Category Archives: Miscellaneous

What You Can’t Afford Not to Know About Your Suppliers

Supply & Demand Executive recently published an article on “What You Can’t Afford Not to Know About Your Suppliers” by Jim Lawton of Open Ratings (acquired by Dun & Bradstreet), who guest-posted Five Types of Supply Risk, and How to Mitigate Them and Winning the Battle on Risk: Information and Technology back in February.

In the article, Jim states that although no one disputes that the procurement and supply chain function across multiple industries has taken on a far more strategic role today. Despite this rise – even with the introduction of new business processes and programs, skills and staff development initiatives, and new technology and systems – few organizations are equipped with the global insight necessary to operate at a world-class level on a new stage. I’d have to agree. The recent rise of China-related fiascos is just one example. More can be found in the article on “Worst Supply Chain Disasters” or in various headlines over on CNN.com.

Jim goes on to note that from regional supplier directories to detailed and current performance, risk and capability intelligence, global supplier insight can become as indispensable to sourcing and supply management as a stage is to an actor. It can also help organizations understand on a total landed cost basis – quantifying price, performance and risk – the difference between regional suppliers and those from emerging markets such as Mexico and China and that companies need global supplier insight and content that focuses on three key areas to maximize their supply management results. These three areas are:

  • Supplier performance and quality management
  • Supply risk management
  • Supplier content and connectivity

 

Furthermore, to provide insight and connectivity into these three areas, global supplier insight solutions also need to deliver real-time content, analytics, risk management and supplier enablement capabilities. These solutions also need to be offered in a platform-agnostic environment, leveraging existing processes, systems and investments. Like Bloomberg’s financial information, which traders and financial managers use to improve their decision-making in the capital markets, purchasing and commodity managers must receive this type of content they way they prefer to digest it, whether pushed to their own desktop or through a specific application or even a designated terminal. After all, global supplier insight solutions can enable procurement organizations to take their supply performance to the next level. By empowering individuals with insight and connectivity, they bridge the gap between the internal and external, proving invaluable for strategic and tactical decisions alike.

Outsourcing and Procurement Mastery

Accenture recently released the results of their recent study on procurement outsourcing on “how procurement masters leverage outsourcing on the path to high performance” which found that on 1B of controlled, normalized spend, procurement masters achieve 30% higher savings with costs that are 50% lower. Furthermore, the organizational challenges faced by procurement masters are often less constrictive or severe than those faced by midrange or low performers who often face functional silos, a scarcity of resources and / or talent, and a lack of authority, among other organizational barriers.

Accenture found that procurement masters approach the function more strategically and holistically and more, thus, more capable of effectively tapping the the depth and breadth of skills, capabilities, and expertise offered by a service provider. They also found that procurement masters engage their suppliers to a larger degree, frequently collaborating to create value versus blindly seeking the lowest price. Procurement masters are also technology leaders who utilize the outsourcing provider’s processing power to increase efficiency, make faster decisions, leverage and focus internal skills, and connect with suppliers and third parties. In short, they excel in procurement strategy, sourcing and category management, requisition to pay, supplier relationship management, workforce and organization, and technology and know how to seamlessly combine the various processes to achieve the maximum benefit.

Some of the more enlightening points made by the study are the following:

  • Procurement masters, who approach the function more strategically, look and think three to five years out when planning purchases for critical categories.
  • Procurement masters make widespread use of cross-functional sourcing teams for managing projects, formulating strategies, managing supplier selection, and implementing contracts.
  • Procurement masters excel at providing clear and documented buying channels to the end user (83%), whereas low performers do not (8%), and carefully define and consolidate their category-specific processes through buying portals.
  • Procurement masters often use outsourcing as a means of reengineering processes, ensuring that logistics, purchasing, and engineering all cooperate effectively.
  • Procurement masters leverage a world class provider’s investments in category research, innovation generation, new technologies and improved approaches.
  • Procurement masters take an intelligent and aggressive active approach to supplier relationship management.
  • Procurement masters excel in active workforce management (78%) whereas low performers do not (3%). They objectively measure existing competencies, make frequent adjustments to organizational skills to insure continual alignment with procurement strategy, emphasize ongoing training and linkages to performance metrics, and blanket competency development strategies across the procurement user network.

The Benefits and Risks of Global Product Development

A few weeks ago, AMR published a thought-provoking piece by Jeffrey Hojlo, Michael Burkett, and Nigel Montgomery titled “Driving Global Product Development Excellence: A Guide To Balancing Benefits and Risks” in their free research section. (It will likely be locked to members only by the time this post goes up, so I will try to capture the most significant highlights.) In the article, the authors note that although it’s no surprise that the offshoring of Global Product Development (GPD) has become a $13B market, it is surprising that companies that consider New Product Development and Launch (NPDL) core to their businesses still outsource in developing regions despite the inherent risks, which include security, supplier qualification, low compliance standards, product quality, slow time to market, geopolitical unrest, and lack of regulation.

In a recent AMR survey, they found that 30% of organizations are outsourcing some aspect of their New Product Development and Launch (NPDL) processes, 40% plan to outsource some aspect of their NPDL processes over the next 12-24 months, and another 27% have captive development centers in place. The primary reason given is the shortage of affordable engineering talent in developed markets and, thus, despite the risks, the business demands it.

Most of these companies still keep the actual product design process within the four walls of the corporation, but are increasingly looking to outside partners and captive development centers to help with the front end (ideation) and back end (product launch). This can be good news for vendors in developing economies with the skill sets to assist in these processes.

The research brief points out that many of the risks – including product quality, supplier qualification, security, brand equity, slow time to market, disparate data, the right people, compliance, and geopolitical – can be mitigated, or at least managed, by way of appropriate strategies. To this end, it recommends starting with the following six strategies:

  • Product Road-Mapping and Portfolio Management
  • Iterative Product Development and Validation
  • Product Architecture and System Design across the Value Chain
  • Knowledge Management on the Front End of Innovation;
    Content Management, Product Data Management, and Search
  • Intellectual Property (IP) Security & Management, Authentication, and Authorization
  • Talent Management

And I would add the following:

  • The right Product Lifecycle Management – Sourcing Platform
    Since the goal is to lower costs while lowering risks and increasing quality and value. The right, integrated, platform will go a long way towards helping you implement the strategies above.

The brief concludes with an overview of the GPD opportunity, based on three technology gaps in GPD environments cited by end-users in the AMR study:

  • Concept Testing
  • Design Engineering and Prototyping
  • Needs Assessment / Idea Generation

It goes on to note that these are all areas that require robust decision support and notes some typical questions in a GPD scenario that developers and managers need to answer:

  • What are the risks I need to be aware of?
  • Open innovation: how open should I be with offshore partners?
  • Will my ideas resonate with my target audience in this particular market?
  • What are the operational cost tradeoffs to expanding the design performance or increasing the number of SKUs when offering additional product features?
  • How do the results of alpha-beta tests or recent market data affect a new product launch?
  • Do I have the right people working on the right projects?
  • How do local regulations and requirements affect the materials I need to source and the proof of compliance I need to provide to local officials?
  • What learning experience from past experimentation or failures (such as product or supplier quality issues) can be reused in future product development efforts?

It then concludes with some wrap-up recommendations for vendors of NPD(L) and Product Lifecycle Management (PLM) solutions and technologies.

  • Expand Your Services Practice
    There is a huge need for business process engineering, risk mitigation consulting, and training in developing countries.
  • Enable Postponement Strategies
    Extend postponement strategies from simply delaying the final assembly from sourced components to include sales configuration and design for supply.
  • PLM and Sourcing Unite
    One of the major risks with global sourcing is the variability due to inconsistent lead times and product quality. Tight integration between PLM technologies for Product Development and Sourcing technologies will help minimize the variability.
  • Don’t Forget About the People Component of GPD
    People Management is not a strong focus of PLM vendors. But why not incorporate more in-depth skill requirement, training, and talent management functionality in PLM technology for quick decision making on the right resources for a project?
  • Extend PLM to be a Risk Decision Support Platform
    There’s currently no platform to manage the various types of risk in GPD.

JLP Responsible Sourcing Part XI: Environment

In our last post, we discussed the environment, corresponding to section J of the report. In today’s post, we cover section K of The John Lewis Partnership‘s “Responsible Sourcing Supplier Workbook”, which covers environmental issues.

Considering the breadth of environmental issues – air pollution, water contamination, waste treatment, and energy use, just to name a few – you’re probably wondering why the JLP Responsible Sourcing Workbook devotes but a single chapter and this blog but a single post in the JLP series. It’s simple – of all the issues, this is the topic getting the most attention, in no small part due to global warming and tireless campaigns of a select few, such as that of Al Gore.

Although lack of environmental legislation around pollution and waste control is usually promoted as the primary problem, the real problem is, as it has always been (and I suggest you read A Brief History of Globalization by Alex MacGillivray for additional insight), industry and its thirst to be the victor at all costs. However, now that over six billion of us have populated the far reaches of the globe, we can no longer afford to do business at all costs. With the population expected to increase to nine billion before it levels off later this century, we have to start protecting, and saving the environment today. Unless technology rapidly advances to the point where we can colonize the ocean floor, inhospitable planets, and space, we’re out of room and out of time.

Although one would hope that reaching out to your humanity would be enough to convince you to trim your wasteful ways, history has taught us better. Thus, I’m instead going to point out what’s going to happen to your business pocket book if you don’t. Sooner or later, and hopefully sooner, those who don’t clean up their act are going to find themselves regulated or financially forced out of business thanks to consumer backlash and heroic efforts by forward thinking politicians such as The Governator.

More specifically, in developed countries, I am positively predicting that not only are conscious, educated consumers going to pay slightly more for “fair trade”, “carbon neutral”, and “environmentally responsible” products and services, but that, as more of these options start to spread across the marketplace, they are going to stop buying products that don’t fall into these categories. The media backlash when they discover your sweatshop in West Africa and your dumping operation in South America is going to pale in comparison to the beating your pocketbook is going to take when consumers simply stop buying your product. Furthermore, I am predicting that as these conscious consumer groups gain in numbers, we’ll start to see progressive politicians with a back-bone who will stand up and fight for what’s right, regardless of how many oil-barrons, automobile-manufacturers, and tobacco-peddlers they p*ss off along the way. And even though they may not win at first (unless Arnold can convince a few of his more radical well-known celebrity counterparts to also run as governors and senators), they will eventually.

(What boggles my mind is the fact that so many politicians are afraid to even suggest the imposition of tighter regulations because it will “hurt the big automakers, oil companies, and tobacco plantations that employ thousands and thousands of workers and damage our economy”. This is garbage. We can make better cars, process oil cleaner, and reduce the pollutants in cigarettes with our current technology. It might cost millions of dollars to upgrade the equipment to support cleaner processes and produce alternative fuel vehicles, but this does not have to hurt the manufacturers. Just like governments give big temporary tax breaks to natural resource companies to survey and develop new sources of supply, does not mean one could not apply the same logic and give companies a temporary tax break to cover their conversion cost, as this would help to ensure their success in the long run and prevent job loss. The problems they promote with their one-sided viewpoints don’t exist as they can almost always be solved with education, creativity, and a willingness to work toward a compromise solution with long-term goals.)

Some facts on the issue from the JLP workbook include:

  • CO2 levels have risen more than 30% since widespread fossil fuel use began and are at their highest point in 400,000 years
  • Air pollution is the cause of three major environmental issues: global warming, ozone depletion, and acid rain
  • A recent survey by the World Health Organization / United Nations Environment Program (WHO/UNEP) found that 10 of 11 major cities in the Asia-Pacific region exceeded dangerous levels of Suspended Particulate Matter (SPM) air pollutants
  • Approximately 300 Million Chinese drink unsafe water and 90% of China’s cities have polluted groundwater
  • In the UK alone, there were 661 pollution incidents in 2005 that had a serious impact on water quality

What do you need to do?

  • Comply with all local, national, and international laws and regulations
  • Make continuous improvement in environmental performance, regardless of what the regulations require
  • Make practical efforts to minimize use of energy, water, and raw materials and use renewable resources whenever possible
  • Minimize waste and dispose of any waste produced in an efficient, safe, and environmentally friendly manner
  • Avoid contamination of the local environment
  • Minimize chemical usage
  • Insure there is an up-to-date action plan in place to achieve these goals

This concludes our coverage of the ten major issues tackled in the workbook. There are, of course, more issues (such as animal welfare), but these are the ones common to every organization and the most generally applicable, so they are a great start. Our next post will summarize the series and provide some concluding remarks. (You can access all of the posts in the series (to-date) by selecting the JLP category at any time.)

Supply Chain Humor This Week V

First Things First: All Hat Tips to Tony Poshek, The Satirical Sourcerer
(formerly known as The Cynical Sorcerer, but it seems only us bloggers got the joke)

How’s that invoice payment system working for you?
“Defense Contractor Was Paid $1 Million to Ship 2 Washers“

A South Carolina defense contractor pleaded guilty to bilking the Pentagon out of $20.5 million over nearly 10 years by adding hundreds of thousands of dollars to the cost of shipping spare parts such as metal washers and lamps. The parts were bound for key military installations, including those in Iraq and Afghanistan. In one instance, in 2006, the government paid C&D Distributors $998,798 in transportation costs for shipping two 19-cent washers.

This only goes to show why it pays to have a rules-based e-Procurement system in place that only automatically approves invoices if the amounts are within expected tolerances and routes those amounts, along with corresponding invoice information, that are not within tolerances to a human operator.

Well here’s a new market to profit from, that I bet you never thought of: A man in India is apparently charging people to spend time with his iPhone. Not to buy it mind you, just spend some time to touch/see/feel it. Apparently ~$12 will get you 15 minutes. (Gizmodo)

At least it’s an iPhone and not a blackberry … otherwise, Dictionary.com might have to create a new definition for RIMming …

“Sometimes auctions provide miracles” (Stuff.co.nz):
An 18th-century painting went into a small U.K. auction house estimated to be worth a couple hundred pounds. It turned out to be a Renaissance masterpiece worth millions!

Just goes to show that you should always research what you buy … or sell.