Will Trump’s America First Policies Put America Last?

Trump wants to bring production back to America, and that’s a noble effort and, for many companies, a smarter thing to do than they realize as escalating logistics costs and global uncertainty make near-shoring and, even better, home-shoring much less risky (and, in the long run, often more cost effective) than off-shoring, especially when there’s no good reason to off-shore.

But Trump’s recent almost across-the-board tariffs are going to cost some American manufacturers anywhere between millions of dollars to hundreds of millions of dollars as, simply put, due to a lack of availability of certain resources, Americans have to import. The net effect of so many lower-cost global options over the years is that American companies went off-shore for just about everything they figured they could get cheaper, and as a result not only has there been little to no growth in raw-material extraction and production at home, but some industries have actually lost capacity. And that capacity can’t be turned on and ramped up over night.

As a result, Americans need to import aluminum, steel, and other metals, at least for the short term. And while most of that importation should come from near-source locations (like Canada and Mexico, especially if the US wants to maintain NAFTA, which, for the most part, is better for it than Canada and Mexico [combined]) to decrease risk and increase border security (after all, it has two borders — Canada and Mexico; working with Canada and Mexico on security issues makes the entire North American continent safer), Americans have such high demand in some categories even Canada and Mexico can’t meet it all.

For now, American manufacturers have no choice to but import their raw materials from other (non-exempted) countries. It’s unfortunate, but it’s the reality. And if any of these companies have access to good global strategic sourcing optimization and supply chain planning tools, they’re going to start modelling and realize that it’s cheaper in the mid-term, and maybe even the short term, to manufacturer whatever is intended for the global market outside the US. Rev that factory back up in Mexico and serve the world from there. Only manufacture at home what is needed at home.

And what happens if companies shift their operations to other jurisdictions? America loses jobs, tax revenue, and it’s share of the global GDP. That’s, hopefully, not what Trump, or anyone inside North America, wants.

And while there should be tariffs on goods imported from jurisdictions a country can’t compete with and, in particular, a country that allows its corporations to pay it’s employees $2 a day for a job an American would have to be paid at least $58 a day for (as there’s no way America could compete with imports otherwise), those tariffs should be designed not to hurt the manufacturers who depend on raw materials they can’t get at home, or at least be used to fund local raw material extractors / producers to give those companies at home a local option. For instance, all tariffs collected should go into a fund to help local raw material extractors and producers expand or increase production, and until that happens, companies that need to rely on imports in the interim should at least get tax credits until such a time as they have a local option. Or they are just going to find ways to take as much of their business as they can elsewhere.

And that won’t make America great again, or even competitive. While I actually agree with the premise that, especially when it comes to manufacturing and agriculture and staple industries, America needs to be great again, unfortunately, just slapping import tariffs without a broader plan to achieve that goal is not only not going to help, but it’s going to hurt.

Ninety Five Years Ago Today …

TIME magazine was published for the first time, and, to date, has stood the test of time. It was the first weekly news magazine in the US and today has the world’s largest circulation for a weekly news magazine (with three quarters of its readers in the US).

The idea behind the magazine was brevity, with the original intent that a busy man could read it in an hour. The original slogan was Take Time — It’s Brief. Maybe that’s why it’s still around today, since it seems all the younger generation has time to read are short LinkedIn articles and Facebook Posts, and if they are on the go, you’re lucky if they get through the new, double length, tweet.

But it teaches us something … if you want to be widely read, or at least widely acknowledged, get to the point … fast. Add more in depth later when you have attention, bur brevity sells. Advertising revenue may be down (but it’s down in print across the board), but TIME is still surviving, and looks like if it does go down in the future, it will be among the last major print publications to fall. It’s a communication lesson for all of us, so let’s take time to understand it.

The Revolution of Purchasing: Part II

Yesterday, in Part I, we noted that even though Purchasing has been evolving in the leading Supply Management organizations, thanks largely in part to some great technology platforms outlined by Lisa Nyce of Source One Management Services in her guest post three years ago on The Evolution of Purchasing, it has been an evolution to more strategic purchasing on select categories, and not a widespread revolution.

And this is problematic in SI’s view because we’ll never have a true purchasing revolution until all Spend Under Management is truly Managed Spend. Right now, many Procurement organizations have the fallacy that just because the spend goes through the e-Pro/P2P/I2P system, that doesn’t mean it’s managed. It just means it’s tracked and available for analysis. And, more importantly, the spend strategy and decision has to be enforced. Negotiation a contract with Supplier X for 10% below current prices is useless if everyone keeps buying from Supplier Y. Deciding to go three bids and a buy is useless if the buy is from the highest price / lowest book value supplier just because the buyer knows they’ll deliver. Directing a user to a catalog with preferred items is not spend under management if the user can just punch-out to Amazon and buy from an overpriced third party because they want a non-standard product. And so on.

For all spend to be managed spend, at least things have to happen:

  1. All spend has to be categorized.
    Uncategorized spend is unmanaged spend. It gets shoved into the tail spend, and is left for anyone with budget authority to manage as they see fit. Catalog buy. Spot buy. Non-preferred vendor spend. Big barkup store down the street spend. Etc. If it gets into a category, and that category is a managed one, there’s a chance it will be managed.
  2. All categories have to properly purchased.

    Every category has to have an associated bucket. Strategic. Non-strategic 3-bids and a buy due to high spend volume. Catalog. Just categorizing is not good enough — categories must be mapped to preferred strategies. And bought according to those strategies.

  3. All purchasing decisions have to be enforced by a platform.

    Once a purchasing strategy is selected for a category, it must be executed. And once an award or decision has been made, it must be enforced. The platform should not permit a strategic category purchase to go through punch-out catalogs or a catalog buy for an on-contract item to be made with an off-contract supplier.

And, since there just isn’t enough manpower for a Procurement department to tackle 100% of Spend Under Management (as the average organization struggles to tackle 1/3 of strategic spend each year), the platform must support automation of tactical 3-bids and a buy, catalog buys, inventory re-orders, etc. Modern cognitive solutions, with enough rules, data, and market intelligence can buy low-dollar, non-strategic categories as good, if not better, than overworked purchasing professionals. Automate 3-bids and a buy. Automate catalog purchases with on-contract suppliers. Automate re-orders for on contract product and services when inventory gets low. Automate that where your strategic insight provides little value, and then increase the percentage of strategic spend that gets strategically sourced every year and you will have a real purchasing revolution.

The Revolution of Purchasing: Part I

Three years ago, SI published a guest post on The Evolution of Purchasing from Lisa Nyce of Source One Management Services, a provider of sourcing consultancy and category management services that has been in the game for a very long time compared to many of the niche consultancies out there.

In this post, she noted that purchasing has become more strategy-oriented, rather than transactional, but needed better tools to to their jobs. Specifically, if these Procurement pros wanted success, they needed to adopt:

  • Spend Analysis Software,
  • Cost Savings Tracking,
  • Supplier Report Cards, and
  • Stronger Legal Controls.

And they do for strategic sourcing success because:

  • you can’t wring savings from a category with no savings potential
  • savings aren’t real until they materialize
  • a supplier isn’t better until you have hard data to backup your claim
  • a lack of compliance can wipe out all of the negotiated value with one product seizure, fine, or consumer boycott

But when you think about it, while this is an evolution of the function into strategic procurement, it’s not the revolution we need for widespread success. Why?

In Procurement, most of the Spend Under Management is NOT Managed Spend.

For a decade or so, we’ve been hearing that one of the keys to Procurement success is getting more of that organizational spend under management because not only can the organization not save on spend that Procurement doesn’t manage, but Procurement can only wring so much in savings out of a limited spend bucket. And this is true. But merely dumping more spend on a Procurement organization not ready to handle it doesn’t generate savings.

There is a common fallacy that spend in the system is spend under management. It’s not. Just because the spend goes through the e-Pro/P2P/I2P system, that doesn’t mean it’s managed. It just means it’s tracked and available for analysis. That’s a great first start, but that’s all it is, a start. All spend has to be strategically allocated and appropriately sourced to really claim spend under management. And, more importantly, the spend strategy and decision has to be enforced. Negotiation a contract with Supplier X for 10% below current prices is useless if everyone keeps buying from Supplier Y. Deciding to go three bids and a buy is useless if the buy is from the highest price / lowest book value supplier just because the buyer knows they’ll deliver. Directing a user to a catalog with preferred items is not spend under management if the user can just punch-out to Amazon and buy from an overpriced third party because they want a non-standard product.

The Revolution of Purchasing will only happing when all Spend Under Management is truly Managed Spend.

Why’s it all about the platform when it should be all about the power?

As we all know, the last year has been all about the M&A frenzy as the big try to get bigger by gobbling up any player with any modules they don’t have or any player with customer bases in a region they aren’t in, and doing so in a manner that doesn’t always make sense to analysts. As the doctor indicated in his post last month on Surviving a M&A: The Customer Perspective, acquisitions should lead to synergies and do so from a customer, solution, and/or operations perspective.

Preferably, an M&A should culminate in synergies of all kinds. Why? An M&A that doesn’t synch on an operations perspective doesn’t reduce overhead costs, and that means you don’t get any economics of scale, which is something all the traditional textbooks say is the first thing you should look for. If there are no customer synergies, then there are no cross-sell or up-sell opportunities, and that’s typically the next thing the textbooks say you should look for.

And, especially in our space, if there are no solution synergies, then a lot of money is wasted, as the point of the acquisition should be to build a better, or at least, a more complete platform. Otherwise, one company is paying a lot of money for something that will just get tossed in the bit bucket because supporting non-synergistic platforms gets too expensive too fast and the non-synergistic pieces will get sunsetted faster than the sun in Alert, Nunavut in late February.

So why doesn’t the recent M&A Frenzy make a lot of sense to the doctor? Not only has a fair amount of it been lacking in obvious synergies, but a lot of it has been to simply expand platform offerings, without focussing on the power of the solutions being bought or how the acquisitions will help the platform.

The past year has seen the acquisitions of traditional catalog providers and leading spend analytics and optimization providers. In some cases, the power is limited … and in other cases the power is limitless. But in the majority of cases, to date, the integration has been pretty limited. It’s been more or less just plugging a module into a whole without an analysis of not only the power of the solution but how the solution could enhance the rest of the platform in new and innovative ways.

For example, let’s take optimization. Just plugging it into a S2P platform is pretty good, especially given the dearth of optimization solutions on the market today, but is it great? How do you take an offering to market that the market will understand is better than the other leading vendors which have optimization? After all, if it’s just the same process — construct RFI, send it out, get data, pump into model, get result, make award, push into contract management — what’s better from the perspective of an average Joe? But if you have an advanced Procurement solution, can plug it into the catalog and analyze not only the cost, but the total cost if the order can be piggy-backed on other orders from on-contract suppliers who can add it to forthcoming shipments, give you contract-level discounts, etc. that’s value. And if you are looking to assemble a standard kit for a new hire, can run all the various combinations and determine which variant is best over a given time frame, that’s value too.

And a catalog solution can enhance sourcing if it supports punch-out and integrated search and anytime a buyer is considering sending out an RFI, can be integrated to identify current market pricing and source suppliers from the data within the catalog and in punch-out sites. If the buyer compares this pricing to current pricing, this can let the buyer know if going to market will likely be good (if market pricing is significantly less than current organizational pricing) or bad (if market pricing is significantly higher and the best option is just to extend the contract with the incumbent if pricing will stay about the same).

At the end of the day, Procurement is about generating value — and if the platform addition doesn’t generate additional value, what’s the point?