Category Archives: Miscellaneous

Another Bite Out of the Apple?

Recently, CNN ran an article indicating that the Next generation of iPods could be delayed, and the iPod nano and the video iPod in particular. The new iPod nano, originally expected this quarter, is likely going to be pushed back to December and the new video iPod may not appear until 2007.

The expected delay on the iPod nano is the result of Apple switching suppliers for an internal chip whereas the expected delay in the video iPod is due to the need to increase screen size and improve battery life. On the bright side, the capacity of the iPod nano is expected to double.

Could this result in yet another blow to Apple, which must be taking a bit of a beating since a recent newspaper article alleged that staff in some of its Chinese iPod factors work long hours for low pay and in “slave” conditions, as summarized in this article . After all, Apple sold one million iPod nano’s in the first 17 days of its release, leading an AMR (acquired by Gartner) analyst to determine it had a “predatory supply chain”*, so any delay beyond the start of the holiday shopping season could be a major hit to the bottom line.

You’d think Apple would be more cautious, considering their recent switch to Intel last year caused them some supply chain problems. (As per an article in IT Managers Journal.)  However, what surprises me is that despite the fact they seem to have their distribution down, using the global logistics powerhouse BAX Global which was recently acquired by Deutsche Bahn AG (and integrated with Schenker), they appear to continually have difficulties getting products out on time.

I’d be curious to know what sort of development methodologies they use, and more importantly, when they involve procurement in the process. According to a recent Aberdeen report#, when procurement is included in new product design (NPD) in the design stages, product development cost is typically decreased by 16 to 18%, overall product cost is typically decreased 15%, and revenue is typically increased by 19%. Furthermore, whereas the majority of companies are not able to consistently hit product development targets with respect to percentage of products meeting revenue targets, cost targets, launch date targets, quality targets, or product development cost targets, the majority of best-in-class companies that have incorporated procurement into the process at the design stages hit these targets over 80% of the time.

Moreover, as I indicate in my Purchasing Innovation series over at e-Sourcing Forum, I strongly believe that procurement needs to be involved in R&D and NPD from day one, as procurement should be the major source of innovation within an enterprise.

* Link no longer available.  AMR was acquired and ZDNet, which had a summary article, is no longer operating.

# Link no longer available.  Aberdeen acquired by Harte Hanks in 2006, then Halyard Capital in 2015.

Is Low Cost Country Sourcing to China Really Innovative?

Since I haven’t been to China, and haven’t been involved in Chinese outsourcing (after all, software technology outsourcing was dominated by India firms during my software career), I’ve been hesitant to post on this topic. However, after readingLow Cost Country Sourcing in a Flattened World by Brad Blonkvist and John Kamauff in Chief Supply Chain Officer magazine, I just couldn’t hold back anymore. It finally pointed out the solid facts behind the anecdotal basis of my fears – China just does not have the physical infrastructure to maintain its current growth rate (despite the fact they are building 4.2B railways).

In order to scale up production, you need a certain amount of infrastructure. First of all, you need qualified engineers to staff your factories, plants, or service centers. On a per capita basis, China has only 8.6 students for every 1000 residents, as compared to 56.2 for the US. Furthermore, the studies that claim China graduates considerably more engineers and scientists each year are false. Consider the recent report Framing the Engineering Outsourcing Debate: Placing the United States on a Level Playing Field with China and India , by researchers Gary Gereffi, director of the Center on Globalization, Governance, and Competitiveness at Duke University, and Vivek Wadhwa, executive in residence at Duke’s Pratt School of Engineering, as summarized by the National Science Teachers Association (NSTA) on the NSTA WebNews Digest. Even though media reports in 2004 indicated that China produced 600,000 engineers compared to the 70,000 produced by the United States, the study found that more than 290,000 of the Chinese degrees were subbaccalaureate. After all, since the Chinese figures consist of data from different provinces that have no standard definition of engineering and include “the equivalent of motor mechanics and industrial technicians”, its clear that the actual numbers of graduates with US and EU equivalent degrees is much less then advertised. The Washington Post also ran a good article on this topic.

Furthermore, studies by organizations such as the McKinsey Global Institute have indicated that multinationals find that less then 25 percent of the graduates are employable. When you add the considerable language barrier into the picture, this indicates that the number of qualified engineers in China is considerably less then what many firms believe, and despite China’s large population, probably less then the number of qualified engineers in the US. Furthermore, it costs a lot of money to turn those who are qualified into productive workers. In Outsourcing to China, a special report from the Economist, the article points out that foreign companies in China are spending a small fortune “subsidizing China’s education system”. As an example, it points out that Fujitsu‘s Mr Noshiro has put some 40 Chinese workers through intensive training in Japan, at a cost of $30,000 a year each. “They need two years of full-time training just to become a middle-level engineer and four years to get to be a project manager.” Furthermore, even after three years of training “only 10-20% of programmers ever get to a really good level and can become an architect. China has so many colleges and so many graduates, but the degrees are not as good as they sound.”

Secondly, you need raw materials to build and run your plants. China is already importing more then its fair share of raw materials on a global basis. In addition to currently being the world’s largest importer of steel, it is importing 47% of cement, 21% of aluminum, 37% of cotton, and 30% of processed coal on a global basis. How much higher can these numbers go and be sustainable?

Thirdly, you need an infrastructure to get your raw materials in and your finished products out. Dozens of articles have been pointing out the infrastructure shortcomings in terms of paved roads and highways in India for a while now, but outside of a few big cities and central areas, China’s infrastructure is actually much worse. This shouldn’t be surprising as China only has 7 cars per capita compared to the 481 of the US. In addition, China has less then 150 airports compared to the 19,000 in the US.

Fourthly, you need energy to operate your plants – and this is where the numbers get really, really scary. Up to 30% of factories in China are periodically idle for weeks at a time due to power outages. According to the article, Northeast China is expected to exhaust power generation capacity by 2010! But if the rate of outsourcing to China continues to increase, I would predict that this could happen by 2008 – which is only 2 years away! After all, the actual increase in energy usage last year was 15%, not the 5% that was predicted. As it stands, China’s energy needs are expected to double by 2020 at the latest!

Fifthly, you have to protect yourself … but IP protection in China is almost nonexistent. I’ve read and heard too many stories of company X outsourcing product W to company Y who turns around and sells cheap knock-off Z in China which is undifferentiable from your product to the average buyer.

In other words, China, an emerging economy, is about to face a number of very significant problems simultaneously in a very short time frame – problems that the US, an established world superpower, has been battling for years with only limited success (think about the California or NorthEast energy grids, the fact that most major cities now have five and ten year plans just to alleviate current levels of traffic congestion, and the significant amounts of imports the US already requires). And I just can’t envision China coming up with a miracle to prevent the abrupt halt that is in its near future if outsourcing to China continues to increase at an exponential rate.

Now I know China is working on their infrastructure, but they are still concerned with connecting remote provinces by road and rail in efforts to integrate their people into one culture. Furthermore, as illuminated in Train to the Roof of the World, in their efforts to achieve these goals, they are taking considerable risks. For example, in their efforts to connect Tibet, and its capital Lhasa, to the rest of China, they are building a railroad over permafrost that could melt in the near future, especially considering global warming, which is not a myth and happening now. After all, concentrations of greenhouse gases such as methane and carbon dioxide today are the highest seen (40% higher than the highest concentrations measured) in the last 440,000 years, as determined by ice core research, which has removed cores 1.8 miles deep in the Antarctic.

But then again, as I’ve stated above, I’m not an expert, nor have I been to China. So I’m going to invite thought leader Jason Busch of Spend Matters who has been there and is a strong believer that the best is yet to come*  in outsourcing to China to use his open mic as soon as he crawls back online* and tell me why I’m wrong and how China is going to solve these problems that have plagued the US and its northern neighbor for years – and do so to a sufficient degree in the next three years before the impending energy crisis begins what could be a quick, and massive, collapse.

* Link(s) no longer available.  All posts pre-2012 were eliminated in the site revamp in June 2023.

It’s Canada Day!

It’s Canada Day

I suspect that my readers today will not be Canadian, so I thought I’d mention it to those of you who do read today [even though I suspect that there will be very few of you today since those of you who found this blog would likely have done so by way of SpendMatters or e-Sourcing Forum, maintained by my southern neighbors in the United States of America where tradition demands that if a major holiday falls on a Tuesday you take Monday off and start partying the Friday before (I know, I lived among you for over 3.5 years and still spend most of my time working with you)].

Now, I know that we sometimes appear as just a blip to our southern neighbors from an economic perspective, since the GDP and population of California are about equal to our own, but we are the world’s second largest country by area (and our Ontario can hold Texas three times with room to spare) and the world’s major peacekeeping force in war time. (We may not always be the first to back up our southern neighbors in their rush to march off to war, but we are usually the first there to help rebuild and keep the peace when the battles are over.)

And even though we are sometimes seen as part of the British Commonwealth, we are completely independent, having severed the last of the symbolic ties back in 1982 with the Canada Act (as part of a lengthy peaceful process that started back with Confederation in 1867, when we first gained independence).

Up here in Canada we have ten provinces and three territories. The province I currently reside in is Nova Scotia and the city where I live is part of the Halifax Regional Municipality, which was formed back on April 01, 1996 (even though some residents thought it was a joke at the time) when four converging cities, including two cities on either side of the main harbour, joined to form the largest city in the Atlantic provinces (which also consist of New Brunswick, Prince Edward Island, and Newfoundland, a continuing foundation of our Canadian Comedy).

For more information on Canada, check out the Wikipedia page, and for more information on the origins of Canada day, see our government page. Although we did not celebrate this day much in our early history, when ties with Britain were still strong, it’s a very big celebration these days, especially on Parliament Hill in Ottawa, Ontario, our nation’s capital. To see what we are up to, check out the NCC site.

On an unrelated note, Saturday posts are going to disappear for most of the summer. If I have something pressing, I’ll post, otherwise, since I’m covering weekends over at e-Sourcing Forum until the fall, I’ll be taking this day off from Sourcing Innovation.

So, happy Canada day and remember … if you’re American, it’s a great excuse to party early!

The Operations Research Process

Operations Research is “the use of mathematical models, statistics and algorithms to aid in decision-making. It is most often used to analyze complex real-world systems, typically with the goal of improving or optimizing performance. It is one form of applied mathematics.” (Wikipedia)

The quest for improvement has been a continual one and operations research has been one of the areas that has been traditionally focused on improving operations across the company, particularly in production, operation, scheduling and physical systems.  As such, there is a wide body of knowledge upon which can draw to improve procurement and sourcing operations when properly applied and modified.  Even Six Sigma’s (Strategic Sourcing) toolbox makes extensive use of techniques and processes that have their foundations in operations research.

But today we are going to talk about the basic process.  There are many good overviews of operations research on the internet, but one of the best sites I found was the “Operations Research Models and Methods” site (formerly at http://www.me.utexas.edu/~jensen/ORMM/) that was maintained by Dr. Paul Jensen at the University of Texas.  On the site, he overviewed the basic Operations Research Process, which, simply put, is:

(1) Recognize the Problem
(2) Formulate the Problem
(3) Construct a Model
(4) Find a Solution
(5) Define the Process
(6) Implement the Solution
(7) Repeat and Refine

Essentially, the operations research process is your basic problem solving process, like the introductory problem solving process you might encounter if you were studying (cognitive) psychology, the art of mathematics, or (classical) engineering.  Furthermore, it neatly captures the key steps you will have to work through as you attempt to improve and evolutionize your sourcing process.

(1) You first have to define what your primary problem is and what your key goals are.  Are you spending too much money?  If so, where.  Are you spending too much time on the process?  If so, why?  Etc.

(2) Then you have to formulate and frame the key problem.  For example, you believe you’re spending too much on your high volume direct materials or you are spending too much time in your data collection process.

(3) Once you have precisely formulated the problem to solve, you need to model what you believe the solution should look like.  Many individuals and organizations skip this step and go straight to the solution identification step.  However, if you don’t know what the solution should look like, you risk selecting the wrong solution.  For example, if you believe you are spending too much, you might select a (reverse) e-Auction platform.  However, if current raw commodity prices are high, this might not save you any money.  Conversely, if you instead sought out a strategic supplier who would work with you to improve processes and component reusability, you might save a bundle.  Always understand what the solution should look like and what it should accomplish before selecting a solution.

(4) Often this step will be accomplished in practice by selecting a readily available technology, methodology, process, or model from the public domain or commercial marketplace.  Don’t try to reinvent the wheel, chances are your problem is not unique and someone else has already solved it for you.  For example, the inventor and followers of TRIZ (an innovative problem solving methodology that we will discuss at a later time) have collectively reviewed over 2 million patents and discovered that less then 4% contained a new concept and only 1% contained a revolutionary discovery.  The rest were merely improvements on existing solutions and processes.  In other words, there is at least a 95% chance that a solution to your problem already exists, and at least a 99% chance that a solution to a similar problem exists that can be adapted to your problem.

(5) Once you have a selected a solution — be it a technology or a new methodology, you need to define how it is going to be integrated into your current operational processes.  This step is easy to overlook, but if the introduction of a new process or technology disrupts your daily operations, you will not realize the full benefits.

(6) Once you have identified the right solution and determined how to successfully integrate it into your operational processes, you need to implement it and reap the rewards.

(7) Finally, you need to monitor the process, measure the improvements, and look for ways to continually improve it.  Innovation is a continual activity.  There’s always room for improvement, but if you do not look for it, I guarantee you will not find it.

We’ll discuss other problem solving methodologies in the future, including some from psychology, innovation, and the Six Sigma toolbox, but first we are going to review the core executable parts of the sourcing cycle where technology solutions can have the greatest impacts to set the stage for what is to come.

Comments? Criticisms? Creative Insights?  Email us at the contact information in the FAQ.

The MBA Rules of Acquisition

Since the dawn of the MBA, there have been unwritten rules of acquisition that all MBAs that become sales and revenue focussed live by. They’re known only to MBAs, and Star Trek fans who secretly know that the Ferengi rules of acquisition are actually based on these unwritten rules — obviously created by a failed MBA turned screenwriter who was looking for a shortcut to develop the Ferengi race backstory.

So that you as a Procurement professional can better understand what rules the MBA salesmen trying to sell you something (unsolicited) live by, we are collecting all the rules we know of and storing them here. We’ve updated a few of them to be pseudo-politically correct where possible, but in many cases it’s not. One has to remember that the originals were very chauvenistic, since the first MBA degrees were awarded in a time when business was male-dominated and the male-domineers wanted to keep it that way. Moreover, in many countries, Sales (like Procurement) is still dominated by aging white men (who likely still live by many of these rules).

For those of you interested in their Ferengi equivalent, please see the Memory Alpha Star Trek Wikia.

1 “Once you have their money, you never give it back.”
2 “The best deal is the one that makes the most profit.”
3 “Never spend more for an acquisition than you have to.”
4 “A woman wearing a suit is like a man wearing an apron.”
5 “Always exaggerate your estimates.”
6 “Never allow family to stand in the way of opportunity.”
7 “Always keep your ears open.”
8 “Small print leads to large risk.”
9 “Opportunity, plus instinct, equals profit.”
10 “Greed is eternal.”
11 “Even if it’s free, you can always buy it cheaper.”
12 “Anything worth selling is worth selling twice.”
13 “Anything worth doing is worth doing for money.”
15 “Dead men close no deals.”
16 “A deal is a deal (is a deal)…until a better one comes along.”
17 “A contract is a contract is a contract… but only between fellow MBAs (from the same [secret] society).”
18 “An MBA without profit is no MBA at all.”
19 “Satisfaction is not guaranteed.”
20 “He who dives under the table today lives to profit tomorrow.”
21 “Never place friendship before profit.”
22 “Wise men can hear profit in the wind.”
23 “Nothing is more important than your health…except for your money.”
27 “There’s nothing more dangerous than an honest businessman.”
29 “What’s in it for me?”
30 “A wise man knows that confidentiality equals profit.”
31 “Never make fun of an MBA’s mother.”
32 “Insult something the customer cares about.”
33 “It never hurts to suck up to the boss.”
34 “War is good for business.”
35 “Peace is good for business.”
37 “The early investor reaps the most interest.”
39 “Don’t tell customers more than they need to know.”
40 “She can touch your manhood but never your money.”
41 “Profit is its own reward.”
43 “Feed your greed, but not enough to choke it.”
44 “Never confuse wisdom with luck.”
45 “Expand or die.*”
47 “Never trust a man wearing a better suit than your own.”
48 “The bigger the smile, the sharper the knife.”
52 “Never ask when you can take.”
53 “Never trust anybody taller than you.”
54 “Rate divided by time equals profit.”
55 “Take joy from profit, and profit from joy.”
57 “Good customers are almost as rare as gold … treasure them.”
58 “There is no substitute for success.”
59 “Free advice is seldom cheap.”
60 “Keep your lies consistent.”
62 “The riskier the road, the greater the profit.”
63 “Work is the best therapy-at least for your employees.”
65 “Win or lose, there’s always cuban cigars.”
66 “Someone’s always got a better sense for business.”
69 “MBAs are not responsible for the gullibility of others.”
74 “Knowledge equals profit.”
75 “Home is where the heart is, but the silk road is paved with gold.”
76 “Every once in a while, declare peace. It confuses the Hell out of your enemies.”
77 “If you break it, I’ll charge you for it!”
79 “Beware of the scientist’s greed for knowledge.”
82 “The flimsier the product, the higher the price.”
85 “Never let the competition know what you’re thinking.”
87 “Learn the customer’s weaknesses, so that you can better take advantage of him.”
88 “It ain’t over ’til its over.”
89 “Ask not what you can do for your profits, but what your profits can do for you.”
92 “There are many paths to profit.”
94 “Females and finances don’t mix.”
95 “Expand or die.*”
97 “Enough…is never enough.”
98 “Every man has his price.”
99 “Trust is the biggest liability of all.”
100 “When it’s good for business, tell the truth.”
102 “Nature decays, but gold bricks last forever.”
103 “Sleep can interfere with … profit!”
104 “Faith moves mountains…of inventory.”
106 “There is no honor in poverty.”
109 “Dignity and an empty sack is worth the sack.”
110 “Exploitation begins at home.”
111 “Treat people in your debt like family… exploit them.”
112 “Never have sex with the boss’ sibling.”
113 “Always have sex with the boss.”
121 “Everything is for sale – even friendship.”
123 “Even a blind man can recognize the glow of gold.”
125 “You can’t make a deal if you’re dead.”
135 “Listen to secrets, but never repeat them.”
139 “Wives serve; brothers inherit.”
141 “Only fools pay retail.”
144 “There’s nothing wrong with charity… as long as it winds up in your pocket.”
147 “People love the bartender.”
153 “Sell the sizzle, not the steak.”
162 “Even in the worst of times, someone turns a profit.”
168 “Whisper your way to success.”
177 “Know your enemies … but do business with them always.”
181 “Not even dishonesty can tarnish the shine of profit.”
183 “When life hands you lemons, make lemonade.”
184 “An MBA waits to bid until his opponents have exhausted themselves.”
188 “Not even dishonesty can tarnish the shine of profit.”
189 “Let others keep their reputation. You keep their money.”
190 “Hear all, trust nothing.”
192 “Never cheat a War Lord … unless you’re sure you can get away with it.”
193 “Trouble comes in threes.”
194 “It’s always good business to know about new customers before they walk in your door.”
199 “Location, location, location.”
200 “An MBA chooses no side but his own”
202 “The justification for profit is profit.”
203 “New customers are like blowfish. They can be succulent, but sometimes they poison you.”
208 “Sometimes, the only thing more dangerous than a question is an answer.”
211 “Employees are the rungs on the ladder of success, don’t hesitate to step on them.”
212 “A good lie is easier to believe than the truth.”
214 “Never begin a business transaction on an empty stomach.”
216 “Never gamble with a better poker player.”
217 “You can’t free a fish from water.”
218 “Always know what you’re buying.”
218b “Sometimes what you get free costs entirely too much.”
219 “Possession is eleven-tenths of the law!”
223 “Beware the man who doesn’t take time for physical pleasure.”
227 “If that’s what’s written, then that’s what’s written.”
229 “Gold lasts longer than lust.”
235 “Duck; death is tall.”
236 “You can’t buy fate.”
239 “Never be afraid to mislabel a product.”
240 “Time, like gold, is a highly limited commodity.”
242 “More is good…all is better.”
243 “Always leave yourself an out.”
255 “A wife is [a] luxury… a smart accountant [is] a necessity.”
257 “When the messenger comes to appropriate your profits, kill the messenger.”
261 “A wealthy man can afford everything except a conscience.”
263 “Never let doubt interfere with your lust for gold.”
266 “When in doubt, lie.”
272 “Always inspect the merchandise before making a deal.”
280 “If it ain’t broke, don’t fix it.”
284 “Deep down, everyone’s a greedy MBA.”
285 “No good deed ever goes unpunished.”
??? “Always get somebody else to do the lifting.”
??? “Never get into anything that you can’t get out of.”
??? “A man is only worth the sum of his possessions.”
??? “An angry man is an enemy, and a satisfied man is an ally.”
??? “The less employees know about the cash flow, the smaller the share they can demand.”
??? “Only a fool passes up a business opportunity.”
??? “The more time they take deciding, the more money they will spend.”