Outsourcing? Two Years to Turnaround!

While short and sweet and filled with a number of (now) obvious pieces of advice, a recent article over on CIO Insight on “Nine Things No One Ever Told You” [about offshoring] made two great points that many articles miss:

  1. Process Matters and
  2. It Takes Time to Get a Stable, Productive Processoften 18 to 24 months if you and your partner are new to outsourcing!

In other words, if this is your first time, expect that it will take two years to get the full extent of the payback which might not be as much as you expect after infrastructure investments, change management costs, travel, and rework are factored in (which will often be [much] more than you expect).

And process matters. Without sound processes and standards in place to keep the business running smoothly, it is more work to manage multiple relationships, each of which will function poorly without a strong foundation. So, if you still haven’t realized that the outsourcing craze has finally stopped and decide you want to chase after the runaway train long after it has left the station, remember this: Two years to turnaround. Ouch!

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Cultural Intelligence IV: China

This series is edited by Dick Locke, SI’s resident expert on International Trade, author of “Global Supply Management — A Guide to International Procurement” (which was the definitive guide for almost a decade), and President of the Global Procurement Group and Global Supply Training which regularly gives seminars on International Trade and working with International Cultures.

As highlighted in last year’s post on Overcoming Cultural Differences in International Trade with China, China is one of the most developed cultures in the world, with a long history behind their well establish social order, which requires an inequality between any two people to maintain stability. (That’s part of the reason that the Chinese generally believe that all foreigners — who are traditionally inferior, corrupt, decadent, disloyal, volatile, barbaric, and devils-in-disguise — are inexperienced in matters of business even if they are technically competent.) As a result, dealing with the Chinese can be very difficult for an outsider, and a North American in particular.

With respect to Locke’s seven key cultural differences (first outlined as six in his classic text on Global Supply Management), China has an implicit power distance between any two individuals (which is higher in the North than in the South), a monochronic approach to time in business, and a strong distaste for uncertainty. Maintaining harmony and face is of utmost importance, individuality is not, but privacy is deeply respected. They may ask blunt questions about your personal situation and beliefs, but that is only to understand what may offend you (so they can avoid doing it). After all, they praise virtue to the point that two mutually exclusive answers can both be true if both are virtuous.

Verbal communication in China is very indirect where business is concerned. Since harmony and face must be maintained no matter what, all answers are soft, there are no admissions of a failure to understand, and direct “no”s are effectively taboo. That’s why you can’t ask them a yes/no question. If you want to know if they understand a request, you have to ask them what they are going to do. Thus, you should be calm and polite in negotiations and avoid getting loud. However, the opposite holds true in social encounters. Socially, it’s okay to be boisterous, and it is expected at meals (at the appropriate time). And you can be quite loud, especially if laughing at yourself.

Non-verbal communication is effusive in their society, hard for an outsider to read, and even harder to master. As a result, you should avoid large gestures, as many are taboo (including the pointing of the index finger, finger snapping, and whistling), and maintain an impassive facial expression during business (as frowning is a sign of disagreement and smiling can be simply a polite way to mask uncertainty or uneasiness). Eye contact should be avoided in greetings as almost everyone is unequal and respect must be maintained, emotions should be reserved until you know the right times to display them, and you should allow them to dictate the distance between you, which is usually at most 3 feet (and just enough to respect your privacy in accordance with their cultural norms) as they will often speak quietly to avoid disturbing others who may be nearby. Finally, you must avoid personal contact (unless they touch you, at which point you may reciprocate in kind) as the Chinese generally don’t like to be touched. As with many Asian cultures, touching is reserved for (close) friends and peers.

As per our last post, meetings primarily exist to gather information (and decisions will be made back at the office). Once they get to know you, negotiations will get progressively detailed to the point where the questions are so precise that it will be almost impossible to answer them without disclosing your IP. This is common practice to make sure you are truly interested in a mutually beneficial long-term business relationship and not just looking to exploit cheap labor. It has nothing to do with your IP (although IP theft is a serious problem in China and you have to invest equal effort to insure that they are also interested in a long term business relationship). And meals, while they may last hours and get loud and boisterous later on, are formal. You must not discuss business until the host brings it up. A few other pointers is that he who extends the invitation always pays (but you can pretend to fight over the bill to gain points), you must eat hearty to please the host, but you must leave some food on your plate when you are full.

Finally, one other point that you should remember is that the Chinese will often disparage their own accomplishments and there is a social protocol to this. Specifically, you are expected to respond with a complement. For example, if a Chinese person says that he may not have chosen the best restaurant for you, do not say something along the lines of “we’ll manage“. Instead say that you’re sure the restaurant choice is impeccable and/or that he outdid himself in its selection.

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If the Supplier Walks Away Whistling …

… simply put, you didn’t do a very good job. While the supplier should be walking away from the table with a hint of a smile on their face, as you want a positive relationship, if they’re whistling a jaunty tune and dancing to it, you got suckered. And these days, it’s happening all too often.

As per this recent post on the SCM blogs by James Baehr of Greybeard Advisors on how last minute bids and contract extensions can limit leverage, contracts are being benignly neglected. Procurement professionals are too busy issuing quick bids and placing orders based solely on price. As a result, the decision criteria is generally limited to price and Procurement finds itself with little, if any, room to negotiate for a better whatever. Furthermore, many buyers have taken to simply extending existing contracts, sometimes two or three times. This leaves money on the table and compromises leverage since the organization generally becomes more dependent on the supplier from whom they are no longer getting the best price. It’s not long before Procurement is stepping over dollar bills to pick-up pennies and the supper is walking away from the table with a jaunt in his step, whistling a happy tune …

Analytics I: Optimization Comes of Age

Today’s post is by Eric Strovink of BIQ.

I remember my first experience with optimization. I was taken to a guidance counsellor’s office at my local high school, where a special terminal was set up. This terminal was connected to a system that would allegedly try to find the “best” college for me. It asked many questions. Questions like, “Would you prefer a warm climate?” and “Would you prefer an academic setting with equal numbers of men and women?” Well, duh. Those were easy answers.

My goal was to attend one of the premier engineering schools in the US. I wanted MIT or CalTech or Stanford or Carnegie Mellon. I’d be happy with Rice. If my grades or scores weren’t good enough for the snooty super-competitive schools, I’d try for Rensselaer or Northeastern.

The system ended up choosing an entirely unsuitable school, evidently equally weighing my academic preferences and my social and geographic preferences.

What’s my point? Well, in a microcosm, this has been the essential problem with optimization. When you provide a “constraint” — and let’s be precise, here, the term really is “constraint” — an optimizer will not look outside that constraint for options. It cannot. It is a mathematical engine, and it can’t read your mind and figure out which is a “soft” requirement and which is a “hard” requirement. As far as it’s concerned, they’re all requirements, and, by whatever God you (don’t) believe in, it will find a solution that fits those requirements, if there is one.

That’s one reason why optimization has struggled to find its way.

I was listening to my wife talking to a survey telemarketer the other day. She said, “I really don’t have an opinion about Blue Cross’s responsiveness to patient needs. I’ve never had Blue Cross.” There was a pause. Then she said, “But how can I have an opinion on a 1 to 10 scale, if I’ve never used them?” There was another pause. She said, “OK, but ….” There was another pause. She sighed, and said, “OK, 5.”

What’s my point? Well, do you really know the answer to what kind of constraints you should impose on your optimization model? Or are you supplying an answer because you don’t know the answer, but you have to supply something? And after the optimization model has solved, can you remember all the places where you guessed, but you didn’t really know? What if you forgot one of those places? And what if that one guess caused the model to solve in a really non-optimal way (non-optimal from your perspective, not its)?

That’s another reason why optimization has struggled to find its way.

The breakthrough has come with what I’ll term “guided optimization”. If you hike in the White Mountains of New Hampshire, for example, you have a large number of excellent trails to choose from. Many of them are safe climbs that lead to outstanding views and vistas; but others lead up steep, often wet cliffs that are unsuitable for casual hiking. You need a guide; in this case, any of the excellent guide books from the Appalachian Mountain Club. In the case of optimization, your guide usually needs to be an experienced practitioner who can help you set up your model, show you how to move constraints to find inflection points in your model, and so on. (The good news is that lots of vendors provide guided services now, and it isn’t that expensive. Especially when you consider that optimization can be incredibly valuable.)

Companies that provide guided optimization services, like Trade Extensions, have enjoyed solid growth and have left a legacy of satisfied customers. You can always use optimization software on your own (Trade Extensions is no exception); but until you really understand what you’re doing, it can be unwise.

Optimization vendors have claimed for years that their systems are usable by novices. I don’t dispute that there are cases where this is true, and has been true. But for me, it’s a case of crying wolf: there have been so many claims, for so many years, with so many tears, that I’m solidly in the “get a guide” camp. I do hope, though, that optimization vendors will take additional steps to make guidance unnecessary. the doctor has assembled a pretty comprehensive list of what needs to happen.

At the end of the day, if you can’t do analysis yourself, you’re less likely to do it at all; which, as you’ll see in the next installment, is the theme of this series.

Next: Analytics II: What is Analysis?

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Want More Influence? Ask the Right Questions!

In a recent post over on Commitment Matters on getting to the top table, Tim penned a great post on where a CPO should be placed on the organizational chart, and why. Nine paragraphs in, after discussing the standard view of Procurement as a cost centre (which never gets direct reporting status to the CEO), the department that’s only visited when something goes wrong, and a barrier to getting things done, Tim made a great point. A CPO is only going to get a seat at the top table if it makes a significant contribution that visibly improve organizational performances.

This is only going to happen if Procurement shifts its emphasis from cutting costs to adding value. This requires Procurement professionals to change the types of questions they ask, the data they collect, the conversations they have inside and outside the department, [and] the areas in which they invest in skills. When Procurement approaches Engineering, it can’t be about “how can we help you cut cost” because, in Engineering’s mind, that translates into “how can we help you cut quality and increase risk of failure”. It has to be about “how can we help you source the highest quality products and services within your budget”. Similarly, when Procurement approaches Manufacturing, the focus has to be on “how can we help you ensure supply at the highest levels of service”? If a production line shuts down, that could cost a lot more than paying an extra 2% on the raw material costs. This isn’t to say that cost shouldn’t be a factor, as value can monetarily be defined as profit contribution – total costs of operation, but that cost can only be one, small, component. Once Procurement is trusted, then the questions can shift to “how can we help you get the level of quality and service you’re currently getting at a better price, so you can show a year-over-year cost savings and look like organizational heroes”.

I’d strongly encourage you to read Tim’s post on getting to the top table. It’s a great thought-piece.

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