Category Archives: rants

Global Sourcing Agencies — Are They The Hidden Evil of the Outsourcing World?

Note the Sourcing Innovation Editorial Disclaimers and note this is a very opinionated rant!  Your mileage will vary!  (And not about any firm in particular.)

We all like to blame the Big X (and the larger Mid-Sized consultancies) for the outsourcing revolution that put the whole world in sh!t when the pandemic started (because they spent three decades convincing every CEO and their favourite corporate lap-dog they would get immediate savings [which was true] by outsourcing everything possible to China, a country that then proceeded to do mandatory city-wide lockdowns for three years every time a single COVID case was confirmed). Not only did sudden unavailability in a single geographic source break many supply chains, but the three decades of unnecessary outsourcing also significantly contributed to GHGs and hastened our trajectory to a global 2C temperature increase as transportation GHG emissions have approximately doubled over the last 30 years (and are now responsible for about 30% of global emissions, especially since just 15 older ships contribute more GHG emissions annually than 50 Million cars).

But it’s not just the Big X and Mid-Sized pushing us towards “low cost countries” on the other side of the world (where they have to help with the introductions, organizational transition management, on-site audits, etc. etc. etc. to pocket 33% of those ephemeral savings as consulting fees), it’s Global Sourcing Agencies that are adopting their fee models, tactics, and strategies to help you find the right “partners” with their “in-country” consultants who can help you on the ground, except at slightly lower costs and with slightly more focussed industry expertise.

And the truth of the situation is that if you can’t produce the products (assemblies, components, parts) you need at home, you need to outsource. But the reality is that, today, you should be outsourcing as close to “home” (where “home” is the market you’re sourcing for, so if you’re a true global multi-national, sourcing near the US for the American market, in/near Europe for the European Market, in/near Australia and New Zealand for the Australasia market, and so on). You’re not sourcing from Russia for Argentina or China for the US. It makes no sense (and, at the end of the day, when you compound the disruption costs on top of the outsourced management and super high logistics costs, costs too many extra cents).

And chances are, now that you are trying to move to a closer to “home” market, you have no clue what suppliers are there, what their real production capabilities are, how well they have served other customers in your industry, how easy they are to work with, what your chances of (eventually) becoming a customer of choice really are, and how much help you can get on the ground if you need it. So you need a Global Sourcing Agency to help you, just like you will often need a Big Consulting Agency to help you with Procurement Transformation. But in this situation, it is many times more critical you choose the right one. If you choose a Global Sourcing Agency that specializes in China manufacturers when you are trying to pull out of China sourcing for your North American Market (and thus need deep insight into the Mexican and Brazilian manufacturing market), you’re not going to get many (if any) good options and end up being convinced that, for worse or for even worse, you need to stay in China.

So where’s all this coming from? What appears to be sponsored business spam. For example, the Business NewsWire and the Big News Network are pushing an unattributed* article titled The Role of Global Sourcing Agencies in Business across any business press release site that will accept it.  In our opinion, it’s a thinly veiled attempt to ensure that, with the current (long overdue) focus on “near-sourcing” (which you should have been doing since the initial rise of Mexican outsourcing half a century ago as a response to the introduction of Maquiladoras in the 1960s), that you stay in China (which is, of course, likely the LAST thing you should do unless you are also selling that product to China or nearby [Austral]Asia).

It’s yet another article making generalized good points about how Global Sourcing Agencies can help in theory, but whether they achieve that in practice depends on whether they have the right people, the right relationships, and the right technology — in the region you need them to be in. (Which, and we can not say this enough, is often NOT China!)

Now, if you are a global firm that sells to EurAsia or Austalasia, please use these firms that specialize in china.  You don’t want to be sourcing from South America or Africa for something you can build in Asia!   And if you want to re-shore from China to South America for your American market, find a firm that specializes in South America.

Just like every Big X has their areas of specialty (see when should you use a Big X), every Global Sourcing Agency has theirs.  Use them wisely.   While the right partner can help you reap long term rewards, the wrong partner will lead you deep into the dark woods of fabled nightmares from which you will never emerge again. (And, just like when you select the wrong Big X, it will be your fault.  If you select a Global Sourcing Agency that specializes in China, they will reasonably expect you want China.  Again, if that’s the case, great.  If not … )

 

* We’re glad the article it’s unattributed. We don’t want to single out any company in particular here. It’s the entire outsourcing business model we’re questioning!  We hope it evolves into a model that helps you outsource to near-source countries!  After all, just like America should not be buying something in China it could make in America to sell in America, America should not be buying something in America to sell in China it can make in China!  Sourcing needs to be re-shored to the nearest available source to minimize transport needs, costs, and delivery times.  Not one focus on whatever country looks to be the cheapest or best in the short term!

‘Tis the season … to bring an end to seasonality! (And JIT!)

Consumer shopping may be seasonal, but supply chains no longer support seasonality. The pandemic finally broke over-stretched supply chains, they haven’t fully recovered, and, as per this recent article over on Capgemini, we are still in a situation where 42% of CPR [Consumer Products and Retail] (also known as CPG, Consumer Purchased Goods) organizations expect stockouts or product shortages, 38% expect late deliveries, and 35% foresee labour shortages.

Marketers might like seasonality, as it makes them absolutely necessary, and sales people might like seasonality, because it gives them a reason to push sales (and possibly close a sale in a given time period), but human seasonality is limited to SAD (seasonal affective disorder). Just because consumers want to buy 5 times as many units of a product in December as they do the rest of the year doesn’t mean that humans in September can make 5 times as many units. If a plant normally runs 8 hours a day, the most a plant can theoretically run is 24 hours a day and the most it can do is triple its output. But that assumes it has enough, trained, seasonal, workforce. That’s not likely. Maybe it can split the skilled workforce in half, force half to take the second shift, and have each regular worker supervise one seasonal worker in an effort to double output. But a seasonal worker is not going to be as efficient as a regular worker, and, in the end, maybe output will increase by two thirds. Not much better than if they could just convince their entire workforce to work 12 hour shifts for the month and increase output by about 40% (you’re not getting the theoretical 50% as the workforce will be tired somewhere beyond the 8 to 10 hour mark).

Furthermore, you not only need to have five times the amount of product produced, you also need it transported to you — from half a world away. Seasonal capacity, especially in the late summer/early fall (to get goods to North America in time for the holiday season), has always been limited and with the scuttling of many cargo ships during the pandemic (including some ships that never made a single voyage) due to lack of cargo (because China shut a [port] city down), seasonal capacity is even less than it was. So how do you get the goods during the season, which is what you have been doing/attempting to do since the 80s thanks to the Big X and Mid-Sized consultancies advising you to switch to just in time (and push the inventory cost onto the manufacturer/supplier)? The short answer is, you roll the bones and hope for the best (because JIT now stands for just in trouble). And that’s not a good answer.

If you have “seasonal” demand because either

  • your business model is selling seasonal items or
  • you allowed marketing and sales to take what should be a product always in demand and make it seasonal

Then you have to start managing your own inventory close to the point of sale/last-mile distribution (if you do a lot of on-line business) and start building it up months in advance, based upon normal (non-OT production) and optimal distribution volumes. Yes, inventory is expensive, but what you don’t get is that

  • you’re paying for it anyway (because the supplier is charging you their overhead)
  • you’re losing a lot of sales, and profit, when you stock out
  • a few months of inventory is not that expensive and it’s only expensive if you overstock and then have to discount/fire sale

In other words, do proper data driven forecasting, ensure marketing and sales manage demand by driving people to the products that you have enough of that optimize your profit, right size your “local” warehouses, pick the cheapest locales for a region (your main warehouse doesn’t have to be in the city or even the primary business park, can be in a tier 3 business park a half hour out – that’s not going to add much to delivery cost), and start integrating core product management functions back into your business. Even if you sell seasonal, eliminating seasonality from your management model will decrease overall cost (no more shipping at peak rates in peak seasons or paying overtime overhead), decrease stock outs, and increase profit. Just do it.

An Absolutely Fabulous Article by Cory Doctorow on the (Gen) AI Bubble …

and how it’s going to pop like every other tech bubble since the first dot com bust!

What Kind of Bubble is AI?
  by Cory Doctorow

Cory doesn’t say it, but he makes it pretty clear that when the bubble pops, like every tech bubble that has come before, there may not be much less to salvage when it does (especially since no one is thinking about what happens when it does pop).

So I’ll clarify:

A lot of people are going to lose a lot of money

(and while stupid investors hyping this bandwagon heading for a cliff probably deserve to lose every penny, all of the pensioners in the pension funds they scammed don’t; so if you run a pension fund, please pull out of ridiculously overvalued Gen AI NOW!)

A lot of people are going to lose their jobs

(and it’s going to be more devastating to the tech sector than the Silicon Valley Bank failure this year combined with the recession forecast that resulted in over 250K IT jobs being slashed in the USA alone)

A lot of hardware is going to suddenly go idle

and smaller cloud providers are going to go under when the big name cloud providers all of a sudden drop their prices to the floor just to keep the revenue coming in (resulting in the monopolies of Amazon, Google, and Microsoft controlling most of the servers outside of China and Russia)

The problem is, as Cory clearly lays out, when you take one step back and look at the ridiculous hype from a business/revenue lens, all of the big, exciting use cases for AI are either

a) low dollar [and low-stakes and fault-tolerant] (helping us cheat on our [home]work or generating stock-art for bottom feeders [who won’t pay an artist and don’t mind ripping off the IP from thousands of artists]) or

b) high-dollar but high-stakes and fault-intolerant (self driving cars, radiological cancer detection, worker screening and hiring, etc.)

and when you consider the data center costs of these super-sized models (as these data centers consume MORE energy than a small town), low-dollar AI applications won’t pay the bills and high-dollar AI applications cost MORE to deploy than to just do it the traditional way with an educated and capable human!

E.g. self-driving cars don’t work (and “Cruise” needs to employ 1.5 times as many supervisors as a taxi service would employ drivers to keep their cars, which still hit and critically injure people, relatively safe)

E.g. radiological cancer detection requires a human expert to spend the usual amount of time in diagnosis before consulting the AI, and then, if the AI doesn’t agree, spend that much time again

Not that we’re not stopping you from jumping on the (Gen-)AI bandwagon or selling that silicon snake oil that Open AI and Microsoft AI are selling. We’re just not joining you on the (Gen-)AI bandwagon as the steering algorithm is defective and it’s heading straight for a very high cliff at a very high speed …

Merry Christmas!

Half of Procurement Leaders Expect Their Budgets to Increase. Are They the Kings of Wishful Thinking?

A recent article over on the Supply Chain Quarterly (which launched about the same time as an article on the Supply Chain Management Review) quoted the newly released 2024 State of Procurement Data Report from Amazon Business (whose PR team was working overtime) that was revealed at Amazon Business Reshape. The report, which surveyed 3,000 buyers, procurement decision makers, and organizational leaders, had a number of interesting statistics.

The ones quoted by Amazon Business on their site included:

  • 95% of decision-makers acknowledge that there’s room for procurement optimization
    (which says to the doctor that 5% of decision makers are clueless and need to be replaced)
  • 85% of respondents say the difficulty of sourcing suppliers that follow sustainable practices prevents their company from setting or achieving strategic sustainability goals for procurement
    (which is totally logical because when there is a national demand for something that is in extremely limited supply, most companies will fail; it’s like demanding gender equality in STEM organizations in North America; on average, women are 25% of STEM workers; this means that for every STEM organization where they manage to fill more than 25% of their positions with women, there is an organization of equal size that won’t)
  • 81% of respondents had mandates to buy from certified sellers, which might include sustainable, local, or disadvantaged group-owned businesses
    (and it would be nice to know what percentage achieved those mandates; the doctor would be surprised if more than 25%, at most, succeeded)

The SCQ and SCMR picked up on different statistics, and you can read the articles to find out, but the most interesting to the doctor is:

  • 53% of business respondents in the survey expect their budgets to increase in 2024.

Go West, Young Man, Go West and pan for the gold! As far as the doctor is concerned, you’re the King(s) of Wishful Thinking. And, if you really want to, you can call me a bitch like it’s a bad thing for suggesting you’re so far out of this world that you’re a space oddity, but it doesn’t change the fact that you need to sit back, have a deep think, and accept the reality that it’s not going to.

Before you find new offensive adjectives to describe the doctor, ask yourself: When was the last time you received a significant budget increase that was above inflation? And when did it include even a dollar more than what was needed for the new hire(s) you fought nine months for or the system that your CFO decided he or she liked best? And if so, was it enough to actually acquire a new system or an extra hire you didn’t have to fight nine months for? In other words, when was the last time an increase you received was truly significant?

Procurement needs to remember that, in most organizations, it is still looked at as a cost center even though it may be the only profit center a company has left in an inflationary economy with declining consumer demand. As a result, with budget scraps are few and far between, those budget scraps are going to continue to go to sales and marketing hoping that the closers and the mad men will save them, and we all know that’s not going to change anytime soon in most companies.

Expectation is not always reality. And wishful thinking is just that. To succeed, don’t plan for any increases beyond specific increases for specific headcount or CFO friendly systems you have already hard fought and negotiated. This way, you won’t feel let down and you’ll be setup for success.

And while my gloomy glass more-than-half-empty outlook on the situation may not be very gladdening, remember that you are Procurement Pros, you always have sour lemons (and nothing else), and when challenged, you still find ways to make the best lemonade. Prepare for tough times and, on the off chance they are a little less tough, you are guaranteed to succeed.

Data-Driven Workforce Planning — WTF?

Data is good. And you should make use of it all the time. And while data might help you identify gaps in your work force capability, it can’t help you plan your future workforce. Why? A couple of reasons. First of all, you don’t know what’s coming down the pipe in future Procurement and Supply Chain needs and issues. Secondly, existing skill sets may not be enough to address those future needs and issues (which could require evolved versions of current skill sets or even entirely new skill sets). So while the doctor would agree that the 14% of Procurement Leaders who believe they have adequate talent to meet future needs are idiots that never look at the data, he would also argue that looking at the data alone will not allow one to adequately define their workforce needs.

Planning implies you are building a workforce for the future. Data can only identify gaps in your workforce today. And while you need to fill those gaps to conquer today’s challenges, put out the fires, and get to the point where you can start seriously thinking about the future, analyzing historical data is not going to get you there. You need to look at how new technologies will change production, how new technology will change logistics (not just green vehicles, but better planning technologies, more efficient cross-docking techniques, etc.), how regulations will impact trade, and so on. There’s no data on that yet (other than patent documents, vendor spec sheets, draft legislation, and so on). So how can you analyze data you don’t have?

So, why do we need to talk about this? Well, Info-Tech Research group is flooding the PR and Business News Wires with an article on how data-driven workforce planning is key to future-proofing organizations. And while data-driven workforce planning is key to getting your workforce right today, as we just explained above, it can’t future proof your workforce because you don’t know what skills your future workforce will need.

Yes, there are serious talent shortages in IT and Procurement. Yes, it reinforces the reality that a proactive approach to workforce management is something that most organizations should have been doing a decade ago. Yes data-driven insights are often the fastest way to see where you don’t have enough people or enough people with the right skills to tackle the job. And yes tools that can help you are highly valuable. But don’t confuse solving today’s challenges with people you will hire tomorrow with solving the problem of future workforce planning.

Now, if you hire the right people with the right education and the right skill sets in analytics and the ability to learn on their own, they will be more prepared than those employed by your peers. This may put you in a better place, as they may even have the skills to identify the gaps when the world changes, but there are no guarantees. So find top talent with the education, drive, and ability to learn, continually train them, give them time to look ahead once in a while, and you’ll be better off than those who just hire the cheapest resource they can to put out the latest fire.