Category Archives: Market Intelligence

Ecovadis-Powered E-TASC: A Great Solution for ICT Supply Chain Sustainability

The Global e-Sustainability Initiative (GeSI) is a 36-member strategic partnership between the Information and Communication Technology (ICT) sector and organizations committed to creating and promoting technologies and practices that foster economic, environmental and social sustainability that recognizes that sustainability is a strategic issue. As a result of this recognition, GeSI has decided to do something about the situation. In partnership with EcoVadis, it recently developed and re-launched a new and greatly improved version of the Electronic Tool for Accountable Supply Chains (E-TASC). Designed to facilitate support and drive accountability in the area of human rights and other sustainability standards throughout the supply chain, the goal is that the tool will allow for a more effective and transparent management of ICT Supply Chains and allow companies to better report to their different stakeholders.

Within a month of launching, over 20 ITC companies are already fully deployed on the platform and using EcoVadis to assess suppliers and over 1000 ICT suppliers are subscribed and registered on the platform (which can be found at etasc.ecovadis.com). The platform has all the power of the core EcoVadis platform, which has been EcoVating the Globe for many years (as described in the linked SI post) plus new capabilities in the areas of collaboration and corrective action plans, multi-tier transparency, site audits, and SEC conflict mineral tracking (which is very important if you are a supplier that wants to supply to a US ICT company). In addition to the deep supplier sustainability, business practice, and environmental assessment, there is also an in-depth labour practice and human rights assessment as well as the ability to track sustainable procurement initiatives. But the biggest improvement by far is the ability to share supplier audits and associated data between participating member companies.

If every buyer does their own audit of a supplier, it not only presents a significant drain on the supplier (which will end up costing all of the buyers in the end), but diminishes the chance that any buyer will get a thorough audit. There are two reasons for this. First of all, if you are doing individual audits on every major supplier, the cost is going to add up quickly so you are going to opt for the minimal audit from the lowest cost provider. And you’ll get what you pay for. A check-the-box minimal review of operations and records. It won’t be hard for poor working conditions at a secondary factory, off the books underage labour, etc. to slip through. Secondly, if a supplier has to deal with dozens of audits, it’s going to try and rush each auditor through each audit due to limited time and resources. In this case, it’s going to have books, materials, tours, etc. prepared, stick to them, and possibly avoid areas that could be troublesome to you. But if all of the big buyers come together and commission one audit, through a platform such as E-TASC on the EcoVadis platform, they can afford to pay for a very thorough audit at a fraction of the price that is not stressful on a supplier’s resources. Every one wins, especially when the supplier can see their assessment through the platform, what corrective actions they have to take to improve it, and other recommendations for improving their standing with the industry overall. In additional, all parties can see the results of the audit against the industry standard benchmark.

It’s a great solution for the ICT industry and one every ICT buyer should check out BEFORE regulations come into play that will mandate more sustainability and traceability in their supply chain.

China is Not to Blame for Our Manufacturing Woes

Laurence Edwards and Robert Z Lawrence of the Peterson Institute for International Economics, and authors of Rising Tide, Is Growth in Emerging Economies Good for the United States, have put a presentation based on their book online that, among other things, clearly demonstrates that China is Not the cause of our manufacturing woes. Given that 86% of North America based companies have a supply chain that relies upon key parts from China (as noted in the Risk Management Monitor) and that a number of prominent economists (including Samuelson, Summers, and Krugman) have stated that growing trade (especially with low-cost countries, with China being #1 for many years) reduces wages, welfare, and jobs, this might be hard to believe. But it’s true. In fact, China outsourcing has had essentially zero impact on North American manufacturing. How can this be?

Consider this chart which shows the manufacturing share in establishment employment from 1961 – 2010. When you look at the forecast based upon the fitted trend line of market share from 1961 to 1979, and the actual share of manufacturing employment, you see that the forecast was dead on! (Moreover, the trend has been repeated around the world – including Sweden, the Netherlands, and Germany.)

Manufacturing Job Trend

This data suggests that the reason for the decline in manufacturing is a common, pervasive, cause. Specifically, productivity growth. Automation is reducing the amount of labor required to produce goods. If the amount of labour required to produce goods decreases, the only way that jobs could retain constant is if demand increased. But this didn’t happen because, let’s face it, most people only want one fridge, one car, and one iPhone. (Yes, some people want two, or three, but not ten, or more, and when you consider the increase in manufacturing productivity over the last fifty years, for many goods, we’d have to buy ten to maintain the same level of manufacturing employment.)

But we could afford to buy more, as the productivity increases have, relatively speaking, brought many prices down (adjusted for inflation). So why haven’t losses slowed? Because we buy services instead. We eat out more, take limos, and pay carriers to give us 4G service. And that’s the real reason manufacturing jobs have declined, because service jobs grew. So, in this case, we can’t blame China, even though they have taken a very large amount of North American dollars over the past 30 years.

Will the Patent Pirates finally be Plundered?

The patent pirates have been plundering for way too long. And we should all be fed up. Since SI alerted you to the problem way back in 2006, in a post on how The Software Patent Pirates will Plunder Away, inspired by a post by Dave Stephens on the now defunct Procurement Central, which evolved into “Stephen’s Business and Technology Nexus” (which, is now also defunct), not much has changed. Even though Mr. Obama declared war on the patent trolls on September 16, 2011 when he signed the Leahy-Smith America Invents Act into law, the pirates are still trolling the high seas of business in search of easy prey to pillage and loot.

To date, as covered in 2011 in SI’s post on how Patent Pirates are Still Plundering, patent trolls have cost investors over half a trillion dollars over the last 22 years (as reported in CNN Money on Sept 21, 2011). Half a Trillion Dollars. Think about that. This puts the Somali Pirates, who have figured out how to steal approximately 10 Billion a year from the shipping industry (according to the LA Times), to shame! (The patent trolls are pillaging almost 3 times as much as the Somali pirates from the safety of their penthouse suites!)

The trolls have to be stopped. They now account for approximately half of the roughly 4,000 patent cases a year in America. That’s 2,000 patent cases that are, for the most part, frivolous and unfairly extortive (as small companies cannot afford a lengthy legal battle and are forced to settle to survive). Fortunately, the Obama administration realizes that and has announced new actions and proposals for patent reform. These proposals, designed to reduce anonymity in patent litigation, improve review at the USPTO, give more protection to downstream users, and improve standards at the International Trade Commission, are definitely a step in the right direction. (SI agrees with the TLF that more is needed, but we’ll get to that later.)

Specifically, the administration is recommending the following legislation:

  • Require patentees and applicants to disclose the “Real Party-in-Interest”
  • Permit judges more discretion in awarding fees to prevailing parties in patent cases, providing district courts with more discretion to award attorney’s fees as a sanction for abusive court filings.
  • Expand the PTO’s transitional program for covered business method patents to include a broader category of computer-enabled patents and permit a wider range of challengers to petition for review of issued patents before the Patent Trial and Appeals Board (PTAB).
  • Protect off-the-shelf use by consumers and businesses by providing them with better legal protection against liability for a product being used off-the-shelf and solely for its intended use.
  • Change the ITC standard for obtaining an injunction to better align it with the traditional four-factor test in eBay Inc. v. MercExchange, to enhance consistency in the standards applied at the ITC and district courts.
  • Use demand letter transparency to help curb abusive suits, incentivizing public filing of demand letters in a way that makes them accessible and searchable to the public.
  • Ensure the ITC has adequate flexibility in hiring qualified Administrative Law Judges.

In other words, the proposals are to:

  • Make it public as to who is filing a patent suit,
  • why the suit is being filed,
  • and allow judges to penalize abusive, frivolous, filers with big legal bills.

This is a good start, but it’s not enough. First of all, as per SI’s post on why we need a “loser pays” bill for patent lawsuits, the filer of the frivolous patent should be required to pay a penalty that is at least double the cost of the suit, including the defence’s legal fees, damages, and court costs. (If the penalty won’t hurt, they won’t stop.) Secondly, despite the objection of cash-flush giants like Apple and Microsoft, we have to follow the lead of the EU and New Zealand and abolish software patents. The vast majority are complete and utter bullshit. The one’s that aren’t contain specialized business methods that could be patented separately (just like you can patent unique physical inventions and processes for extracting medicinal compounds from natural plants). (And SI is happy to see that the Technology Liberation Front agrees with this proposal.) Software is just code that encodes algorithms in a machine language that is compiled into a binary instruction set that runs the program. This is essentially a complex mathematical formula, and mathematics, like laws of nature, is NOT supposed to be patentable. And since many of the trolls have armed their arsenal with software patents, this would be the best way to strike back.

For more information on the challenges of taming the trolls, you can start by reviewing the recent report on “Patent Assertion and U.S. Innovation” from the National Economic Council and the Council of Economic Advisors.

An Interesting Take on the Top Ten Trends Influencing Procurement

At the World Procurement Congress in London in May, Tom Linton, CPO Flextronics, gave a talk on his top ten trends influencing Procurement, which are summarized in this online Slideshare presentation.

Tom Linton’s Top Ten Trends Influencing Procurement

While SI may not necessarily agree with the order of the trends, SI has to admit that the top nine were great insights, and are certainly influencing Procurement to various degrees. As a result, SI will list and discuss these trends for you.

9. Business Process Convergence
It’s more than just document convergence and the virtual vertical integration of multi-tier supply chain management capabilities, but NPD, Manufacturing, Sourcing, Procurement, and Payment are all merging as one continuous function through common application back-bones and plug-in best of breed applications.

8. Global Labour Costs Equalize
Mexico matches China in Direct Labour Costs, and costs in other markets continue to rise. And when you consider the cost of logistics, remote staff management, etc., the savings from labour arbitrage become less and less by the day.

7. Raw Material Scarcity
The demand for oil, metals, timber, food, etc. is increasing around the globe. Demand is meeting or exceeding supply in many commodity categories.

6. Skill Specialization
With the increasing need for sourcing / supply network optimization, analysis, risk management, and emerging market management capabilities, a new class of specialized skills are required by strategic supply managers.

5. Control Tower Models replace Traditional Procurement Functions
Technology enabled centres of excellence are becoming the dominant Procurement model in leading Procurement organizations.

4. The Growth of Regional Local Sourcing
It’s taken a while, but home-sourcing is finally starting to happen. “Made in the USA”, the EU focus on Eastern Europe (and Poland, Romania, and the Ukraine in particular), and the shift to India and Indonesia from China.

3. Unpredictability Becomes More Predictable
With the chance of a major supply chain disruption for your organization exceeding 98% over the next 24 months, risk, resiliency, and preparedness is the new modus operandi for supply chains that can always predict that sooner, not later, something is going to go wrong. Leading organizations are adopting multi-tier visibility applications and optimizing costs and risk across the supply chain.

2. Corporate, Social, and Environmental
It only takes one scandal to send your stock in a downward spiral. As a result, CSR is taking a front page, especially since laws designed to protect workers and the environment are catching up in emerging economies.

1. Non Zero
Supply Management organizations are moving away from commodity sourcing events to strategic category management, using risk management to lower insurance rates and drive (hedging) investments, applying new multi-tier visibility and collaboration tools to drive trust, transparency, and reliability throughout the supply chain, and looking for ways to generate non-zero sum value for all parties.

The only trend SI did not like was number ten, Cloud Computing. It may be low-cost, but its reliability is in question. For example, 38% of Amazon Web Services instances have poor security! You have no clue where your data is, if it’s backed up, or who has access to it. And, most importantly, The Cloud is Not a Crystal Ball Either. And just like a real cloud, it can evaporate after a good rain!

The End of Competitive Advantage: A Review, Part III

In Part II of our review, we laid out the four rules for competing in the new landscape of temporary advantages when your organization has reached
The End of Competitive Advantage. In summary, they were:

  1. Compete in arenas, not industries.
  2. Get (out) while the gettin (out)’s good!
  3. Use resource allocation to promote deftness.
  4. Don’t try to tame temporary advantages without the support of a leadership team that believes in temporary advantages (and doing what is necessary to tame them).

Today we want to dive in to what is meant by gettin’ (out) while the gettin (out)’s good, how resources need to be viewed, and what defines a leadership team that will believe in, and support, the continuous pursuit of temporary advantages, according to the book’s author, Rita Gunther McGrath.

A company that gets while the gettin’s good focusses on continuous reconfiguration and healthy disengagement to constantly move from one temporary advantage to another. The reconfiguration process can be thought of as the secret sauce that allows a company to remain relevant in a situation of temporary advantages, because it is through (this) reconfiguration that assets, people, and capabilities make the transition from one advantage to another.

A company that is continuously reconfiguring is constantly morphing. Instead of (extreme) downsizing or restructuring, the plagues of companies that try to hold onto competitive advantages that aren’t sustainable, continually morphing companies shift resources from one wave of temporary advantage to another, as needed. Business units are replaced by opportunities managed by appropriate leaders, execution strategies are adapted to the situation, and the wave rises and falls with the transient nature of the competitive life cycle of the arena. In the beginning, resources are assigned to define and develop the product. When production begins, more resources are assigned. When it’s time to launch, support resources are assigned and added as needed until the product peaks and R&D resources are taken off to being work on the next wave. Once the peak is reached, resources are successively taken off of the wave and assigned to other waves where they can add more value. At some point, the product line, and support, is ended or sold off, the remaining resources are reassigned, and the leadership team is refocussed on other projects.

As the temporary advantage wanes, the leadership begins to look at disengagement strategies in an effort to identify the one(s) that it will pursue. The right strategy for disengagement is typically defined by the value of the capability and the time pressure. If the capability is in decline and there is little time pressure, the leadership team will probably choose to run-off and be well paid to maintain support for customers while decreasing investment. However, if the capability is core to the future of the business and the time pressure is intense, the leadership will have no choice but to pursue a hail mary and divest formerly core capabilities as part of an effort to find a new core to migrate too. For example, if you were in film processing when everyone went digital, you found a new core or you filed for bankruptcy. In between these extremes, the company may pursue an orderly migration, garage sale, fire sale, or last man standing disengagement strategy.

A company that competes in arenas can only win if it is innovative and deft. A company deft at resource allocation follows the new strategy playbook for resource allocation. This means the following:

  • It manages resources centrally, not in business unit silos.
  • It organizes around opportunities, not an organizational structure.
  • It aggressively and proactively retires competitively obsolete assets, and moves the talent that was supporting them to new opportunities.
  • It has a real options mind-set structured around variable costs and flexible investments.
  • It’s all about parsimony, parsimony, parsimony. It invests only when the time is right.
  • It knows that access trumps ownership.
  • It leverages what is available, wherever it is. Inside or outside, it doesn’t matter.

When it comes to innovation, it has more or less mastered the process. It has obtained a level of proficiency where innovation is ongoing, fueled by an ideation pipeline, and supported by the leadership team that spins up new operating groups as needed to explore potentially viable ideas, and that then spins them down, without negative repercussions to the team, if it is later determined that they are not sufficient to conquer the target arena(s). There are no failures, just learning experiences that guide, and increase the chances of success of, the next idea.

The book also summarizes a process for managing the ideation and innovation process, which was outlined in more detail in the author’s previous co-authored book on Discovery-Driven Growth, the core competencies required by the leadership team, and what transient advantage means for your, personally, but we’ll leave that to your review of the book.

This three-part review concludes with the statement that this book, packed with relevant examples and case studies, not only makes a great case for transitioning away from sustainable advantage strategies when the industry your organization was operating in no longer supports them, but also does a great job in laying out the rules and framework your organization will have to adopt if it wants to ride the waves of temporary advantage that will otherwise wash it out to sea if it’s not prepared. It is well thought out, well written, and a must read for anyone that wants to adapt to the constant change many business have to, and will soon have to, cope with. I recommend this for any business leader that wants to stay on top of her game (because even if she has a sustainable advantage today, it may wither tomorrow) and strongly recommend this for every Supply Management professional because history has shown that supply chain advantages (which depend on labour costs, the price of oil, global market dynamics, etc.) are always temporary.