Category Archives: rants

There’s No Nearshoring Revolution on the Horizon!

the doctor recently saw a headline that the nearshoring revolution is just beginning, and while he wishes this were true (as he’s been preaching the need for a nearshoring revolution since Sourcing Innovation started, which, for those keeping track, was 17 years ago), it’s not.

A few progressive thought-leading innovators are doing it, but a few is not a revolution. It’s just a few people and organizations who are both willing to do the right thing and wealthy enough to
a) pay for all the upfront costs (where the return may not be recouped for years) involved in shifting a supply chain, bringing new factories online or upgrading those that have been offline for years (or decades) and
b) not be beholden to investors, shareholders, or Wall Street demanding profits now.

The reality is that reorganizing supply chains has a large upfront cost and when most corporations are beholden to shareholders who want profit now, Private Equity firms who want profit now, and Venture Capitalists who want profit now, the last thing they want is upfront cost. They want margin, and the best margins are finding the lowest cost of supply out there and using that, even if it means continuing to source from halfway around the world with all the risks involved (and the losses that would accompany any of those risks), especially if you can buy supply chain insurance at a reasonable cost.

As long as the backward-thinking financial models and economics continue to focus on profit over value or true wealth creation, nearshoring is going to face the same obstacles that Corporate Social Responsibility and Sustainability has faced for the last two decades where everyone says they want it, but unless legally mandated, no one is willing to pay for it. the doctor is aware of multiple surveys that have been conducted in this area over the last couple of decades and while a majority of respondents will say it’s top priority, the majority will not even pay 3% more for a more sustainable product or service as the success criteria they are eventually measured on in Procurement is total “savings” (regardless of the long term cost to society).

The reality is that most corporations bought into the Big outsourcing push of the 1980s and 1990s because their managers and primary shareholders were greedy and wanted profits sooner rather than later, and while that mentality persists, they’re not going to be willing to absorb the upfront costs of shifting back. To truly fix the supply chains, which is as simple as “F*CK China” in the Americas and “F*Ck the Americas” in China as the doctor pointed out in his recent post on how you reconfigure the global supply chain, you need a no upfront cost solution for organizations to switch back, or a value proposition beyond assurance of supply.

In the United States of America, for this to happen the MAGA crowd, instead of wasting all their efforts trying to take away basic human rights away from their citizens (while they are simultaneously trying to put an angry grandpa back in office and hide the huge “gifts” they are getting from certain parties that benefit greatly from laws they pass or block), needs to focus on solutions to actually bring the jobs they are claiming to fight for back to the Americas, which could include:

  • interest free loans for building supply chain infrastructure such as factories, distribution hubs, ports, etc.
  • free, or heavily subsidized, training for Americans to do these jobs
  • higher tariffs on any
    imported products that are produced at sufficient volumes in America to satisfy the American market
  • higher taxes on any
    exported products that should be sold at home

Unless the value is created, or China Sourcing is banned wherever products could be sourced from the USA, Canada, Mexico, or friendly Central/South American states, the nearshoring revolution will not happen. There’s no incentive for it to happen, and no Tribore Menendez taking up the charge!

X

… Logged into Twitter just the other day
Just saw a Big X, seems the bird had flown away
It had two lines and one was double wide
I knew the letter, but I just could not surmise
… Musk didn’t leave a number, not an picture or a clue
But something in that pictogram reminded me of coup

Baby, Musk put the X on top
Voided years of trust and it makes me wanna stop
Baby, Musk put the X on top
Twitter’s going bye-bye, baby, ’cause the branding’s gonna flop

… I saw a sign in the middle of the night
Big flashing X, I was blinded by the light
She said “Oh yeah, you don’t want to be here”
I asked who was calling, but she just hung up in fear
… Sometimes you gotta suffer for the network that you seek
You’re beggin’ for connection but you only want to shriek

Baby, Musk put the X on top
Voided years of trust and it makes me wanna stop
Baby, Musk put the X on top
He thinks he is a master, but he just can’t compare to Aesop
… Oh yeah

I heard an app a-beepin’ so I clicked into the pane
It showed icons, pics, emojis, it’s like it was built to feign
It said that it was “happening“, but it didn’t give a clue
Then I saw that white on black X and I knew that we were screwed!

Baby, Musk put the X on top
Words have been displaced and our IQ’s* gonna drop
Baby, Musk put the X on top
A digital nightmare, it’s the new-age online horror shop!

… with sincere apologies to KISS.

* It’s Official! Twitter Has Made Us Dumber Than Goldfish!
Who’s Smarter? A Twitterer or a Pothead?
Has Twitter Already Turned Too Many Into Twits
Twitter Will Make a Twit Out Of You!

That’s Right, You Do NOT need AI for Automation!

In our last article, we stated that our space was full of Overpriced “AI” you don’t need in source-to-pay, and one of our three examples was “Sourcing Automation” in Sourcing. To be clear, we’re not saying you don’t need automation — the whole point of software has always been efficiency through automation — we’re saying you don’t need “AI” automation.

The reason we’re doubling down into this topic is that we know there are a number of vendors pushing AI Automation and while automation is very good, AI is just not needed. But we know you’re going to get pushback if you echo the doctor‘s viewpoint here, so we’re going to double down into the details and explain why no AI is needed for great automation.

In our last post, we noted that, at its simplest, it’s the ability to auto-source a (set of) product(s) or service(s) once the need has been identified or the request approved. It’s useful, but you don’t need AI to accomplish this, just good-old rule-based (workflow) automation. After all, it’s just

  1. instantiating a new RFP (which can be done if you have a template tied to the product/service types)
  2. distributing it to known, approved suppliers (which is easily done if you have supplier management that tracks approval status and associated products/services)
  3. collecting the bids (automated submission management through a portal or provided spreadsheet for upload)
  4. selecting the lowest bids and marking it as an approved award (simple analytics)
  5. assembling the contracts (with templates, it’s just sucking in the supplier details, product details, and bids using tag-based search and replace)
  6. push it into the e-Signature portal (via the API)
  7. alert the buyer when the contract is ready for signature (via alerting)

1 You just need templates, and good providers have had those for a long time. And “AI” is not going to invent one you can trust.*1 It’s not too hard to tag your (provider’s) existing templates to all of the products and services you buy, and you only have to do it once.

2 When you onboard a supplier, you should tag it as approved, associate it with the products and services it is approved for, look up its risk and environmental scores, and track its performance over time. If it’s performance drops, it can automatically be suspended from consideration for new projects using old-fashioned business rules that will prevent it from being included in events it shouldn’t be. Thus, approved supplier management isn’t that hard to do and simple saved searches find all the suppliers that should be automatically invited to an event.

3 RFP and e-Auction software has been around for 25 years, so don’t let anyone ever tell you that you need AI.

4 If you’re trying to administer an award subject to constraints or goals, that’s good old fashioned strategic sourcing decision optimization. That’s not AI. MILP using classic tableau and interior point algorithms works just fine in predefined scenarios that suck in the organizational constraints … that leading SSDO (Strategic Sourcing Decision Optimization) providers were building over two decades ago.

5 Contract templates should be prescribed by Legal Counsel, not by software flipping random bits using layered statistical algorithms in combinations no one truly understands. The vendor will provide you with templates, but you should be the one reviewing them to make sure they are too your liking. This includes the standard clauses and variation by geography, industry, or risk you want to address.

6 Software integration happened for decades before AI.

7 Alerts have been standard software capability for decades, no AI needed.

If the right data is captured, and the right rules are written, standard workflow-driven software systems can be fully automated without any AI. The only thing preventing them from going from one step to the next is the human verification checkbox being completed. You can turn that off and they will work just fine. So, again, don’t be fooled that you need AI for Sourcing Automation, because you don’t. And with rules-based systems, you’re guaranteed you won’t get the odd, unpredictable result, every 10th sourcing project (because AI is only statistically effective, which means, eventually, it will always fail).

*1 Sure “Generative AI” can generate one. But there’s no guarantee it won’t be hot garbage.

Overpriced “AI” You Don’t Need in Source-to-Pay (S2P)

Everyone and their dog is trying to sell you an “AI” solution. Most of which, as we continually lament is “Automated Idiocy” at best (and “Applied Indirection” at worst, see our article on the April Fools joke vendors are playing on you year round that relaunched SI full time). Some vendors, for select capabilities, actually have the first stage of AI, Assisted Intelligence and a few, for very select capabilities, actually have the second stage of AI, “Augmented Intelligence”, but, and this is what they won’t tell you, especially if you’re a mid-market (MM), you probably don’t need it.

In fact, if you don’t yet have complete S2P, we’d wager that you absolutely don’t need it and likely won’t get an ROI from it, at least not with respect to the price tag they try to charge. (Just like spending more than 120K a year on S2P as a MM generally decreases your Return On Investment [ROI].)

While what is and is not effective and valuable can be situation dependent (just like certain high-priced capabilities can be highly valuable in 10M+ categories but detrimental in 1M categories), there are some capabilities that are almost never valuable, and in this post we will give you some examples, and the reasons therefore, so that you will be able to both analyze whether or not a solution actually has AI AND whether that AI will provide any value.

While there are dozens of capabilities being marketed as AI (which, if implemented using advanced techniques could fall under Level 1 AI), we’ll pick one from three (3) areas as our goal is exposition and not an all-inclusive treatise (that’s a novella, not an article).

Sourcing: Sourcing Automation

What is this? At its simplest, it’s the ability to auto-source a (set of) product(s) or service(s) once the need has been identified or the request approved. It’s useful, but you don’t need AI to accomplish this, just good-old rule-based (workflow) automation. After all, it’s just

  • instantiating a new RFP (which can be done if you have a template tied to the product/service types)
  • distributing it to known, approved suppliers (which is easily done if you have supplier management that tracks approval status and associated products/services)
  • collecting the bids (automated submission management through a portal or provided spreadsheet for upload)
  • selecting the lowest bids and marking it as an approved award (simple analytics)
  • assembling the contracts (with templates, it’s just sucking in the supplier details, product details, and bids using tag-based search and replace)
  • push it into the e-Signature portal (via the API)
  • alert the buyer when the contract is ready for signature (via alerting)

And while very useful for non-strategic and/or low-value categories, no AI is needed. Now, the vendor will counter with multi-round, but guess what, you just implement ceiling, best X, or mandatory response rules before allowing a supplier to progress to the next round and close round one and open round 2 on pre-set dates.

Low bid prediction? i.e. when should the RFX be ended? Guess what, if the platform has anonymized community intelligence, integrates with market data feeds, or supports should-cost modelling (and knows industry average margins), it’s pretty easy to calculate what the low-bid should be (and any bidder that bids lower has likely made an unsustainable bid that should be ignored), and end bidding when you hit that. No AI needed for any of this.

Contract Management: Contract Generation

The ability to auto-assemble a contract is cool, but leading platforms have had it for almost 15 years. How?

  1. A contract template for the category that specifies the clauses that are required, the data that needs to be included, and the meta-data that is needed to assemble the contract correctly.
  2. Default clause templates for each clause, with variants for each geography or industry of interest

That’s it. Then, the system just uses rules to select the template and the clauses and fill in the required supplier, product, and price data from the RFP.

Invoice-to-Pay: Automated Invoice Parsing

Yes, it’s great if you can reduce the number of invoices you need to review from an average of 15% with issues to 1.5%, but let’s face it, you can reduce it to 5% or less with just a little bit of automation, no AI needed.

Almost all invoices are coming in electronic these days, and suppliers that invoice regularly and want to be paid fast will use EDI, XML, or PO-flip through the portal, which means the invoices will come in electronic in an easily parseble format. Missing data / errors will be easily detectable in address, PO field, line items, amounts, etc. when there is an empty field or a mis-match between expected and received data (based on the PO, etc.), etc. and the invoice can be flipped back with notifications of issues for the supplier to correct. Most of the time it will be an honest mistake or oversight and the supplier will happily make the correction to get paid.

The remaining problems will fall into two categories.
1) Those few suppliers that don’t have a solution and have to send PDFs (or images) through e-mail, but those aren’t the suppliers doing massive business (as we’re talking about one time suppliers or consultants for the most part)
2) Those suppliers who don’t accept the requested corrections and have a dispute that needs manual intervention.

With respect to these two categories.
1) An “AI” parsing solution with 80% accuracy is just going to create more manual work, since you will have to correct all the errors anyway (which will be just as much work as entering the data in the first place). (And if the invoice automatically flows through, then it flows through with errors, and that touchless system leads to overspend. Better to touch an extra 3% of invoices and get it right than trust AI that, instead of saving you money, overpays suppliers or sends money to non-existent fraudulent suppliers.)
2) No AI will resolve a dispute. In fact, it will just annoy the h3ck out of the supplier representative and make the dispute worse.

So don’t fall for “AI” in the sales-pitch, even if it isn’t automated idiocy. The vast majority of it you don’t need as good rules-based workflow, configuration, and human ingenuity in the solution still gets the job done (and as the vendors get smarter, the software gets better, and that manually driven best-of-breed software optimized for the process doesn’t make company ending mistakes).

How Do You Reconfigure the Global Supply Chain? That’s Easy!

Ever since the pandemic, there’s been quite a few articles about this despite the fact we’ve known the answer for well over a decade. (Or at least SI was giving away the answer, for free, over a decade ago, even though it seems no one was listening.) Or at least some of use have known the answer for well over a decade. So why was no one listening? Why is the answer still not well known? Is it not clear? Is the new generation not looking on their own and wanting the answer spoon fed to them? Are the articles with the solution either too generic, too politically correct, too vague or not actionable?

It’s hard to say, but to make sure this article is not too generic, not too politically correct, not too vague, and not inapplicable, we’re going to be very, very specific, as politically incorrect as possible, as to the point as possible, and actionable in our messaging. And we’re going to keep it as short and sweet as possible so that the message will be clearly understood.

 

Unless you are selling the product to China (/Asia), when sourcing,
FUCK CHINA.

It’s that simple.

 

Risk Mitigation 101 for Buyers is to have two sources of supply because risk mitigation 101 in systems design is no single point of failure. But over the last three decades, we have built a global supply chain where all roads simultaneously end in China and start in China. When there isn’t a single product you buy where a component or raw material doesn’t get produced or processed in China, it doesn’t matter that you use two different distributors or manufacturers for the product as the choke point is still China. Thus, if the factories or ports shut down because of China’s ridiculous “zero tolerance” policy to an unstoppable epidemic (which is not even as lethal as the bird flu if a large majority of your population that can be safely vaccinated is vaccinated); if the shipping industry gets overloaded due to a lack of ships, workforce (see yesterday’s article on how strikes are going to be your biggest source of supply chain disruptions for the next decade), or containers (which happens, especially since there are way more ships carrying goods from China than carrying goods to China, semi full ships will not load containers to take back until completely empty, and this results in many ships sailing back mostly empty); or critical commodities or utilities expected locally become temporarily unavailable to the factory, you, and everyone else in the world relying on that product, are shut down.

There’s a reason that North America used to primarily source products not made in the USA from Mexico or South America. If there was a disruption, you found out sooner. If a factory had a fire, you could fly in, assess the damage, and send in your engineers to help fix it — quickly. If not, you weren’t far from alternate suppliers you could fly down to assess, and if suitable, negotiate with. If there was a transportation backup, it was easier to clean up — you weren’t waiting for ships, you just sent down more trucks or ordered more rail cars.

And the answer should now be obvious:

  • Home-source anything that can be grown / mined / produced at reasonable economy of scale in multiple geographically separated locations in your home “region” (i.e. multiple states in the US; multiple connected countries in the EU)
  • Near-source anything that can grown / mined / produced at reasonable economy of scale in a relatively near-by country or region connected by land where the product can be shipped by rail and truck (Mexico / Central America / Northern parts of South America for the US)
  • Far-(Over-Sea)-Source only what can’t be home-sourced or near-sourced, which should just be raw materials or small components (i.e. there’s no excuse to be manufacturing and importing washing machines, refrigerators, and cars which are super bulky and weighty when there are only a few core components that need extreme specialization [where it would be hard to find another / build a new factory] or materials that need to be processed pre-transport

Which means that if you are sourcing for the Americas, the amount of sourcing that you should be doing from China is likely about 10% of what you’re actually doing, which, at the end of the day, gave you short term savings in exchange for long term debt including, but not limited to:

  • customer churn and angst
    (happy customers seeing value fork over $$$ a lot faster and in greater amounts than those that aren’t, and they aren’t happy when they don’t get their products on time)
  • constantly increasing transportation costs …
    containers went from < 5K to > 30K during the height of COVID, and while they have come back down, they’re still 30% to 50% more on average, and since most ocean going vessels still use HFO (the dirtiest oil there is, FYI), and the global port strikes are resulting in significant wage increase (partially due to significant inflation in many countries), they’re going to keep going up, especially once you factor in those
  • high carbon taxes
    (everything you make in China is dirty and the shipping is even dirtier)
  • high IP theft …
    even if most of the products don’t make it out of China, everything you produce in China is copied … everything … and some of the copies are now so good, even high end stores in the US are getting fooled!
  • limited options …
    many of your best options went out of business over the last two decades as you believed the overpriced consultants with their false promises that the savings would last forever (but nothing lasts forever …)
  • increased disruptions
    due to the soon to be three-fold increase in natural disasters annually since the China craze began in the late eighties/early nineties (which is projected to be five fold within a decade or so)

On the flip-side, many of the factories you used to use are still where they were. The workforce is still there. The potential is still there. All you have to do is invest in it. It may mean a partial return to the vertically integrated company where you own (part) of your supplier, as you may have to re-enter into co-opetition through conglomerates where you and a group of your peers each minority invest in a new entity to bring that factory back online (or build a new one), but nothing is stopping you. And it might take a year or two (or three) to bring it back, but you can do it, and greatly reduce your supply chain risk in the long term. And, to make it a bit more personal, when you do this, just like Justin, you will have brought SexyBack

In short:

Unnecessary Outsourcing, especially Unnecessary Overseas Outsourcing, broke the supply chain. If you want to fix it, JUST STOP!

To be fair, we should point out that this article is aimed at the primary readership of this blog, which is North America / (Western) Europe as well as the continents of Australia, South America, and Africa. This article is NOT aimed at Asia, because China is part of Asia, which means if you are buying to support an Asian market, in this situation you should be buying from China (and Fuck the Americas), as per our qualifying assertion near the beginning of this article.