Monthly Archives: September 2006

Can China be Innovative?

Reading the economist last month, I encountered a number of articles related to China, which is not unusual, but one was entitled Something new: Getting Serious About Innovation (membership required for full article). Considering most of us still equate China with the tail-end of Low Cost Country Sourcing, factories, and knock-offs, the two words seem to be a juxtaposition on first read.

According to the article “innovation” has become a national buzzword, and Chinese leaders have been tossing it into their speeches since the beginning of the year when President Hu Jintao started an ambitious campaign to drive China’s economy further up the value chain.

In launching their “National Medium- and Long-Term Programme for Scientific and Technological Development (2006-20)”, Mr Hu, the prime minister, Wen Jiabao, and other top officials have vowed to spend more on science and technology, and to insist on business reforms. Their goal is to move China beyond its dependence on natural resources and cheap labour, and stake its place among the economies that depend on education and information technology.

The following quote is also very interesting. According to Denis Simon of the State University of New York’s Levin Institute, who advises the Chinese government on science policy, this move comes just in time. “If China doesn’t do this right,” he says, “it risks becoming a good 20th-century industrial economy just when it needs to figure out how to be a 21st-century knowledge-based economy.” This sums up where I see China headed – it takes more than funding, stemming the “internal brain drain”, and a protection of intellectual property rights to build a knowledge-based economy. It takes a culture. The culture that North America was built on and a culture that’s been lacking in China for much of its history.

As the article points out, a huge obstacle is the nature of China’s educational system, which stresses conformity and does little to foster independent thinking. Confucian philosophy reveres the teacher above all. More innovative Western economies, according to Ms Fang, operate under Aristotle’s maxim: “I love my teacher Plato greatly, but I love truth more.” In order to be innovative, China has to foster innovation in the next generation. And that is going to mean fostering independent thinking inside and outside the cirriculum. After all, we are talking about a country with a very long history of imperial and communist rule … which has generated a very conformist culture. And it’s hard to innovate when you conform. I think it will be very interesting to see how this plays out over the next few years. I’m also interested in hearing what The Prophet has to say. In the days ahead, hopefully he’ll chime in.

How dependent are you on your supply chain?

This summer, the Supply Chain Management Review ran an article entitled “Ready for the Digital Future” based on an interview with M. Eric Johnson, the Director of the Center for Digital Strategies at the Tuck School of Business at Dartmouth College. Re-reading it closely, I was struck by the quote “a lot of interesting learnings emerged from this research [on supply chain risk]. One that really caught my attention was that supply chain managers, and many managers in general, don’t fully realize how dependent they are on information flows and on others in the supply chain“.

You’re not just dependent on the manufacturer you get your components from, the third party logistics firms that handles transportation from the manufacturer’s warehouse to your plant, and the third party logistics firms that handles transportation from your plant to your customers warehouses, but the individual carriers on which they depend, the service providers that provide the systems that connect you with your suppliers and distributors, the telecommunications carriers that provide the backbones on which their systems run, the feeds from your customers indicating current and forecasted demands, the feeds to your suppliers indicating your current and forecasted demands, etc. Dozens of events could knock out part of your supply chain, and even a single point of failure could have wide reaching repercussions. In fact, that’s why most companies would not be able to articulate the dependencies until they really start digging down deep into the details of their supply chain operations and why you should be doing regular supply chain audits.

Another quote that caught my attention, and a point that is not often addressed well enough in articles about supply chain risk, is how do you protect intellectual property in your supply chain and with your partners. The research documented that all extended enterprises are leaking information all of the time. And they are leaking in ways that many managers would not believe unless I showed it to them. Now, sharing is important, as it is the basis of collaboration, but so is security. Make sure your collaboration systems are secure, your partners under NDA, and that you only share information with a third party that is relevant to the collaboration – in other words, don’t open your whole system when you are only collaborating on a couple of products, restrict access to information that relates to those products. Furthermore, make sure collaboration is based on trust and a common understanding that everyone’s IP needs to be protected. This will be just as effective as any security protocols you can put in place.

There are a number of other really good points in the article, which I highly recommend you read, but the last one I’m going to reflect on in this entry is his definition of a good digital strategy. A good digital strategy is:

  • aligned with the business strategy,
  • designed to harness the organization’s unique competencies, and
  • enabling of new levels of agility, trust, and collaboration.

In other words, supply chain technology is only useful when it aligns with the business. Your business should not have to align to the technology. This is why on-demand software-as-a-service solutions are great – you don’t have to revolve around technology, only solutions that serve your business. To that effect, I’d like to point out Tim Minahan’s recent entry on SaaS, “A Tale of Two Articles” (over on SupplyExcellence [WayBackMachine]), which notes that the center of power for enterprise application decisions has shifted from the CIO to the line-of-business executives and that SaaS makes this possible. With SaaS, you can choose the applications that best suit your need, and not the applications your IT organization is configured to support.

Supply Chain Audits

Recently, Supply and Demand Chain Executive published a guest column by Dr. Jeff Karrenbauer of INSIGHT entitled “The Case for Supply Chain Audits” which not only coincides with my views on the need for Global Supply Chain Visibility, Integrated Sales and Operations Planning, and Supply Risk Management, as well as the views I share with my colleague David Bush on “Supply Chain Weather-Proofing” (over on e-Sourcing Forum) and the need for solid planning, but emphasizes the fact that vulnerabilities cost dearly, noting that Terrorism, civil wars, dock strikes, attacks on oil fields in Saudi Arabia, potential pandemic, last year’s disastrous hurricanes and the ongoing threat of political, social and economic instability around the world have exposed U.S. firms to more than $300 billion in supply chain disruptions, according to a recent study by Aon.

The article points out that every chief executive, operating, and financial officer should be demanding a comprehensive supply chain risk audit and a corresponding set of mitigation strategies immediately, noting that only 11% of companies are actively managing risk (as per Aberdeen’s recent “Global Supply Chain Benchmark Report”) and that this action gap is one of the greatest weaknesses of current corporate global supply chain strategies.

As such, companies should perform a supply chain audit that identifies where supply chains may be vulnerable, the strengths and weaknesses of the supply chain, where response programs are weak, and where safeguards or alternative sources are missing. A supply chain vulnerability audit is a three-step holistic processes that encompasses the entire supply chain, starting with a company’s customers and the products they purchase, then working back to the uppermost tier of raw material suppliers. The result is a plan for resiliency in the form of right-sized and strategically located facilities with flexibility for the supply chain, thereby “hardening” it against disruption.

The three steps are:

  1. Educate
    Use case study examples from experienced supply chain planners that establish first principles to dispel false tribal wisdom, define concise terminology, and provide an overview of standard risk categories and mitigation methods. (See my supply risk management weekend series on eSourcing Forum for some basic methodologies: I: “An Introduction”, II: “Risks and the Need for Resilience”, and III: “Managing Risk”.)
  2. Audit
    Gather relevant data for all supply chain components, commodity types, customers, channels, and facilities; identify critical elements and specific categories of exposure for each component; and identify potential vulnerabilities. This step asks a lot of questions, including can we operate the business after a disaster? if not, what must we do to get back into operation as quickly as possible?.
  3. Prescriptive Analysis
    Determine what affordable changes can be made where to minimize risk and harden the supply chain to ensure business continuity after a disruption or a disaster. Use techniques such as critical commodity analysis, critical customer analysis, critical location analysis, and short-term crisis response analysis to formulate the action plans. Use sophisticated supply chain modeling tools to quantify and rank the cost and service effects of various scenarios and the effect of proposed improvements.

And when you consider that the article also points out that knowledgeable observers are predicting that supply chain certification may come to be required as part of Sarbanes-Oxley compliance, I’d say that an audit is a great place to start.

The green city of the future

Since we should all be Living Green all the time, it’s time for another post in the green series. Since my last post, it’s been a little quiet on the blogs on the green front, but lots has been happening. On a positive note, a recent article on CNet reports that investments in clean tech have climbed rapidly in the last two years, from less than $300 million in the second quarter of 2004 to more than $840 million in the second quarter of this year.

First of all, I’d like to point out that News.com is following the lead of the Green Thinking bloggers everywhere and devoting special coverage in their special Green Tech section which notes that from solar-powered Wi-Fi to robots fueled by bacteria, researchers are rethinking the way we power our lives.

With articles on Clean Energy, Solar Wi-Fi, and Ethanol BioFuel, you know you can at least clean up the way you operate your business even if you don’t immediately cut costs from your supply chain in the process.

However, one recent article that really caught my attention is the one about the biodegradable forks manufactured by Cereplast. Cereplast’s plastic is composed of organic material and the items made from it will dissolve in a compost pile in 180 days or less. Compare that to regular plastic, which can take 100 years or more. The reality is that we have morphed into a disposable society, and if we aren’t going to change our ways, we should at least make sure we don’t continue to damage the environment with our actions. Moreover, if you can’t save money, you can always make decisions that will make money by designing products that will be perceived as more valuable and sell better in the marketplace, especially when it doesn’t cost you to do so. As the article notes, a pound of Cereplast’s resin sells for around 58 to 60 cents while a pound of petroleum-based polystyrene, meanwhile, sells for around 60 cents.

Another article that caught my attention was the Business 2.0 article that told us How Australia got hot for solar power. It seems that Australia is planning to build a 1,600 foot-tall solar tower that can power a small city. More precisely, a 260-foot-diameter cylinder taller than the Sears Tower encircled by a two-mile-diameter transparent canopy at ground level.

About 8 feet tall at the perimeter, the solar collector will gradually slope up to a height of 50 to 60 feet at the tower’s base. Acting as a giant greenhouse, the solar collector will superheat the air with radiation from the sun. Hot air rises, naturally, and the tower will operate as a giant vacuum. As the air is sucked into the tower, it will produce wind to power an array of turbine generators clustered around the structure. The result: enough clean, green electricity to power some 100,000 homes without producing a particle of pollution or a wisp of planet-warming gases. Mix in a few green roofs and some ground heat pumps, and you’re on your way to your perfect pollution free city (as long as the automotive manufacturers step up their clean car initiatives and produce enough hybrid biofuel/electric vehicles to meet the population demand, after all we can build biodiesel boats. (Alternatively, maybe someone will figure out how to scale up hydrogen fuel cells.)

Maybe my fellow blogging thunder from down under will jump in and add his thoughts to the project and the ongoing cross-blog green series (which also includes Supply Excellence and e-Sourcing Forum, on occasion) now that he’s back in the blogsphere.

The Sourcing Innovation Series: Part IX

I’ll have to say that when I started this series, I was going to be thrilled with a few posts and a lukewarm response … but WOW! The uptake has been phenomenal, and it’s not over yet … not by a longshot from what I can tell. It looks like you can expect at least one more guest post this week here on Sourcing Innovation, and maybe even a few posts on a couple of non-spend-and-supply-management specific blogs as well! And the benefit to you, the reader, is priceless – with so many great minds tackling the subject and sharing their views, you can’t help but get a better understanding of the space you’re in, where it is going, and where you need to go. Talk about having one heck of an edge over your web 1.0 technophobic friends! (Maybe we should sick Phil with his mighty spoon upon them! (Sorry Mr. Adams, I couldn’t resist!)

Anyway, back to the point. Charles Dominick’s post on “Sourcing Innovation for Single-Customer Contracts” over on the Purchasing Certification Blog (now the NLPA blog) and Kevin Brook’s post on The Future of Sourcing here on Sourcing Innovation were great!

Kevin got straight to the point – that innovation in sourcing will trend toward doing less rather than doing more. Even though future sourcing tools will contain advanced decision optimization, business process management, default sourcing strategies, next-generation templates, and a dozen technologies we haven’t thought of yet … they will be easier to use than the automatic four-wheeled vehicle you use to get to work everyday. A wheel, a shift, a gas, and a brake. They will let you focus on your job, and your customer, because great service is what makes a great company.

Charles doesn’t waste any time either in pointing out that he sees major changes in how non-traditional categories will be handled in the future. Specifically, he sees migration across a sourcing maturity model, meaning that sourcing of the categories will be handled differently and will require different skills. He then walks us through the sourcing maturity model from Totally Decentralized to Totally Centralized to Center Managed to Center Led where each level requires a different skill set and represents a different step in thinking about sourcing. I have to agree with Charles – although I believe that center led procurement is the way of the future (see my 3-part weekend series over at e-sourcing forum last month “An Introduction”, “A Center of Excellence”, and “Best Practices”), I see the need for a company to progress through the stages, since, as Charles states, If progression is done too fast, a company could jeopardize its competitive position for years. Before a center can lead sourcing, it has to be excellent at what it does. Before it can be excellent at what it does, it has to actually do it .. and bring all relevant purchasing functions into itself. Hence the progression. Note that this does not mean that your purchasing organization has to go through this progression globally, just that every category, and your non-traditional ones in particularly, need to go through this progression locally. Thus, while some of your key categories are center-led, some of your non-strategic low-cost categories might still be decentralized as you work your way through the process category-by-category. As Charles points out, organizations need to learn to walk before they learn to run, and a process will help them get there faster and prevent them from stumbling badly and hurting themselves along the way. ( [Shameless Plug Alert!] And if you need some help, in addition to being able to reach out to me, consulting organizations like the NLPA and Azul Partners [former parent company of Spend Matters] are always there to help! )