two reasons. First is to get a written document that describes what each party is going to do. Second is to enable bringing in a powerful third party (a court) to get a company to do what they might not do otherwise, such as pay liquidated damages.

When you cross borders, cultures and language barriers, the first reason becomes more important than it is domestically. The second reason becomes less practical. Adjudication and enforcement can be awfully difficult and expensive.

That means first of all, it’s much more important to get a good supplier than to get a good contract. Second, it means that the contract should be written to help with communication between the parties, not hinder it. It should be clear and easy to read (no size eight gray type please.)

Here’s the tactic for the day.

Run a grammar check on your contract using Microsoft Word with “check readability statistics” turned on. Look for a “reading ease” score of 40 or higher and a grade level requirement of 11th grade or less. Remember, the document probably won’t be in the supplier’s language. Once you achieve that, then print the document in an attractive format. Pay attention to typography and white space. Make it easy to read.

If your lawyer struggles with this, get him or her a copy of the SEC’s “A Plain English Handbook”.  It has lots of guidelines and tips. Another good source is “Plain English for Lawyers,” which you can find on Amazon.

As a final note, I just happen to be doing my one and only public Global Supply Management seminar for 2009 in the Chicago area on August 11-12. Check this link for details.

Dick Locke, Global Procurement Group and Global Supply Training.

What’s all this talk about risk?

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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 issue of global supply chain risk gets a lot of attention nowadays, and it certainly should. However, I’ve seen a few silly statements. One is that global sourcing is sooo over. Another is that nobody should buy in China. (OK, I exaggerate, but just slightly.)

Here’s my perspective:

First, we need to clarify what “sourcing” is. Wikipedia says “In business, the term word sourcing refers to a number of procurement practices, aimed at finding, evaluating and engaging suppliers of goods and services“. That’s the definition I’ve always used, too. It doesn’t mean actually buying, it means looking around. Global sourcing just means looking around globally.

With that definition, you can see what sourcing globally gets you. It gets you intelligence on the prices, costs, and viability of potential sources all over the world. In other words, it gets you a potential reward in the form of the lowest supply costs. Rewards in purchasing, as in investing, go hand in hand with risks. You can’t evaluate the risks without knowing the rewards. Fortunately, in purchasing higher rewards don’t always mean higher risks.

Let’s suppose a global sourcing program shows that the lowest landed cost suppliers are in some place various gurus find risky and you can save a tremendous amount by your company standards if you actually buy there. Would you walk away from a deal just because it’s risky? I hope not. That’s not the road to success. The computer industry ships about $30 billion dollars annually from China to the US. Quality and intellectual property problems are rare. What are some of the steps computer companies take? I can name four: Include quality experts in sourcing evaluations right from the start, buy only from foreign invested companies in China, have not just feet on the ground in China but trained brains too, and carefully reference-check for intellectual property issues before proceeding. It helps, too, that products such as laptop computers are “economically dense” in terms of cost per kilogram so that air freight makes sense.

Philosophically, when you evaluate risk during a sourcing process, you are not comparing the risk of one choice to a mythical risk-free world. You are comparing the risks of choosing one supplier to the risks of choosing (or staying with) another supplier.

Some risks are digital or binary. They are go no-go tests that should be applied before a potential source is even allowed to quote. A propensity to steal intellectual property is one such test. Lack of adequate quality standards and practices is another. But please don’t claim that no supplier in a country can meet those standards.

Other risks are more like analog. You can measure their severity. The best way is to see how often or how much or how often a situation would have to happen before what looks to be the lowest cost supplier is no longer lowest. Exactly how much would a supplier’s currency have to appreciate before it becomes (in hindsight) the wrong choice? Exactly how often would you have to ship by a premium method at your expense before your lowest cost supplier is no longer lowest? While you’re doing this remember that the second and third lowest cost suppliers have their own risks too. If volatile fuel prices (or cap and trade programs) cause one supplier’s cost to go up, they will also affect other suppliers’ costs.

I have a concern is that every company has strong momentum to stay with their existing supply base. If consideration of risk is not done well, it becomes just another excuse to keep on doing what the company has been doing all along. I saw it at HP when I was developing its global sourcing program. It took a few years to overcome.

Dick Locke, Global Procurement Group and Global Supply Training.