Monthly Archives: August 2007

Manufacturing Insights From Motorola

Last week, Manufacturing Insights hosted a Webinar called Supply Chain Innovation with Perspective from Motorola that caught my attention. Since this blog revolves around innovation, and since Motorola has historically been pretty innovative, especially for a company of their size (and one of the first companies to aggressively pursue decision optimization, which helped them win the Edelman Award), I was intrigued.

The focus of the seminar was to announce some of the preliminary results of Manufacturing Insights’ recent global supply chain survey (which should be available to members by now) of 823 manufacturers, retailers, and wholesalers across Europe, Asia Pacific (which includes China), and North America to identify motivation and IT investment in supply chain and relate it to the corporation’s overall business strategy.

Surprisingly, despite the fact that there’s never been a better time to be innovative with all of the great new technologies and strategies available to you, the survey uncovered that there was not much focus on innovation at all, with the majority of respondents focussed on reducing costs. Although this suggests that the supply chain is still not very strategic, the reasoning offered for this reality was that many of these companies rely on financing and regular access to capital, which is determined by their valuation, which is determined by Wall Street, which bases their valuation on numbers based on how well they control cost. So cost is king. And then there’s the added pressure of rising material costs across the board, which makes cost a double whammy in the forefront of one’s mind.

However, I would argue that this is precisely the reason you have to stop focussing on cost and start focussing on supply chain optimization, including award optimization, supply network optimization, inventory optimization, investment optimization, financing optimization, and working capital optimization. (The former three are good examples of sourcing decision optimization problems and the latter three are good examples of supply chain finance optimization.) But I digress.

The webinar also included an overview of Motorola’s current strategic plan for their supply chain and an overview of their progress to date which includes a 40% reduction in their manufacturing and logistics operation footprint, a 2X reduction in parts-per-million (PPM) defects, and consolidation of 91% of their top 150 suppliers. These are impressive goals for a company the size of Motorola only two years into a massive project to consolidate their four separate supply chains into one single supply chain.

Motorola is accomplishing this goal through strategic investments in critical IT systems that will give everyone on their team the ability to get the information they need when they need it. More specifically, 90% of their IT spend is targeted towards leveraged systems and visibility tools for business planning. This provides a solid foundation for good supply chain management.

For those looking to copy Motorola’s success, they are attributing part of that success to defining their top priorities and maintaining a sharp focus on those priorities. For Motorola, the top 6 priorities are:

  • Execution Excellence
    Meet commitments and numbers. Accomplish this by way of improved IT infrastructure and information visibility.
  • Deep Supplier Relationships
    Leverage the whole of Motorola in fact-based negotiations. Use supplier scorecards and cost management systems.
  • Manufacturing and Logistics Optimization
    Optimize the footprint, product flow, and lean best practice implementation across all sites. Integrate with partners and use advanced planning systems.
  • Quality Renewal
    Go back to the basics and ensure consistent deployment across all business units. Ensure product traceability and capture early returns indicators.
  • Common Leveraged IT Solutions
    Invest in common systems, drive efficiencies, and maximize the value of IT spend. Enhance software development processes and portfolio management.
  • Organization Efficiency
    Optimize the support structure and develop a (metric-based) culture to further growth and performance. Create a culture of doers, not talkers, and drive commonality and reuse worldwide.

In addition, Motorola is increasing their focus on market-based segmentation within the single supply chain, process simplification, and supplier collaboration. What’s great about this is that there’s nothing you haven’t heard about before as most of this is what leading bloggers, analysts, and vendors have been preaching for a few years now. This means that they key to success is to develop a good strategic plan, adopt the technology that is now available, and just do it. Couldn’t be simpler, right?

 

Key Sourcing Trends Impacting Procurement

The European Leaders Network recently ran an interesting article entitled “The Key Trends in Sourcing Impacting Procurement Today” that summarized the key trends in the Sourcing Industry for 2007/8.

According to the author, the following market trends are currently impacting the way procurement professionals source goods and services.

  • Increased multi-sourcing
    Mega-deals are on the decline and niche players are on the rise. Value-add is slowly overtaking the ‘monolithic empire’.
  • Greater significance to governance
    The skills and disciplines associated with good governance are starting to be recognized as the key to sustainable relationships with their associated benefits.
  • Continued rise of global sourcing
    These days global sourcing is more a question of ‘when’ and ‘how much’ and not ‘if’. Even Europe is embracing the paradigm.
  • Consolidation in the IT supplier market
    There is significant consolidation occurring in the outsourcing space which should ultimately serve to benefit sourcing professionals.
  • Concentration on value
    Whereas the last few years have placed emphasis on short-term objectives in transaction execution, pushing sustainability onto the service provider, going forward, the trend is to concentrate on long-term value up-front and ensure that delivery will be metric-driven and focussed on the business needs in an effort to meet the overriding goals.

This is a good start, but it fails to mention the following trends that are also in play, as pointed out in Sourcing Innovation’s recent Sourcing 2007 and Sourcing Innovation cross-blog series. Consider the following:

  • On-Demand Software-as-a-Service Providers and (Enterprise) Open Source is changing the landscape
    Companies like Iasta (acquired by Selectica, merged with b-Pack, rebranded Determine, acquired by Corcentric) and Procuri (acquired by Ariba, acquired by SAP) are driving down cost while driving up value.
  • M&A activity is also happening within the software provider space
    The latest example is the Cormine (acquired Perfect Commerce, rebranded Perfect Commerce, rebranded Proactis) and Perfect Commerce announcement.
  • Sustainable Supply Strategies are becoming mainstream.
    Consider the recent Goldman Sachs report that found that companies implementing environmental, social, and governance (ESG) policies outperformed the general stock market by 25% over the last two years.
  • Raw material and commodity prices are skyrocketing across the board.
    The days of the constant Walmart rollback are over, especially if you are a minerals buyer.
  • The Talent Crunch is worsening by the day.
    Supply teams have no choice but to adopt best practices and do more with less.

The ‘Home Bias’ Effect and International Investments

Continuing with the impromptu delusions theme, that started with Managerial Delusions two weeks ago and continued with What Got You Here Won’t Get You There last week, this week we discuss another recent article from Knowledge @ Wharton, “The Impact of Good Governance on International Investing: The ‘Home Bias’ Effect and Other Issues”.

The article, which discussed the important of good corporate governance and how it can enhance the attractiveness of one country’s financial markets relative to another’s, also discussed the ‘home bias’ effect, which is the tendency for investors to buy shares in companies based in their own countries despite the globalization of financial markets.

It referenced a paper by Frank Warnock, a professor of business administration at the University of Virginia’s Darden Business School, Rene M. Stulz, a professor of finance at Ohio State University, and Bong-Chan Kho, a professor in the College of Business Administration at Seoul National University, titled “Financial Globalization, Governance, and the Evolution of the Home Bias” that found that, despite the disappearance of many barriers to international investment, the home bias of U.S. investors towards the 46 countries with the largest stock markets did not fall from 1994 to 2004.

There are often a number of reasons for a ‘Home Bias’, including barriers to investment, hedging motives, access to information, behavioral biases, and, as suggested by the authors, “optimal insider ownership”. The “optimal insider ownership” theorizes that since foreign investors can only own shares not held by insiders, there will be a home bias toward countries in which insiders own a large corporate stake.

Regardless of the reasons, it’s an important bias, or delusion, to be familiar with. Considering that the US population is about 301 Million, or 4.56% of the world’s population which is about 6,602 Million, even though the US currently accounts for roughly 19.91% of the gross world product (1,313 billion of the 6,595 billion), this percentage is only going to continue to fall as the GDP of the current low cost country poster children, and India and China in particular, continue to rise. (Statistics from The World Factbook.)

Furthermore, when you consider that even five years after the introduction of the stringent Sarbanes-Oxley act, foreign companies are continuing to delist from American Stock Exchanges on a regular basis (and just last week, over on the European Leaders in Procurement Blog, Richard Edwards points out how “Sarbox Sends Another Blue Chip Running For The Hills”), it’s obvious that investment is going to continue to diversity globally as time marches on.

But the home bias doesn’t just affect individual investors or investment funds, it affects global sourcing teams as well. In this context, the home bias reflects the natural tendency of the sourcing team to continue sourcing, and investing, in countries, and suppliers, from which they have previously sourced. Even when the team accepts that they need a new lower cost or higher value source of supply, they’ll look first at countries they are currently doing business in and the competition to their current suppliers. Although the team should consider these sources, as well as the impact of a strategic investment in their current supply base to decrease costs or increase value, the team should also consider sources in new countries and subject them to the same, unbiased, evaluations that their current suppliers are subject to. Only then will the sourcing team truly be able to identify the best source of value.

JLP Responsible Sourcing Part VIII: Equality of Treatment

In our last post, we covered the issues surrounding working hours, corresponding to section G of the report. In today’s post, we cover section H of The John Lewis Partnership‘s “Responsible Sourcing Supplier Workbook” which covers equality of treatment.

All workers should be paid the same for the same job and have access to the same opportunities and benefits. Employment discrimination happens when someone is treated differently because of gender, race, national origin, religion, caste, class, age, disability, marital status, sexual orientation, political affiliation, or union membership.

Discrimination comes in all shapes and sizes. It can also occur in all stages of the employment process: in hiring, compensation, training, promotion, termination, and retirement. Victims of discrimination may:

  • be less likely to be hired
  • be paid differently
  • be unfairly dismissed
  • suffer verbal or physical bullying
  • receive little or no training
  • have fewer promotion opportunities

Certain countries have particularly common forms of discrimination that you need to watch out for:

  • gender or religious discrimination in the Middle East & North Africa
  • union discrimination in Colombia
  • caste discrimination in India
  • migrant worker discrimination in China

Certain types of discrimination, especially compensation-based discrimination, are still very common, even in developed countries:

  • women in the UK earn, on average, 17% less than men
  • women in Malaysia earn, on average, 32% less than men
  • in the UK, 30,000 women are dismissed a year simply because they are pregnant

The workbook offers a starting checklist that you can use to make sure that discrimination does not become a problem for your company:

  • all managers are fully aware of the laws regarding discrimination in the country of operation and the policies of your organization
  • there is an equal opportunity policy in place
  • everyone receives equitable pay for the same work
  • there are no medical tests as part of the recruitment process
  • maternity and paternity leave is permitted
  • there is a clear procedure for raising grievances

In our next post, we’ll tackle the eigth major issue addressed by the workbook, wages. (You can access all of the posts in the series (to-date) by selecting the JLP category at any time.)

Supply Chain Humor This Week III

Scrap Metal prices are so high, that thieves are getting a lot bolder!

The scrap metal value of catalytic converters has gotten so profitable that thieves are getting braver. In the Twin Cities area, thieves have been targeting large groups of cars in places such as Car Dealerships, Park & Ride locations, and even the Police Impound lot! According to this article from SunCountry.com, reports of catalytic converter thefts from parking lots, car dealerships and street corners have been steadily coming into police departments. Catalytic converters contain small amounts of platinum, palladium and rhodium as well as stainless steel and iron and a scrap metal dealer may buy one converter for up to $100, depending on make and condition. Not to mention the fact that they are becoming valuable auto parts on the used parts market due to the increasingly high costs of new ones.

It really makes me wonder why we still have scrap yards in North America. If I had a scrap yard, I’d be hiring recent graduates and college kids looking for work year round to rip my cars apart and sell the scrap metal for a huge profit. Sell the more valuable metals locally to electronics shops and custom manufacturers and cart the cheaper steel and iron by the container to China where they’re buying everything they can get their hands on.

Hat Tip: Tony Poshek, The Cynical Sorcerer

Tired of losing all those sales taxes to the government? Then Utah might have the answer for you! Convince 99 of your closest relatives, friends, and employees to join you and you could have your own town – and keep the taxes!

As per this article in the New York Times, featured on The Colbert Report almost as soon as it hit the presses, Mr. Rod Syrett became mayor of Utah’s newest town, Bryce Canyon city, that consists solely of the 2,300 acre resort – which includes two hotels, souvenir-filled gift shops, a rodeo arena, restaurants, gas stations, a grocery store, and camping areas – owned by My. Syrett. My. Syrett, tied of paying for the largest private water and sewer system in the state, as well as plowing in the winter, took advantage of a new state law that stripped counties of discretion in deciding petitions from property owners for township or city status and allowed any property owner with property where there are at least 100 year-round residents to apply for township status. Now the corporation gets to keep about $300,000 worth of sales taxes that are paid annually by the hundreds of thousands of tourists instead of forking it over to the county.

Hat Tip: Stephen Colbert, The Greatest Living American

How to transport a $1.9M dime after purchase.

A man travels from Oakland to New York, with a dime worth $1.9 million dollars in his pocket, to deliver it to the new buyer. Using a red-eye commercial flight and wearing a t-shirt and flip-flops. According to this article from SFGate.com, a rare coin dealer from San Jose delivered a very rare 1894-S dime worth $1.9M dime from a seller’s vault in Oakland to a buyer’s vault in midtown Manhattan. This proves that you don’t need to shell out huge bucks for supply chain security, as long as no one knows you have something worth stealing. Maybe the distribution method of a certain prominent cell phone maker of using unmarked boxes through regular package delivery services for low-cost delivery of small shipments in certain countries makes sense after all!

Hat Tip: Tony Poshek, The Cynical Sorcerer