Category Archives: X-emplification

the doctor’s Top 10 Mega Regions for Supply Management COEs (Where Should Your Supply Management Organization be Located? Part IV)

Our first post in this series began the discussion of where a better-than-average Supply Management (SM) organization on the path to becoming a world-class Supply Management organization should locate its new Centre of Excellence (COE) for its new centre-led Supply Management organization. We discussed the traditional factors of customer proximity, supplier proximity, business incentives, infrastructure, and the local talent pool and ended up demonstrating that the only thing that really matters in the end is the local talent pool. (This is because it is the people, not the process or the technology, that ultimately identify and drive the results.) Our second post discussed what type of talent you were looking for and where they were likely to be found. We concluded that you were definitely restricted to major urban areas, but did not identify which particular urban areas are likely to contain the talent your organization needs. Then, in our last post, where we dived into the findings of Professor Richard Florida, as chronicled in Who’s Your City, we illustrated that your new Supply Management COE should be in one of the top 40 mega regions, and a mega region with a strong innovation focus and a lot of open minded talent. We then indicated that, if you intended to be North America based, that you should be focussing on one of the following five mega-regions: the Boston-New York-Washington (D.C.) corridor in the Northeast; Miami and southern Florida in the Southeast; the Houston, Dallas, and Austin triangle in Texas; the San Francisco Bay Area down to LA on the West Coast; and the Portland-Seattle-Vancouver corridor on the West Coast. But kind of left you hanging if you were looking for a global SM COE outside of North America.

So, today, the doctor brings you his top 10 Mega Regions for Supply Management COEs, culled from the list of the 40 Mega Regions based upon North America data, cultural analysis, and emerging or current trends.

Rank Mega-Region Economic Clout Major Cities Rationale
10 The Rio de Janeiro to Sao Paulo corridor 230 Billion Rio de Janeiro, São José dos Campos, Sao paulo, São Bernardo do Campo Culture, fashion, finance, and the centre of the emerging South American Economy, lead by Brazil (but followed by Colombia and Argentina).
9 The Dallas Triangle 400 Billion + Dallas, Austin, Houston Finance, Oil, easy access to the Gulf of Mexico, and a good old fashioned “don’t mess with” attitude.
8 Greater Paris 380 Billion Paris, Versailles Culture, fashion, architecture, and a strange attractor for top talent across Europe and the Americas.
7 The Greater Seoul Region 500 Billion Seoul, Incheon, Ansan, Hwaseong, Suwon The economic power-house of South Korea and an economic powerhouse of Asia with a new generation culture that, unlike their predecessors, is (openly) embracing western styles of business, fashion, and life and that is the most willing of all of the Asian nations to take risks (which are often necessary for true creativity and innovation).
6 The Frankfurt-Gärtringen Corridor 630 Billion Frankfurt, Darmstadt, Mannheim, Heidelberg, Stuttgart, Cärtringen The Frankfurt stock exchange, renewable energy, and German engineering!
5 The California Coast 1280 Billion San Francisco, Sacramento, Oakland, San Jose, Los Angeles, Long Beach, San Diego Fashion, Entertainment, Technology, a global innovation leader, and home to the largest ports on the West Coast.
4 London – Leeds – Chester 1200 Billion London, Northhampton, Leicester, Nottingham, Leeds, Manchester, Chester, Birmingham Not only do we have (one of) the major financial, fashion, and trade centre(s) of Europe in London, but we also have the home of the Commonwealth. The UK may have been overtaken by the US in the final years of the 19th century in GDP production, but it is still in the top 20 and will always be of prominent importance.
3 Greater Tokyo 2500 Billion Tokyo The world’s largest mega-region in terms of economic clout, Greater Tokyo cannot be ignored. And while the Japanese are typically wary of uncertainty and risk, unwilling to commit to deadlines, very orderly in business, extremely respectful of hierarchy, very shy, and extremely respective of face, Tokyo is an exception. The younger generation have adopted a lot of western values, have no problem relating to the west, and are even willing to behave like outsiders in their soto groups. It’s also close to other major centres (and mega regions) in Asia.
2 Amsterdam – Brussels – Antwerp 1500 Billion Amsterdam, Rotterdam, Brussels, Antwerp The world’s fourth largest mega-region in terms of economic clout, one of the most open and advanced regions in Europe in terms of broadband penetration and clean technology, and close proximity to the UK and Germany, two European powerhouses.
1 Boston – New York – Washington Corridor 2300 Billion Boston, Hartford, New York, Philadelphia, Baltimore, Washington As the world’s second largest mega-region in terms of economic clout, the centre of the North American finance and fashion industries, and the nation’s capital, there is serious clout and talent readily available here.

Where Should Your Supply Management Organization Be Located? Part III: The Mega Region

Our first post in this series began the discussion of where a better-than-average Supply Management organization on the path to becoming a world-class Supply Management organization should locate its new Centre of Excellence (COE) for its new centre-led Supply Management organization. We discussed the traditional factors of customer proximity, supplier proximity, business incentives, infrastructure, and the local talent pool and ended up demonstrating that the only thing that really matters is the local talent pool. This is because it is the people, not the process or the technology, that ultimately identify and drive the results. Our last post discussed what type of talent you were looking for and where they were likely to be found. We concluded that you were definitely restricted to major urban areas, but did not identify which particular urban areas are likely to contain the talent your organization needs. That is the subject of today’s post.

In short, based on the research of Richard Florida, as chronicled in Who’s Your City, you should probably locate your centre-led Supply Management organization in a city within one of the forty mega-regions, which are the new economic units of the “spiky world” that we live in. By overlaying maps of continual, unbroken, light intensity around the clock, innovation (as measured by patents), and economic activity, Richard was able to identify forty global mega-regions that each produce more than $100 Billion in economic output and collectively account for 23% of the global population, 66% of economic activity, and 86% of patents. Led by Greater Tokyo and surrounding area and the Boston-New York-Washington (DC) corridor, which produce in excess of $2.5 Trillion and $2.2 Trillion respectively, these mega regions are the powerhouses behind the global economy in which your Supply Management organization functions. They are so productive that the top two mega-regions produce more GDP than all but the top three economies (now that China has moved up the list) and the top six mega-regions place among the top ten national economies in the world.

The talent you need is going to be in one (or more) of these mega-regions, clustered around one of the global innovation centres in the region (which include Tokyo, Seoul, New York, San Francisco, Boston, Seattle, Austin, Toronto, Vancouver, Berlin, Paris, Stockholm, Helsinki, Osaka, Seoul, Taipei, and Sydney). But which one? Not only do the most talented and ambitious people need to live in the means metros in order to realize their full economic potential because the proximity of talented, highly educated people has a powerful effect on innovation and economic growth, but they need to live close to people they collaborate well with. Close to other innovators where their collective efforts make a whole that is greater than the sum of the parts. (When the right people come together, it has been statistically demonstrated that a doubling of population in an urban area results in more than two times the creative and economic output.)

But, as Porter has found, the economic world is not only taking shape around clusters, the clusters are becoming more specialized in individual locations. For example, if I say New York, you probably think finance and fashion, and you are right. And if I san San Francisco, you probably think technology, and you are right.

But since Supply Management is just emerging, we don’t really have Supply Management clusters (even though places like Singapore, where global companies tend to cluster and bring their Supply Management talent with them, contain higher than average Supply Management professional populations), and since not all clusters in early stages actually crystallize into long term clusters, what we do have may not be long-term. So how do we pick the right mega-region? Lucky for us, we know that a good Supply Manager has a certain personality profile and not only do we find clusters of talent, but we find clusters of talent with similar personality profiles.

At least in North America, Richard helps us out here again. He presents clusters for each of the five personality types, including the open personality type, which is the personality type that is required for Supply Management success given the need to interact with a wide range of people in a wide range of cultures using a wide range of processes and technologies. In North America, while such personality types are spread out across the country, they are clustered in only some of the mega-regions, and only found in significant concentrations in the following five mega-regions: the Boston-New York-Washington (D.C.) corridor in the Northeast; Miami and southern Florida in the Southeast; the Houston, Dallas, and Austin triangle in Texas; the San Francisco Bay Area down to LA on the West Coast; and the Portland-Seattle-Vancouver corridor on the West Coast.

In other words, we’ve already weeded out the Chicago-Pittsburgh Corridor, most of the Houston-New Orleans corridor (outside of Houston which we’ve opted to place in the Texas Triangle), the Charlotte-Atlanta corridor, the Phoenix-Tucson corridor, the Toronto – Buffalo – Chester triangle, and Mexico. And if you want your COE to be based in another part of the world (like Europe or Asia), all you need to do is get similar personality profile surveys or, where they are lacking, cultural profiles and you will be able to limit your options even further. For example, if you are thinking of Asia, while Singapore may be a great choice and Beijing a good choice (given the recent increase in innovation and cultural offerings in the area), given the lack of individualism, the lack of tolerance for risk, and the polychronic view of time in the Thai culture (as detailed in this SI post on overcoming cultural distances in international trade with Thailand), Bangkok is not going to be a good choice for your Supply Management organization. (On the other hand, it’s probably an excellent place to put a factory as they will want the factory to work like a Swiss time piece.)

The reality is that, when you do your homework, you’ll find that you really don’t have many options in the spiky world, and if you want to consider infrastructure, corporate strategy, or the willingness of your current superstars to relocate to one of the places on your short list, you’ll have even fewer, But considering that, by 2025, our world will be considerably more concentrated around mega-regions than it is today, this might not be a bad thing.

Where Should Your Supply Management Organization Be Located? Part II: The Talent Factor

Yesterday’s post began the discussion of where a better-than-average Supply Management organization on the path to becoming a world-class Supply Management organization should locate its new Centre of Excellence (COE) for its new centre-led Supply Management organization. We discussed the traditional factors of customer proximity, supplier proximity, business incentives, infrastructure, and the local talent pool and ended up demonstrating that the only thing that really matters is the local talent pool. This is because it is the people, not the process or the technology, that ultimately identify and drive the results, and without good people, the best process and technology in the world won’t take your organization where you want it to go.

So this brings us to the next logical question — where are the people you need to power your Supply Management Centre of Excellence? To try to answer this question, we’ll turn to the work of Richard Florida, as chronicled in Who’s Your City, who attempted to put together a book that would help people decide where they should live. And since you have to go where your talent is, wherever your talent is [going is] where you should be.

The first thing one has to realize is, despite claims that the world is flat and that talent is evenly distributed, today’s key economic factors — talent, innovation, and creativity — are not distributed evenly across the global economy. They concentrate in specific locations. It’s obvious how major new innovations in communications and transportation allow economic activity to spread out all over the world. What’s less obvious is the incredible power of what Richard calls the clustering force. In today’s creative economy, the real source of economic growth comes form the clustering and concentration of talented and productive people. New ideas are generated and our productivity increases when talented individuals locate close to one another in cities and regions.

Despite the recent flat-world hypothesis put forward by Thomas Friedman, we still see the explosive growth of cities and urban areas worldwide. More and more people are clustering in urban areas — and there’s no evidence to suggest that they’ll be stopping anytime soon. In 200 years, the number of people living in cities has increased from 3% to over 50%, and the urban population is still rising. So, as you already knew, you definitely want to be in a major urban area, but the question is, which one?

A key requirement is talent, but what kind of talent? Supply Management requires a special kind of talented individual who harbours a wide range of hard and soft skills, that complement her high IQ and EQ, who works well with people across cultures, and who has the creative insight to find opportunities others miss. This eliminates your average city from the equation. Furthermore, your average city will not have the creativeness, innovation, or economic activity required to continue to attract top talent.

Which city will? In our next post we will discuss the requirements for such a city.

Where Should Your Supply Management Organization Be Located? Part I: Factors

Chances are, if your organization is a better-than-average Supply Management organization on the path to becoming a world-class Supply Management organization, then it is in the process of moving from a centralized to centre-led organization — and in the process of trying to figure out where to locate the centre of excellence (CEO). It’s a tough decision. Chances are the organization has identified the following factors as important in location selection:

  • customer location
    the organization should be close to its customers
  • supplier location
    the organization should be close to its suppliers
  • business incentives
    the location should provide some business advantages over other locations
  • infrastructure
    there should be a good infrastructure (in terms of utilities, business support, and personal services for the employees) to support the organization
  • the local talent pool
    there should be a good mix of talent to draw from

And on the surface, these sound like good selection criteria. However, for an organization on the path to world class centre-led Supply Management excellence, only one of these factors really matters. Can you guess which one?

Let’s take them one by one, starting with customer location. The organization should be close to its customers, but this doesn’t mean Supply Management has to be. Sales and support should be close, because they interact with the customer on a daily basis, but Supply Management can be half a world away as long as they take the time to consult with a customer focus group periodically to find out what needs are emerging and with sales and support regularly to find out if the current customer needs are being met with the current products and services being sourced.

Similarly, while the organization should desire to be close to its suppliers, generally speaking, it’s more important for the manufacturing organizations to be close to the raw material and component suppliers, as this minimizes shipment time and lead-time requirements when a spike in sales requires a corresponding spike in production or a quality issue or supply interruption requires a quick shipment replacement (from a different supplier). Plus, your suppliers today may not be your suppliers tomorrow and some are unlikely to be your suppliers in three to five years with constantly shifting market conditions and organizational needs. Thus, any attempt to locate near suppliers (unless, of course, your organization is a significant shareholder of a supplier and it’s part of the organizational strategic plan to take a strategic interest in the supplier for the long term) is likely futile.

Business incentives sound like a great idea, until you realize that any incentive on tax reduction is probably not going to result in any savings as most taxes are based on the (country) headquarters location. Similarly, any reduction on payroll taxes is going to be minimal as Supply Management tends not to the anywhere close to the largest division in the organization. And any one-time start-up grants that may be offered are going to pale in comparison to the savings a good Supply Management organization is going to deliver. So, from a Supply Management perspective, business incentives are rather irrelevant.

This takes us to infrastructure. This is somewhat important, but nowhere near as important as it is for the placement of a manufacturing facility. It’s not like a Supply Management organization requires 3-phase 480-Volt power, hundreds of thousands of gallons of water each day, or a thousand telephone lines coming in. The only thing it requires is decent phone service and good bandwidth so its people can collaborate in real time with their colleagues around the world. And these days, you can get decent bandwidth in just about any city, so infrastructure is only a minor concern.

This leaves us with talent, and this is the one factor that really matters. You can take the doctor‘s advice and get the best technology available, and manage the implementation using the best transition process that change management gurus can provide, but without talent to properly use the technology or implement the transition, it will all be for nought. Processes and systems don’t find savings, people find savings, implement the changes to capture those savings, track those savings, and ensure that those savings are delivered. This says that you need a good talent pool available to you. While a few top-notch people may be willing to relocate to your chosen centre for the experience, and a few more new hires might be willing to move for a chance to rise rapidly through the ranks, most people won’t move just anywhere for a job — no matter how good that job is. Consider the findings of Professor Richard Florida, as chronicled in Who’s Your City, when he asked his students if they would move anywhere for a great job. While most initially said yes, diving deeper into the answer (by asking if they would move to a place like Des Moines, Iowa), we find that most people would not be willing to move just anywhere. Most people who say they will consider moving anywhere in fact mean they will consider moving to any big city with lots of opportunity or a growing city where they have lots of connections. This means if you don’t already have a talent pool locally, you’re not likely to attract one.

So where should you locate your new centre-led Supply Management organization? Using talent as our indicator, we’ll discuss that in detail in Part II.

If a Deal Is Too Good To Be True, IT IS!

This is just as true in technology and services as it is in products. If you get four bids for a new technology platform and / or (integrated) services package and three are plus or minus 20% and one is 1/3 of the price, I guarantee that lowball bid is too good to be true. And if you did your homework, you’d instantly know it and disqualify it.

You buy a product or service because it’s cheaper to buy than to build or perform it in house. However, that product or service still has a cost to the vendor, in terms of manpower and resources — costs the vendor has to meet in order to deliver you a quality product or service. If the vendor doesn’t cover these costs, and make a fair profit, one of two things is going to happen — the vendor is going to go out of business trying to serve you at an unsustainable level or the vendor is going to deliver a significantly inferior product or service to stay afloat.

I’m reminding you of this because a number of companies have not only been looking for new solutions now that we’re into a slow recovery, but because a number of companies, desperate to reduce costs, have been rebidding everything under the organizational umbrella, including the supply management platform(s) and service contracts. And in doing so, many of them have been getting unbelievably low bids from a handful of vendors who are desperate to win (new) market share — and the companies are seriously considering these bids. These bids are unbelievable for a reason — they’re not real. They’re up front costs, and as soon as you sign on the dotted line, you’re going to be hit with “change fees”, “service costs”, “upgrade fees”, etc. if you want the same level of service being offered by the competition, who are all in the same ballpark at sustainable bids. Or, even worse, the vendor is just going to give you the platform or an initial spending report, and then disappear until renewal time because the cost only covers platform support, not project or customer support. Or, and this is the worst situation of all, the vendor is trying to build a new business (in a new vertical) and thinks it can use you as a marquis customer to attract new customers, who it will overcharge to make up for the loss on you. If it works, you’re in luck, but the vast majority of the time what happens is that either the vendor fails to deliver, because they didn’t understand the true success requirements or they didn’t understand how much it would cost and how long it would take to make you a success, and then shuts down the business. If you’re lucky, they just shut down the vertical and you get to keep using the platform until you can find a new vendor. If you’re, not, the whole vendor goes tits up and you’re left holding the empty bag.

The worst part is that every month, if not every week, I hear of yet another company who signs on the dotted line with one of these vendors offering “unbelievable” deals that “can’t be matched” — and, even worse, the company is one that should know better (because there are success stories that illustrate it understands many of the precepts of good supply management). Especially when it’s so easy-peasy to determine if a bid is reasonable or not.

It’s easy to determine a reasonable range for a (bundled) technology platform (and /) or service. All you have to do is build a should cost model. Let’s say you’re buying a SaaS e-Procurement platform and want regular project management support, best-practice training, and custom integration to your in-house technology platform. Then you know the vendor will have, at least, the following costs:

  • Platform Delivery & Maintenance
  • Account & Project Management Personnel
  • Development Personnel

If the SaaS license will require 1/50th of their data centre resources, then the base overhead to support you will be 1/50th of their data centre and support team costs. If you require about 20 hours a week of account and project management support and training, then you will require half of a senior resource who has expertise in your industry and categories. If the custom integration is expected to take two man years, than you will need the equivalent of two developers on the vendor’s staff dedicated to you.

Now, if the average cost to maintain a small data centre, or rent part of a data centre, that will support 50 similar-sized enterprise clients is 3M, then you can quickly estimate that it will cost the vendor 60K (+- 10K for a margin of error) just to have you on the books, before it lifts a finger. If the senior resource required to support you on your projects is a 120K to 150K resource, then it will cost the vendor 60K to 75K to dedicate this resource to you half of the time. And if the average developer with the necessary skills is going for 70K to 90K, that’s another 140K to 180K that the vendor needs to outlay to support you. Then, there’s the vendor’s cost of sale, which, depending on commissions structures and expenses, is probably in the 15% to 25% range, and the need for the vendor to make a fair profit, say 10% to 15%, to keep investors happy. If you add it all up, you get:

Cost $ Range
Platform Delivery & Maintenance 050K to 070K
Account & Project Management Personnel 060K to 075K
Development Personnel 140K to 180K
Subtotal 250K to 325K
Cost of Sale 040K to 070K
Profit 025K to 050K
Total 315K to 445K

This tells you that any bids you get in and around the 315K to 445K range are reasonable, that if you get any bids that are more than 600K, the vendor either doesn’t understand what you want or is trying to rip you off (up front), and that if you get any bids less than 250K, either the vendor is planning to not support you to the level you need to be supported, the vendor is planning to make it up later with “change fees” and “service fees” when you’re locked in to a long term contract and held captive, or the vendor is looking to make a poster child out of you and take unfair advantage of the relationship (and then leave you holding the empty bag if things go south).

Regardless of why the vendor gave you the unbelievable bid, one thing is clear. If you accept it, you will get screwed.