Category Archives: Global Trade

Why Do We Still Have The Seven Timeless Challenges of Supply Chain Management?

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A recent article in Supply Chain Digest listed “the seven timeless challenges of supply chain management”, as described by Dr. J. Paul Dittmann, the Director of the Office of Corporate Partnership at the University of Tennessee. While I have to agree that these challenges are “timeless” in that we (needlessly) see them again and again and again, I don’t understand why … since all of them are solveable with today’s technology. More specifically:

  • Too Much Product Complexity
    Most companies have too many SKUs, and, to be precise, too many underperforming SKUs. But a good “spend analysis” with a modern data analysis package, which includes profit and loss data, can easily identify these SKUs which can be phased out and eliminated when contracts end.
  • Too Much Slow-Moving and Obsolete Inventory
    While good forecasting and demand planning can never eliminate obsolete inventory, a regular “profit” analysis that factors in the carrying cost to date and current price point makes it easy to identify when it costs more to hold on to inventory than to get rid of it at a discount, making it an easy decision from a loss-prevention perspective.
  • Supply Chain Considerations Not Part of the Product Design Process
    Simply do a total cost of ownership in the design phase and your critical supply chain considerations come into play right away.
  • No Supply Chain Strategy
    This is an easy fix. Sit down and define one.
  • Ineffective Matching of Supply with Demand
    With a slew of (near) real time supply chain visibility solutions on the market, all you have to do is implement one.
  • Physical Network Problems
    There are a number of strategic sourcing decision optimization platforms on the market that can perform detailed network analysis at very reasonable price points. Get one, and if necessary, get the consulting help to do it right. A few hundred K on a network optimization project can easily save you a few million.
  • Global Issues and Outsourcing Problems
    With a number of expert niche consultancies and deal architects that are very affordable, this problem is easily solved as well.

Keep Your Hands Really Still!

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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.)

I’ve got incredible respect for bloggers that post daily. I’m trying for a bi-weekly schedule and trying to keep the posts newsworthy. Not much happened in the last two weeks except for the possibility that the new US energy bill might include new trade barriers. I’ll need some time to get my head around that one. Right now all I know is pollution bad, free trade good.

So let’s go with a lighter note. And a test. Here are three pictures of hand gestures to avoid when traveling internationally.

Can you name some countries where these gestures would be considered rude, crude, or obscene?

Answers (in the comments) in a few days.

Big O

Thumbs Up

Thumbs Up

Dick Locke, Global Procurement Group and Global Supply Training.

Overcoming Global IT Challenges in Your Supply Chain

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A recent article in Strategy + Business that discussed a recent survey that found that information technology is a neglected asset in joint ventures, besides unearthing a very disturbing trend, attempted to outline the major roadblocks to IT recognition and some ways to overcome those roadblocks. In Global Partnerships Unplugged, the authors do a good job of providing some good advice that can help you insure that your global sourcing projects don’t get sidetracked, or, even worse, fail due to poor information technology alignment or support.

The article covered a recent survey by Booz & Co on “Keeping IT Relevant in a Hyper-Changing Environment” that found that information technology was shortchanged on a disturbingly regular basis at overseas joint ventures. This had a significant negative impact on costs and efficiency. Cheap (and often used) computers and software that don’t fit in with the current infrastructure or business processes don’t save money … they cost money. Not only are people less productive, but it takes a lot more IT support to keep an ad-hoc jumbled network running than a well-planned homogeneous one. Not to mention the security concerns and losses as a result of IP theft that can easily be extracted from unpatched and unsecured machines that the primary IT department is unfamiliar with, if they even know the machine is on the ad-hoc network to begin with.

Trying to get to the root of the problem, Booz & Co discovered that IT, because of the up-front investment required, was often looked upon as a cost center to be cut, and not a source of cost savings. Done right, especially where supply chain management technology is concerned, good IT will pay for itself many times over in productivity improvements, insightful reporting, and, in e-Procurement, immediate identification of maverick spend or invoice discrepancies. But if you decide you can replace computers with typewriters (as one company in the survey did) at your offshore locations, those savings will NEVER materialize. One of the biggest costs, and sources of loss, in an Procurement department that has yet to be automated is paper invoices. They take time to enter, and even more time to process. Generally speaking, because of the effort involved just to confirm goods receipt, they’re usually paid at face value which may not be (and for some categories often is not) at the contracted rate. You need good systems to support good people. Period.

So how do you overcome the challenges that prevent IT from being seen as the productivity enhancing and cost saving toolset it really is? The article gave these tips for the three major challenges it outlined.

  • Cost Pressures
    Don’t tie IT funding to a site’s P&L. Manage it from a centralized IT budget established to support the entire operation, which allows for a meaningful calculation on ROIC.
  • Standardization
    Mandate that the entire business is to be run off of one set of standards and set up a global governance forum to insure that it happens.
  • Security
    Task Risk Management with IP management on systems. Once they understand the security risks posed by disparate systems across a non-standard network, they’ll become vocal proponents of good IT systems.

How Can You Save If You Don’t Consider All Your Options?

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A recent article on the Procurement Leaders Network had a very shocking statistic: “only 52% of businesses look at customs duties as a potential area for cost savings” (according to a recent research survey by Deloitte). Considering that misclassifications alone cause most companies to overpay duties by 7% to 11%, this presents a substantial savings opportunity for any company that imports more than ten million dollars a year. Furthermore, better utilization of Free Trade Agreements can often significantly reduce, if not eliminate, duties on millions of dollars of merchandise. Many companies have doubled and tripled their free trade duty savings (and saved millions of dollars) just through FTA management. And then there’s Free Trade Zones that can save you even more! With a little Trade Visibility, you can save a lot of money. So why aren’t you?

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.