The European Leaders in Procurement network recently posted a white-paper by Booz Allen Hamilton titled “Buy Globally, Think Globally”, Implications of Global Economics for Sourcing Professionals that is a fascinating read. (I’m surprised our resident economist from Spend Matters hasn’t picked up on it yet. Guess he’s just too busy trying to do my job*.)

According to the article, sourcing professionals in many industries pay scant attention to important global economic and geopolitical factors when developing their strategy. Considering the impact that even a change in tax policy can have on one’s overall cost savings (turning a winning contract into a losing one), yet alone a war (or state seizure, which is not becoming uncommon in Venezuala and not just Russia), this can be dangerous. Economic and Geo-Political risks are real, and any strategy developed without due consideration of these strategies is a poor strategy indeed.

However, for those professionals willing to apply some foresight and brainpower to the issue, these bind spots are good news. They can lead to overlooked opportunities and give the company an edge over their competition. In some commodities, a procurement manager can profit from knowledge of regular cyclical swings in price by locking in prices at the bottom of a cycle. At other times, understanding the market can help procurement see when a permanent shift in the market has occurred. Furthermore, currency fluctuations can also provide a source of savings.

In addition, failure to keep a watch on market conditions can lead to sharp unexpected increases in cost or unavailability of supply. And although perfect foresight is impossible, as there are conceivably an infinite number of events that can affect your supply chain positively as well as negatively, in reality, you do not need to monitor an infinite number of data streams to keep on top of the most critical issues or pick up on the issues that could affect you positively or negatively down the road.

As the article points out, asking four simple questions can go a long way towards preventing the shock the airlines suffered during the last oil price rise and help you take advantage of emerging opportunities:

1. Which categories within our spend are strategic enough to warrant close attention?
2. What are the economic drivers behind these key categories.
3. How would those driver’s movements affect the overall performance of our current sourcing effort?
4. How can my team best monitor changes in those drivers?

If you use the resources at your disposal, and ask the right questions of the experts within your four walls and of the specialist consultancies you use to keep you up to date on best practices and audit your processes from time to time, you’ll find that you can pinpoint many of the issues even without firing up elgooG. Your legal, taxation, regulatory, finance, and communications personnel, as well as those buyers that have good relationships with your oversees suppliers and partners will probably be able to nail the issues you need to understand, track, and plan for in a matter of minutes. And then, as the white-paper keenly observes, blogs (like Sourcing Innovation and Spend Matters)

are becoming increasingly valuable sources of industry information.

* All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.

Accenture recently released a short paper on “how to build a successful global operations model” (on European Leaders) in which they described six key capabilities that are required for a winning global operations strategy that is worth a quick review.

The article notes that bringing together the worlds of product, market growth, and operations strategy is a prerequisite to success in both new and existing markets because it ensures that operating models meet both needs. … A holistic approach to a global operations model, one that addresses and integrates all aspects of global operations, is crucial.

Although there is no one-size-fits-all approach, six key capabilities serve as a foundation for every successful operations model.

• a globally integrated sales and operating planning process
• a procurement, manufacturing, distribution, and R&D network
• tight links with customers and suppliers that achieve visibility
• logistics partnerships to ensure efficient and time-effective market sourcing and penetration
• effective supplier recruitment, certification, and alignment programs
• a go-to-market strategy for emerging markets

The article also notes that the strategy can be different for different markets and different products. It points out Zara as an example which primarily uses on-shore manufacturers for the production of its fashion lines that change rapidly and off-shore manufacturers for basic products, like T-shirts and underwear, where fashion trends are stable and change rarely.

Furthermore, defining the operations model initially requires a careful consideration of the trade-offs as well as the identification of gaps that a new model will need to address.

In short, success isn’t just picking a single buzz-word, strategy, or discipline, but taking a holistic view of your supply chain and insuring that each core function is appropriately addressed.

Recently, I wrote about Aberdeen’s recent research brief on Global Trade Management in 2007 in my post Global Trade Management 2007 that highlighted this year’s focus in Global Trade Management (GTM): improving agility, trade compliance, and risk management. This brief was followed by their “Global Trade Management Strategies: Surviving Growing Complexities in 2007” report.

This report found that best-in-class companies are about one and a half times as likely as all lower performing peers to report reduced lead times and lead time variability over the past two years, are twice as likely as laggards to have increased their customs clearance speed, and are twice as likely as average performers as well as almost four times as likely as laggards to be using a global supply chain visibility platform.

However, my favorite finding in the report is that laggards are twice as likely than average companies and almost three times as likely as best-in-class to report that Global Trade Management at their companies is still manual/spreadsheet-driven. Like I said in Save Billions the Easy Way. Spreadsheets are bad! Well designed on-demand supply chain applications that do what you need them to do are good.

The report had some great suggestions with respect to the creation and implementation of a visibility strategy. According to the report, top actions should include:

• Upgrade visibility data quality by including service level agreements in your contracts with suppliers and logistics partners that focus on complete, accurate, and on-time delivery of specified documents and event milestones.
• Push visibility upstream to capture status events at suppliers such as raw material arrival, in-process steps, and ready to ship statuses. It is less expensive to make midcourse corrections before goods are shipped.
• Manage in-transit inventory, including setting up the ability to reroute and reallocate goods while in-transit based on updated consumer demand signals and logistics bottlenecks. Move to more drop shipping, cross-docking, and Distribution Center bypass to increase the speed of your supply chain.

The report also had some compelling statistics for laggards, average, and best-in-class companies across the process, organization, knowledge, technology, and performance competitive framework that clearly indicate which processes and systems will be most effective in helping a company improve its overall global trade management / supply chain operation.

The report concluded with some recommendations for action that are worthwhile pointing out.

• Adopt a global supply chain visibility technology platform.
  Current visibility platform users should gradually incorporate more in-process and in-transit milestones and apply scorecards, dashboards, and analytics.
• Combine supply chain visibility with dynamic demand signals
  to reallocate and reroute goods in process and in motion to higher points of demand. Also start implementing data quality SLAs with your carriers, forwarders, and suppliers.
• Improve the accuracy of supply chain costing for your international transactions.
  Pay special attention to inventory and transportation related costing, which are often underestimated.
• Institute a global trade center of excellence
  that advises the corporation on total landed cost and risk reduction actions from the point of product design and sourcing through final delivery decisions.
• Turn trade compliance automation and the use of preferential trade agreements, free trade zones, and other duty deferral programs into profit drivers for your company.

In the not too distant past, Gartner’s C. Dwight Klappich put out an article on “Developing an End-to-End Global Trade Management Functional Map” which, although not long enough, in-depth enough, or complete enough for the topic they were tackling, did contain a number of good check lists that you should review while putting your global trade plan together.

The check lists cover trade functions, trade compliance, movement of goods, and trade finance. Furthermore, they discuss global trade planning, monitoring and evaluation and indicate that global trade is a source of competitive differentiation.

Trade functions are defined as extensions to common business activities to recognize the nuances of conducting trade across borders. Major functions are:

• Sourcing
• Selling
• Export (customer) orders
• Import (purchase) orders
• Collaboration
• Product Management
• Vendor Management
• Document Management

Trade compliance functions address the activities that ensure that international transactions comply with and adhere to the rules and regulations of importing and exporting countries and the activities that involve insuring reporting, documentation, and financial obligations are met in a timely fashion.

• Preferential Trade Agreements
• License Determination
• Document Management
• Document Filing
• Product Classification / HTS (Harmonized Tariff Schedule)
• Customs Declarations
• Import Rules
• Export Rules
• Duties / Taxes
• RPS (Restricted Party Screening)

Move functions refer to all the activities needed to ship goods internationally.

• Carrier Booking
• Global Logistic Execution
• Shipment Planning
• Multimode Transportation
• Shipment Consolidation
• Shipment Routing
• Carrier Communication
• Global Visibility
• Landed Cost Control
• Shipment Documentation

Trade finance functions refer to determining the true total landed and delivered costs for trades, the calculation of duties/tariffs/fees/taxes, duty drawbacks, and collaboration with financial institutions for letters of credit, invoicing, and settlement.

• Letters of Credit
• Settlement
• Reconciliation
• Invoice Management
• Payment
• Insurance
• Trade Finance

The also recommend evaluating the performance of your global supply chain from a trade management viewpoint regularly by way of scorecards, performance indicators/metrics, and analytic reports to diagnose potential problems early and determine remedial actions. Considering an interruption in your supply chain could lead to a major disruption, this is sound advice.