Category Archives: Miscellaneous

Sometimes Good Advice for IT is Good Advice for Sourcing

A while ago, ZDNet published a short article that described a “10-Step program to SOA Success”. What’s neat about this article is that it could have been titled 10-Step Program to Sourcing Success as it is a great primer if you are just entering the world of e-Sourcing.

Let’s examine the ten steps carefully.

  • Who’s Your Daddy?
    Without support, any project is doomed to failure. If your organization does not yet have a Chief Procurement Officer on the senior management team, you need to find someone in senior management who is responsible for a top business imperative and convince them the project will save money and let them champion your cause.
  • Have a Vision!
    You need to articulate your vision regularly and consistently to gain support from other teams, departments, and upper management. You’re implementing the foundations for sweeping business change that is going to affect the business for decades to come.
  • Identify Attainable Projects.
    Start with an initial project that has immediate value and that can be finished in a few months since nothing speaks louder than a successful project delivered on time with better-than-planned savings.
  • Support the Business.
    If you choose the projects with the greatest potential impact to the business, you will ensure that your sourcing projects get the attention they deserve.
  • Flexibility Matters.
    Create flexibility through loosely coupled on-demand services that can be formed to create composite applications that automate business functions across the sourcing and procurement cycles. This flexible infrastructure will form the basis of business processes that are capable of adapting quickly as markets change.
  • Networking is Not Just for Salespeople.
    A key to success is the establishment of corporate-wide support at all levels of the organization. Be visible, promote your success, and find a way to make your success their success.
  • Don’t Lose Control.
    Establish strict governance procedures from the outset. With stringent government regulations, organizations need to be acutely aware and be held accountable. In sourcing terms, this means documenting each step of the process and ensuring compliance with negotiated contracts.
  • Don’t Fear Change.
    Organizational changes are imminent and you should be prepared to not only adapt to them, but guide them. After all, procurement is a central business unit in a successful organization.
  • Learn as You Go.
    Even if the first projects go very well, which they can if you use good tools, best practices, and follow the advice of experienced category professionals (that you should consider hiring as consultants if you do not have the expertise internally), there is always room for improvement. The most successful aspects should be recognized, captured, and carried to the next project while the less successful aspects should be identified and improved.
  • The Best and the Brightest.
    Create a center of excellence and staff it with the best and brightest. This team will be responsible for identifying best practices and guiding your procurement teams in their implementation.

A Systemic Blindness (in the Supply Chain)

One of the presentations at the Fourth Annual International Symposium on Supply Chain Management was by Mark Gallant of Accenture on Supply Chain Management: The Road to High Performance based on yet another global study that they have recently completed on 600 Global 300 companies.

One of the most interesting aspects of this study was, as far as I was concerned, the lack of any new results. It might as well have been Capgemini reporting on their results (which I mentioned in my post on The Need for Supplier Relationship Management Education and which Jason Busch of Spend Matters critiques in “The Consulting SRM Research Pile-On Continues”*) or another consulting firm.

This leads me to hypothesize that not only are many companies not spending enough time and money training and educating their procurement team, they are not concentrating enough of their focus on their supply chain and still not attributing the necessary amount of importance to it.

I know I should not find this surprising given the traditional pace of transformation in the corporate world, but I do. After all, I reminded you of Dr. John K. Potter’s claim that most major initiatives in an organization required 5 to 10 years in The Change Management Myth: Why e-Procurement Initiatives Fail, indicating that many enterprises have just not caught up with the speed of business – even though, as I have pointed out a couple of times now, Aberdeen recently found that your average company experiences two major supply chain disruptions a year.

However, when you consider the direct impact that supply chain performance has on the stock market price of your corporation, and the considerable focus financials have always received, this systemic blindness should be changing as I type this.

After all, SAP’s recent analysis of supply chain glitches (as presented by Al Norrie in the software panel discussion), has found that stock prices drop by an average of 7.5% to 11% after a supply chain disruption.

Glitch Stock Price Delta
Product Development Delays 10%
Rollout Delays 11%
Production Problems 10%
Quality Problems 9%
Material Shortage 7.5%

In addition, Accenture analyzed stock prices of market leaders, transformers, laggards, and decliners over the last decade and found that while leaders maintained a market cap approximately 15% above average for their industry, laggards were roughly 5% below market average and decliners were as much as 15% below market average. In simple terms, bad supply chain performance can result in a stock price 30% less than the market leader under an apples-to-apples comparison!

So what can you do? According to Accenture, you should

  • incorporate supply chain into your core business strategy
  • make strategic in-source vs out-source decisions
  • build effective linkages with trading partners
  • adopt leading edge technology and best practices
  • relentlessly shorten your supply chain
  • flawlessly execute against your capabilities
  • continuously evolve strategies and optimize models
  • have a vision and a strategy
  • adopt the right culture

In other words, just follow all of the good advice that bloggers such as Jason Busch (Spend Matters), David Bush (e-Sourcing Forum [WayBackMachine], Dave Stephens (Procurement Central [WayBackMachine]), Tim Minahan (Supply Excellence [WayBackMachine]), and I have been imparting since we started blogging and most importantly, if you truly believe your supply chain is very important or critical (as 44% and 45% of survey respondents, respectively, believe), be sure to commit the appropriate resources to address it.

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

There’s Such a Thing as Too Much Flexibility (in your Make-to-Order Supply Chain)

As you have hopefully figured out by now, there were a lot of good presentations at the Fourth Annual International Symposium on Supply Chain Management. Some were more insightful than others, some more interesting than others, and some more eye opening than others. A presentation that fit into this last category was Sascha Schoor’s presentation titled Flexibility Cost Oriented Management of New Car Orders in the Automotive Industry.

German premium car manufacturers differ from other European manufacturers and American manufacturers in two distinct areas:

  1. build to order
    almost 100% of cars are configured by customers or dealers
    (as opposed to 48% in Europe and 6% in the US)
  2. individual configuration
    there are theoretically up to 1032 different configurations of a BMW5

This is because German manufacturers believe that consumers not only want a significant amount of customization capability in their cars, but that customers also want the flexibility to change their order up until a few days before production begins – the “5 day car” model. However, the study carried out by the presenter determined that despite marketing’s insistence that being able to change an order up until 5 days before production was very important to consumers, this is not the case.

The study, which analyzed responses from 803 participants, 508 of which planned to buy a new car in the next 12 months and 295 of whom had recently bought a new car, found that the majority of customers would not only be satisfied with a longer delivery time and, thus, a reduced capability to change an order once it is made, but that a substantial number would be willing to accept a significantly longer delivery time if an early booking rebate was offered (with 69% willing to lock in an order early if a 5% to 10% rebate was offered).

When you consider that

  • only 13% of customers change their orders after signing, and of these, the median number of changes is less than 2%
  • a total of 85% of these customers would accept a longer delivery time with an early booking rebate,
  • most of the changes revolve around easily configured electrical components (i.e. stereo/CD), interior choices (seats, color), and exterior choices (paint, optional accessories), and
  • having your orders locked down a few days in advance allows you to configure your production lines for optimal productivity, which can greatly lower your costs

it becomes clear that German manufacturers could save a lot of money and substantially increase profits by adopting a happy medium between the German car philosophy and the American car philosophy and providing rebates for those customers who lock in build orders early or choose a standard configuration. Then, for the 15% of customers who want flexibility, they can still provide that flexibility at a premium.

What do you think?

The Change Management Myth: Why e-Procurement Initiatives Fail

One of at the presentations that I really wanted to see at the Fourth Annual International Symposium on Supply Chain Management was Jon THE REVELATOR Hansen’s presentation on The Change Management Myth: Why e-Procurement Initiatives Fail. Unfortunately, as happens from time to time, the author could not make it. However, Jon Hansen, formerly of e-Procure Solutions Corp. (and now of Procurement Insights), did send in the paper his presentation was to be based on, which had some really good points that I am going to discuss herein.

Before I get to what may be the fundamental reason, I’d like to reiterate a statement by Dr. John K. Potter who stated in his eight step process for change (in Leading Change) that transformation within a company can take between 5 and 10 years while, conversely, employees will abandon the initiative if the do not see compelling evidence that the change is working within 12 to 24 months. In other words, major organizational changes typically take 2.5 to 10 times longer than an employee will wait – so the pace of change, and your change management, needs to be relatively rapid if you want to succeed.

Secondly, I’d like to point out that despite their potential to revolutionize your organization, e-Procurement failures, especially partial ones, are much more common than you might think. Studies (IDC) and publications (Fortune Magazine) have reported that 75% to 85% of all e-Procurement initiatives fail to achieve the expected results. In other words, according to these studies, your chances of complete success are at most 1/4! Those aren’t good odds.

As an example, I’d like to point out the results of INCO’s eProcurement Transformation. At the conference INCO, one of the world’s largest nickel producers, presented the results of the initiative they started in 2001 (primarily through Quadrem (acquired by Ariba in 2011) an eProcurement marketplace) as a success. However, given their reported results, I would only classify it as a partial success.

As of last year, INCO calculated that their eRFQ initiative has saved them $3M on 907 events worth $300M – a mere 1%! If, like me, you’ve been tracking the industry studies by Aberdeen and AMR over the years, you will find this quite low. Now, an eRFQ initiative is not going to save you double digits like an eAuction or decision optimization can, but, considering the size of their organization and their spend, I would have expected efficiency savings at least 2 or 3 times that amount.

Furthermore, they have only run 26 events to date for a savings of 17M! Now, I don’t know all the baselines for this statistic, but I expect that their savings could have been a lot higher with more events. After all, industry statistics would suggest that they could have run considerably more events than they did (since at least 30 to 50% of events should be suitable for their eAuction tool and they have been running 180+ events a year through their eRFQ), and doubling or tripling the events should significantly increase savings. After all, their public financials indicate capital expenditures of almost 1.2B a year, and given average first time auction savings typically in double digits, if they had run even a third of their spend last year through an eAuction, I would conservatively expect that they should have been able to achieve a savings two times what they actually did. I could be dead wrong, but I’ve seen some considerable successes first hand when projects are appropriately implemented, managed, and, most importantly, supported. (And I’m sure the change management and the slow pace of a large corporation was the issue for the long implementation and what I consider to be weak results, and not the technology or their procurement team, who struck me as very on-the-ball.)

Back to the topic at hand. Most initiatives fail to achieve the expected results. (And sometimes drastically so! Consider the State of California who entered into a 6 year, $95M contract with Oracle on the basis of an unverified vendor savings estimate of $163M, which was not backed up by the $111M estimate by Logicon, Oracle’s consulting partner. When the deal was audited by the State’s auditor, the forecasts were found to be wildly inaccurate and the conclusion was that instead of saving money, the 6 year, $95M contract would actually cost taxpayers $41M.

The major reason, as hinted at by the above example, is typically lack of technology alignment. I’m a technology guru by training (PhD in Computer Science specializing in Multi-Dimensional and Spatial Data Structures and Computational Geometry), and I know (from experience) that great technology, including technology with a multi-million dollar price tag, can produce an ROI many times what you invest – but the truth is that it only produces results if it is aligned with your needs and solves the problem you need to solve. More importantly, even though the right solution can often save you millions and millions of dollars, the wrong solution can cost even more!

So why is the wrong technology often selected? There are a number of reasons for this. One reason, as I inferred in the software panel at the conference, is that the decision is not always made by the right person, but the primary reason is probably due to a lack of strategy. If your strategy is to simply “select an eProcurement / eSourcing tool” and reap rewards, you are bound to fail.

As Hansen says, any e-procurement strategy should be built upon a solid foundation of process understanding and refinement before technology is introduced into the equation. This way, when you make the decision to investigate the available applications, you are doing so with a clear understanding of how technology can work to accelerate the process, not define it. In other words, you need to know what you need before you select a solution, so that you can properly evaluate the solutions on the marketplace and select the one that is best matched to your needs.

The Best Place to Do International Business in Canada (is Halifax, Nova Scotia)

It’s Saturday (my day off from sourcing), and since I don’t have any Flaming Laptops or Weasels to report on, I’m going to tell you about the best place to do international business in Canada, and why. If you want the short answer, it is Halifax, Nova Scotia, but since I know some of you may not take it on faith that I’m right, you can keep reading.

The September 25 – October 8, 2006 issue of Canadian Business ran an article entitled The Best Places to Do Business in Canada where they ranked prime locations for business in terms of annual operating costs (/M$), cost of living index (with Toronto as a baseline), building permit growth, unemployment rate change, and crime rate per 100,000. Based on the weighted rating they used, Quebec City came first, St. John’s Nfld came fifth, Edmonton came seventh, Halifax came ninth, Ottawa came twelfth, Winnipeg came thirteenth, Vancouver came thirty-first, Calgary came thirty-fourth, Toronto came thirty-seventh, and Montreal came thirty-eighth.

A snapshot of the statistics of these cities is as follows:

Rank City Yearly Operating Cost ($M) Cost of Living Index Building Permit Growth Unemployment Rate Change Crime Rate(/100,000)
1 Quebec City, Que. 30.44 73.10 89.31 -32.76 5,069
5 St. John’s, Nfld 28.55 63.80 1.66 -11.76 6,898
7 Edmonton, AB 31.55 73.70 27.82 -19.15 12,207
9 Halifax, NS 29.34 74.90 17.31 -16.39 12,723
12 Ottawa, Ont. 32.18 83.30 -0.15 -35.71 6,385
13 Winnipeg, MB 29.48 74 6.52 -12.5 11,975
31 Vancouver, B.C. 35.04 98.30 6.23 -31.67 12,804
34 Calgary, AB 33.33 82.8 -1.86 -3.13 7,347
37 Toronto, Ont. 34.20 100.00 -7.59 -16.00 7,630
38 Montreal, Que. 32.46 86.8 -4.13 -1.19 10,213

However, there are more factors that you need to consider than just annual operating costs, cost of living, building permit growth, unemployment rate change, and crime rate – especially if you are an international business looking to set up or expand an operation in Canada. First of all, you need easy access to the rest of the world – and there are not that many large international airports in Canada with regular flights around the world. When you get right down to it, if you are doing a lot of international traveling, you probably want to be in Vancouver, Calgary, Edmonton, Winnipeg, Toronto, Montreal, or Halifax. Not only are these seven of the eight largest airports in Canada (by volume), but the only airports currently participating in the CANPASS program. However, we’ll include Quebec City since it did rank number one, St. John’s since it has the most eastern airport in Canada, and Ottawa since it is the nation’s capital.

Canada only has about 32M people, and with almost half its population clustered in and around the seven CANPASS cities (over 14.6M people in the greater metropolitan areas), it’s not surprising that it only has a handful of large airports with a large number of regular international destinations. Thus, with the exception of Ottawa, the nation’s capital, it makes sense that we should more or less restrict ourselves to these cities in our determination of the location that is truly optimal for an international company to open a (new) office in Canada.

Restricting our analysis to these cities, we see the following rankings:

City Yearly Operating Cost ($M) Cost of Living Index Building Permit Growth Unemployment Rate Change Crime Rate (/100,000) Airport (flts/day) Unweighted Sum
Quebec City, Que. 4 2 1 2 1 10 20
St. John’s, Nfld 1 1 6 8 3 9 28
Edmonton, AB 5 3 2 4 8 5 27
Halifax, NS 2 5 3 5 9 7 31
Ottawa, Ont. 6 7 7 1 2 6 29
Winnipeg, MB 3 4 4 7 7 8 33
Vancouver, BC 10 9 5 3 10 2 39
Calgary, AB 8 6 8 9 4 4 39
Toronto, Ont. 9 10 10 6 5 1 41
Montreal, Que. 7 8 9 10 6 3 43

At this point, it becomes abundantly clear that Vancouver, Toronto, Calgary, and Montreal are not your best choices (which is not unexpected since they scored so low on Canadian Business’ ranking). Furthermore, when you consider St. John’s lack of building permit growth and airport facilities (you need to house your organization), it’s probably not your best choice either.

This leaves Quebec City, Edmonton, Halifax, Ottawa, and Winnipeg. Considering that one of your primary decision drivers will (and should) always be cost of operations, that cost of living needs to be reasonable in order to maintain reasonable cost levels (since talented human resources are always a significant expense and will only stick around if they are afforded a comfortable lifestyle), and that commercial space is not increasing, this should strike Ottawa from your list as well.

So, Quebec City vs. Edmonton vs. Winnipeg vs. Halifax, which is truly the best location to set up a new location as part of your international business? Considering a primary driver is international accessibility, and that Quebec city is not one of Canada’s international airports (and that it only has only one fourth of the traffic of Halifax or Winnipeg), we should be tempted to drop Quebec City at this point. Furthermore, when you consider that communication is key, that English is the international language of business and that Quebec City, in the heart of Canada’s only province with French as the sole official provincial language, is not nearly as bilingual as Montreal, and despite it’s beauty and low cost of living, its time to chop it from our list.

So, we are down to Edmonton, Winnipeg, and Halifax. Let’s review our rankings:

City Yearly Operating Cost ($M) Cost of Living Index Building Permit Growth Unemployment Rate Change Crime Rate (/100,000) Airport (flts/day) Unweighted Sum
Edmonton, AB 5 3 2 4 8 5 27 (12)
Halifax, NS 2 5 3 5 9 7 31 (12)
Winnipeg, MB 3 4 4 7 7 8 33 (15)

With these rankings, it looks like Edmonton might be the best city, but when you limit it to your three most critical factors – international access, operating cost, and building permit growth (since you need space), Edmonton and Halifax tie and Winnipeg is still at the bottom. Thus, it should be clear that the race is really between Edmonton and Halifax. (We ignore crime rate and unemployment rate changes since they are all relatively close and since they are not really strong determining factors. Cost of Living does have an impact, as it indirectly impacts operating costs, but the costs of living are very similar.)

Halifax is 7% cheaper, Halifax International Airport (which is nearing the final stages of extensive renovations and improvements) processes 75% of the annual volume of Edmonton International Airport (with over 15 airlines serving it), and, unlike Edmonton (which is overshadowed in almost every way by Calgary), Halifax is the center of not only the province, but Canada’s Maritime Provinces. Furthermore, it’s the ideal location for a North American office that has to regularly work with locations across North America and Europe. Halifax is on Atlantic Standard Time, which means that it is four hours ahead of California (Pacific Standard Time) and four hours behind London (Greenwich Mean Time). So, you can work with Europe in the morning and California in the afternoon in a standard business day! Then there’s the issue of bandwidth – the majority of the big bit pipes to Europe run through the area (which also has the “Telecom Application Research Alliance”), so strong, fast connectivity is not a problem! (Furthermore, Nova Scotia’s two full-service telephone companies offer end-to-end redundant fiber networks.)

And, for those of you who need ocean transport, the Port of Halifax (the first inbound and last outbound port on the North American continent) is a full day closer to southeast Asia than any other North American port. Furthermore, Consolidated Fastfrate is currently building a new state-of-the-art transload, distribution, and warehouse facility at the Port.

Halifax may not be building as explosively as Edmonton, but it’s still an aggressive pace. Moreover, rapid fire expansions can often lead to rapid fire contractions, so Halifax might be the safer bet. Furthermore, when you get right down to it, once a city has made the cut, there are more than just hard numbers to think about.

The real strength of a company lies in its people – who need to be educated and cultured. Per Capita, Nova Scotia (and Halifax in particular) has one of the highest concentrations of universities and colleges in the country (which have exported their services to over 100 countries globally, enroll students from over 140 countries annually, and which graduate approximately 15,000 students yearly), and the highest concentration of graduates with a post-secondary education in Canada. Halifax is the largest city in the maritime provinces and a strong argument can be made that it is the cultural center. With annual events such as the Annual Atlantic Film Festival, Atlantic Jazz Festival, Atlantic Fringe Festival, Halifax International Busker Festival, and Shakespeare by the Sea that rival similar events in Canada’s largest cities, culture surrounds you.

Therefore, even though it only landed ninth on Canadian Business’ list of the best cities to do business in Canada, I would argue that Halifax is the number one location to do international business in Canada. After all, if you consider the following numbers from the article Get in Line from the same issue of Canadian Business, Halifax tops the list for the most cost effective city not only in Canada, but the U.S as well, to do business!

City Salaries ($mil) Benefits ($mil) Labour Costs ($mil) Rent ($thou) Power ($thou) Total ($mil)
Halifax 8.09 1.62 9.71 721 38 12.04
Edmonton 8.49 1.70 10.18 709 31 12.48
Montreal 8.74 1.75 10.48 743 36 12.83
Calgary 8.90 1.78 10.68 810 31 13.11
Ottawa 9.01 1.80 10.81 911 36 13.33
Toronto 9.41 1.88 11.29 893 40 13.84
Vancouver 9.52 1.90 11.42 1164 24 14.22
             
Salt Lake City 8.60 3.27 11.87 940 29 14.41
St. Louis 8.79 3.34 12.13 1152 30 14.89
Baltimore 9.05 3.44 12.49 1088 39 15.20
Phoenix 9.17 3.49 12.66 1164 50 15.46
Denver 9.63 3.66 13.29 1013 50 15.93
Boston 9.81 3.73 13.53 1266 60 16.49
San Francisco 9.96 3.79 13.75 1873 88 17.32

So, if you are looking to set up a new office in Canada, and you do not already have one in Halifax, set it up here. I’ve been convinced for the last few years that Halifax would eventually become not only one of the best places to do business in Canada, but the best place if you were, or wanted to be, an international company. And now it looks like I was right. So beat the rush – do it now. After all, it’s always the businesses that invest at the beginning of the curve that reap the greatest rewards – and, right now, the curve is just starting. Some really big companies are already starting to move into the region – you don’t want to be left behind, do you?

Furthermore, if you want to move into the region, there are people and organizations here to help you do it – at very, very low cost. Nova Scotia Business, Inc. (now Invest Nova Scotia) (which has assisted in the creation of roughly 17,000 jobs in the last five years) is rooted in Halifax and one of their primary missions is to help companies successfully set up shop here in Nova Scotia. They can also assist you in identifying loans, tax credits, and grants that you can use to significantly reduce the initial costs of setting up a new operation in the area. Furthermore, their payroll rebate program, which any company with the intention of creating at least fifty new full time jobs in the region can apply for, can help you reduce your initial costs for up to six years! They also have an Export Development team which can assist you in penetrating additional markets. For more information, check out the NSBI site or contact Paul Doucet, Director of Communications and Strategic Initiatives, he’d love to hear from you! You can tell him The Doctor sent you.

 

If you think it was unfair of me to skip companies 2, 3, 4, 6, 8 and 10 on the Canadian Business list in my analysis, here’s why I think otherwise.

For the longest time Charlottetown, #2, qualified as a city only because it was the capital of Prince Edward Island, a province of approximately 130,000 people surrounded by water, and it’s airport is about as small as you can get. If you really want to operate off of a tiny island, I’d go with Hawaii.

With respect to #3, #4, and #10, Saguenay, Que., Laval, Que., and Sherbrooke, Que. they are also rather small and, to be blunt, I doubt that most Canadians even know where they are! (If two of these cities were not near the shortest driving route between New Brunswick and Ontario on your way to Ottawa or Toronto, I probably would not know where they were!)

New Brunswick, a province of only 0.75M people, has three cities vying for supremacy – Moncton, the traditional business hub, Saint John (#6), an emerging competitor thanks to IT and Irving, and Fredericton, the capital with the primary University campus. In addition, they have two vying airports – the Moncton airport and the Fredericton/St John airport. As a result, I would argue that neither city is the best place to do business in the Maritimes and that Saint John does not belong on our list.

Markham, Ont., #8, like the other cities in Ontario on the list, are going to be shadowed by Toronto and Ottawa, especially since most of these cities are small (in comparison), with limited airports and employable populations.