Monthly Archives: April 2010

If You Won’t Splurge for Supply Management Technology (Rant)

When:

  • Spend Analysis can save you 10% to 15% of your total spend,
  • e-Negotiations can save you 5% to 15% of your total spend,
  • Strategic Sourcing Decision Optimization saves 12% above and beyond what you can save with e-Negotiation alone,
  • Contract Management can save you 13% on your contract labor and professional services spend alone,
  • e-Procurement will quickly reduce maverick spend by 36% or more,
  • Supply Chain Finance / Working Capital Optimization platforms can decrease your cash conversion cycle by up to 83%, and
  • Global Trade Visibility systems can decrease transaction processing time requirements by up to 96%

… and that’s just the tip of the iceberg with respect to the total savings available to you, if you won’t splurge for supply management technology, especially when many enterprise systems can now be obtained at a cost of only five figures a year (which is ten times less than they used to cost), then you’re a Complete Idiot and should join your kin in the tundra biomes of the Arctic. Continental, Delta, United, and Alaska Airlines all fly to Anchorage, and you can book flights through all of the major web portals. Get to it! The rest of us need to move forward.

Global Sourcing: Addressing Myths with Capabilities Part IV: Politics, Local Context, and Enabling Infrastructures

Today’s post is from David Henshall, Founder of Purchasing Practice. Dave can be reached at dhenshall <at> purchasingpractice <dot> com.

In this four part series, we examine eight dimensional capabilities that will help you overcome the myths surrounding global sourcing. In today’s post, we will focus on the final dimensions of politics, local context, and enabling infrastructure. (Yesterday’s post addressed risk and opportunity.)

Dimension #6: Politics

Politics matters in LCCS. As stated in my introduction to the series (Part I), much of the political noise from politicians, humanitarians and environmentalist can be misleading, resulting in flawed policies and strategies for governments and companies alike. This noise generally consists of allegations of:

  • Job exportation
  • Sub-standard quality
  • Child labour
  • Slave wages
  • Environment pollution

The problem with many of these allegations are that they come from a benchmark of western standards applied in a developing nations context. The assumption is that if we apply these standards it must surely help the people in developing countries. However, there is a real risk that codes of conduct, when applied inappropriately, may worsen social and environmental conditions for workers in these communities. To avoid such unintended consequences, Wilding & Braithwaite (of the Cranfield School of Management) advise companies that they must:

  1. anticipate the ultimate impacts of implementing codes of conduct,
  2. contextualize their application instead of simply demanding compliance with conditions that make little sense in a particular developing country context, and
  3. incorporate the voices of workers and communities in the design, implementation, monitoring, and impact assessment of codes in order to ensure a better fit between what workers and communities prioritize as opposed to what Western society think they ought to prioritize.

Some companies panic in response to negative media exposure of poor working conditions or the use of child labour at their supplier factories, and choose to sever their connections with these suppliers. Companies need to resist this ‘cut and run’ response and engage deeper with suppliers in applying policies which fit the local context.

Dimension #7: Local Context

Dr. Peter Lund-Thomsen, a visiting Researcher with the Copenhagen Centre for Corporate Responsibility, advises that organisations need to take the social, economic, environmental, and linguistic contexts into which codes of conduct are being implemented into consideration if we want to avoid producing unintended, often negative, consequences for the intended beneficiaries of codes.

The implementation of codes in isolation is unlikely to bring about sustained improvements in working conditions. Lund therefore advises that the emphasis needs to be placed on incorporating the concerns and voices of the ultimate beneficiaries of codes of conduct in the design, implementation, monitoring and impact assessment of codes.

Dimension #8: Enabling Infrastructure

For buyers, technology is a key component. The capability to view supply chain data on a single platform can be critical to achieving the real time visibility necessary to successfully mitigate the risk in extended supply chains. Technologies such as RFID can also support the transactional visibility as goods move between handling units in the supply chain.

Buyers can play a role in enforcing local legislation and in providing the necessary expertise, resources, and infrastructure that enable developing country suppliers to meet their legal obligations.

Organisations who engage with suppliers over the long term, in terms of providing the necessary resources and expertise that will enable them to improve their social and environmental performance, are likely to be the most successful in maximising the benefits of LCCS. The ‘cut-and-run’ response in relation to negative media publicity is likely to do more harm than good if the aim is to improve the workers’ conditions and reduce environmental pollution at supplier factories.

Thanks, Dave.

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The Right Thing To Say When A Vendor Offers to Sell You Custom Software …

… that it hasn’t built yet, as reported by Dan Gilmore in funny stories from a career in supply chain that were actually scary, sad, insightful, humiliating, and, well, just plain stupid (in that order), is the following:

How much are you going to pay us to teach you how to build this solution so you can eventually sell it to others?

The reality is that there are a lot of shops out there these days that can build a decent software solution, given a specification, but not many shops have the right business knowledge, experience, and insight to design a truly great solution. So, if the shop expects you to provide the IP, make sure you get a great deal on the solution because that IP is valuable.

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Global Sourcing: Addressing Myths with Capabilities Part III: Risks & Opportunities

Today’s post is from David Henshall, Founder of Purchasing Practice. Dave can be reached at dhenshall <at> purchasingpractice <dot> com.

In this four part series, we examine eight dimensional capabilities that will help you overcome the myths surrounding global sourcing. In today’s post, we will focus on the dimensions of risk and opportunity. (Yesterday’s post addressed corporate social responsibility.)

The decision to pursue a global sourcing strategy will ultimately depend upon the amount of value that it creates. Value in this context, however, should include not only the available savings opportunities, but also the inherent risk after considering the organisational capabilities in managing the increased vulnerability from sourcing in higher risk countries or region.

Dimension #4: Risk

Increased risk comes in the form of damage to brand and reputation, unplanned cost, supply chain failure, delay, currency fluctuations and IP theft, for starters. Professor Richard Wilding & Professor Alan Braithwaite, from the Cranfield School of Management in the UK, have identified six capabilities for the effective management of global sourcing risk:

  1. ‘Total Acquisition Cost Management’ – the ability to analyse and predict the total cost of a good from the source of supply to its final point of sale. They advise it is important to analyse and build into the costing the inherent lost sales risk of the product by developing and applying a market-risk and cost risk profile. The inventory holding cost through the chain must also be factored in.
  2. ‘One touch information flow’ – to avoid double entry, duplication, mistakes and inconsistency as the same transaction moves through the many points of contact in the chain. Accuracy of information is a precondition of pro-active management and the ability to exercise risk mitigation measures. This capability is systems enabled; it is critical to have the widest view of the total chain on one information platform with the ability to recognise inconsistencies.
  3. ‘Total product identification and compliance’ – to ensure fast accurate product and handling unit identification that feeds the “one touch information” requirement without delay. The use of bar codes and RFID (Radio Frequency Identification) to the correct standards is the enabling technology; this needs to be quality assured and enforced on the ground across many sites with failures being fixed where they occur.
  4. ‘Real time routing through dynamic visibility’ – the capability to see through the chain, know what is coming, and test for events that have not happened as planned; to interpret the implications of failures in a pro-active way and make decisions to minimise their impact.
  5. ‘Vendor development’ – cycle time compression linked to real demand’ – the capability to understand and improve the long-term performance of vendors in terms of cycle times, timeliness, quality and accuracy is central to time compression and risk reduction. Based on historical performance of the end-to-end chain, it is possible to identify improvement programmes to develop supplier reliability. The ultimate goal is to issue orders and schedules on shorter lead times, reflecting real demand or more accurate forecasts. Understanding the underlying performance of the vendor, and his category of products in the marketplace, is the starting point for this; it is dependent on information across the chain.
  6. ‘Information platform’ to provide consistent and timely information – the capability to put in place, operate and maintain a full supply chain visibility solution. All of the above capabilities are anchored by the operational skill to secure and maintain the information backbone with the diverse data structures that are needed by each supply chain function.

All of these capabilities relate to management information and the skills to apply that information with greater precision; information on the extended chain in terms of accuracy and speed of availability is central to these capabilities.

Dimension #5: Opportunities

Global sourcing can facilitate both supply side and demand side opportunities. On the supply side, Ford Motor Company cites these as:

  • Annual cost reductions in LCC markets have consistently exceeded those in mature markets due to:
    • Expanding scale
    • Deepening relationships with suppliers
    • Competitive environment
  • Wage rate growth in China and India will be limited by the large number of under-employed:
    • China has 1.338 Billion people living in the country
    • India has 25 million English-speaking, educated workers, and this number is expected to increase every year (as there are 232 Million people who speak English as a second or third language)
  • Labor rate differential is so large, gap is expected to remain substantial for the foreseeable future

On the demand side, global sourcing can facilitate the pursuit of export opportunities. Organisations can leverage supplier relationships to open the global marketplace, allowing them to market and sell their products in new markets across the globe.

Part 4 will examine Politics, Local Context, and Enabling Infrastructures of global sourcing.

Thanks, Dave.

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What About Bob?

Almost nineteen years ago, Touchstone Pictures asked What About Bob?, not knowing what a profound question this would be for the Supply Management space, which had not yet truly emerged, nineteen years later. And before you ask what is that crazy doctor referring to, be assured that I’m going to tell you. But first, a little background.

A little over a year ago, Dennis Moore, Susan Scrupski, Thomas Otter, Vinnie Mirchandani, Jeff Nolan, Jason Busch, Zoli Erdos, and pretty much anyone else who mattered in the Enteprise Blogsphere came together and created the Enterprise Irregulars, a central point where anyone who wanted a multi-faceted snapshot of what’s going on in the Enterprise space could go to get it. Little did we know that would be the first milestone on the path to Analyst 2.0, the new analyst model for the Supply Management space. Shortly after, Jason Busch of Spend Matters decided to double down. He expanded the number of voices he allowed to contribute, increased the rate of publication of his Perspectives, and announced bold new changes coming in 2010, which began with the new Compass publication series, which are essentially an Analyst 2.0 spin on the classic Aberdeen model. (The only difference being that instead of sponsoring one big fat [dry] metric filled research study, you sponsor a four-part series that addresses emerging trends and related issues as well as best practices with a dash of metrics thrown in for good measure.)

Then Mr. Horses for Sources himself, Phil Fersht, decided it was time to go all-in with the new Analyst 2.0 model and formed a whole new Analyst Firm dedicated to Global Sourcing Performance.

And now we have turmoil at the Analyst 1.0 firms who are trying to stay relevant. Gartner acquired AMR, and Andrew Bartolini, who was the VP of Global Supply Management Research (and who succeeded Vance Checketts who succeeded Sudy Bharadwaj who succeeded Tim “Mr. Perfect” Minahan), has departed Aberdeen to create his own Analyst 2.0 offering over at CPORising.com.

There’s so much going on right now, and so much noise being made, that I just have to ask What about Bob? You see, while most of the space is going gaga over all of the hullabaloo surrounding the emergence of Analyst 2.0, they’re forgetting two important truths. One, it’s about substance and quality, not flash and delivery. And two, quietly toiling away over in a little corner of The Ferrari Consulting and Research Group‘s piece of the web, is Bob Ferrari who has been plugging away on Supply Chain Matters for over two years now, bringing you deep thought and analysis on a variety of topics on a weekly, and occasionally daily, basis. He’s good. He’s great. He’s wonderful. And he’s too modest to ask it himself. So I’ll ask it. If you need a real analyst, with decades of experience, including stints at IDC and AMR, What about Bob?

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