Monthly Archives: October 2011

The BRIC is Becoming Really Investment Critical

As per this recent article over on World Trade 100, it’s time to ask if “your company [is] ready to export to BRIC”, it’s time to start thinking about exporting to BRIC countries because:

  • 45% of global GDP is estimated to originate from seven emerging economies: Brazil, Russia, India, China, Mexico, Turkey, and Indonesia
  • it is estimated 55% to 60% of the nearly one billion households that will have incomes in excess of 20,000 will be from the developing world within a decade

However, one thing that needs to be noted is that many of these countries have sub-markets, and if the products aren’t localized to the sub-markets, it could be difficult to maximize your return. For example, China has 20 to 40 different sub-markets on its own. And some of these markets are only two hours apart. For example, Guangzhou and Shenzhen are both tier-one cities in China, located in the same province and just two hours apart but there is a marked cultural difference between the two. According to a study done by McKinsey, “Guangzhou’s people mainly speak Cantonese, are mostly locally born, and like to spend time at home with family and friends. In contrast, more than 80 percent of Shenzhen’s residents are young migrants, from all across the country, who mainly speak Mandarin and spend most of their time away from their homes”.

The article has some good thoughts to keep in mind when planning to expand into China, India, Brazil, and Russia. So ask yourself, “Is Your Company Ready to Export to BRIC?”.

JDA and Oliver Wight’s Top 10 Myths of S&OP (I of IV)

A recent white paper by JDA and Oliver Wight attempted to set out the top 10 myths and realities of Sales & Operation Planning. According to the authors, these are the

Myths

  1. The S&OP process should be owned or sponsored by the demand planning or supply chain function.
  2. S&OP is a tactical, real-time process that enables the quick identification and response to problems as they arise.
  3. S&OP deals with product families and a fixed hierarchy.
    The devil is the details and S&OP doesn’t go there. So that doesn’t really help us.
  4. S&OP is really just a review of historical data. There is no ability within the process to do any simulation of suggested changes, let alone compare a differing scenario to the optimal plan.
  5. S&OP is limited to quantitative views of supply, demand and financial plans. Just look at the numbers and you’ve got what you need to support decisions.
  6. S&OP is just another executive meeting; nothing really ever comes out of it. Decisions made in the meeting stay in the meeting and rarely get executed.
  7. S&OP relies on a fixed demand plan or statistical forecast. It doesn’t emphasize how we may need to shape demand up or down to meet business objectives.
  8. S&OP processes are too complex and difficult to manage — especially when trying to systematically incorporate external trading partner feedback into the internal consensus demand and supply plans.
  9. We spend so much time striving to create a perfectly balanced supply and demand plan, yet too often it’s a futile exercise. The finance team is just going to override any S&OP plan that we create, so why bother?
  10. S&OP can be solved with the implementation of a tool. Just configure the software and turn on the “black box”.

Now some of these are obviously myths. But are all of them myths? We’ll review the crux of the realities in the next post as a first step in our effort to understand to what extent these are myths and to what extent they are just minor misunderstandings.

Is It Time To Move Your (Supply Chain) Operations to an Emerging Economy?

After reading this recent piece in Chief Executive (CE) on how US companies are “garotted by red tape”, SI is wondering whether the time has come to follow the lead of IBM and other big multi-nationals and move your supply chain, followed by your headquarters, to China or another emerging economy. Even though I still think North America is going to retain the edge in High-Tech Innovation for a few more years (despite the fact that the numbers say that both India and China should be producing four times as many geniuses each year), the cost of doing business, or at least of keeping your supply chain and headquarters, in the US is becoming too high.

Consider these vary scary stats from the CE article:

  • In 2010, the Feds spent 55.4 Billion enforcing regulations
  • In 2009, economists Crain and Crain estimated the true cost of the Feds’ regulations was 1.75 Trillion – or 12% of GDP – compared to only 1.46 Trillion in pre-tax profits businesses earned
  • The Federal Register that compiles regulations is over 81,405 pages long
  • Since Obama took office, regulators have imposed 38 Billion in new costs
  • There are 2,785 proposed rules in the pipeline and 144 are economically significant and will add burdens of over $100 Million each for a collective burden of over $14 Billion on this 5%!

At the moment, federal regulations are a runaway train that no one can stop. And until the US gets a Denzel Washington or a Keanu Reeves that can deal with the situation, it’s only going to get worse before it gets better.

As a result, it might be time to consider moving your supply chain operations somewhere where the regulations are a little less severe … even if you have to pay a few government bribes or deal with a few pirates. After all, 238 Million (which is the amount paid to pirates in 2010 for ransom) is a lot less than 1.75 Trillion (at 0.01%), and a few hundred thousand goes quite a long way in developing economies where bribes are concerned. And while SI is not condoning bribery or pirate ransoms, there are much better uses from an innovation and jobs standpoint for 1.75 Trillion dollars than red tape.

Maybe if a few big companies start leaving and the feds realize that if they don’t stop the runaway train that the city will be empty by the time it arrives they’ll bring in a Denzel or Keanu to deal with it. SI doesn’t know, but thinks it’s a good question to ask.

High Tech Needs Next Generation Supply Management

As chronicled in this recent commentary by Bob Ferrari over on Supply Chain Matters, not only do accelerating dynamics reshaping high tech supply chain networks bring implications, but there is continuing turbulence among and across high tech and consumer electronics value-chains. This means that now more than ever, firms in these segments need to continually re-visit their strategic sourcing and supply plans for long-term implications and, in SI’s view, they need to start by adopting next level supply management strategies when they revisit their plans.

And, as Bob suggests, it is imperative that senior management is continually educated to developments and that strategic strategy sessions and interchange be more than just a periodic occurrence. As clearly indicated in this morning’s post, Next Level Supply Management requires Collaboration, Stakeholder Partnership, Leadership, Early Involvement, and Alignment. Not only does Supply Management need to speak as one voice, but the entire company needs to speak as one voice in this sector. The storm is too violent to ride out if everyone is rowing in different directions.