Wal-Mart’s environmental sustainability efforts have continued to intrigue people since the announcement of their “green” initiatives in 2005. Being the world’s largest discount retailer, Wal-Mart’s goal is to reduce their “environment footprint” by being supplied 100% by renewable energy, creating zero waste, and selling products that sustain the environment. Three things that fascinate people about Wal-Mart’s efforts are the number of voluntary, rather than regulated initiatives that they’re taking the lead on; the required standards and enforced compliance that they’re mandating and the impact it will have on their major suppliers; and the influence they will have on their competitor’s to follow suit.
I have tried to keep up with a new(ish) blog, written by Stephen Guth, named VMO Blog. Like many, daily updates are a challenge, but what this blog lacks in velocity, it makes up 10x in quality content. I wanted to bring attention to it because there are some really interesting posts, from a very intelligent guy. He is also an attorney, so he comes to this with negotiation and contract writing experience.
Hopefully, Mr. Guth keeps up the grind of publishing a blog. His contributions are really insightful and these postings are incrementally more difficult as your real job becomes more demanding.
I find this topic intriguing. Frankly, I speak to about 1 person per week that refers to our software as “e-procurement”. This perplexes me and makes me wonder what is causing all the core confusion. Additionally, I have to spend time with these misguided souls to make sure they actually have interest in the Iasta solutions.
Looking in the mirror, its probably the spend management vendors that should take some of the blame. There is still plenty of sizzle without the steak out there and vaporware sure sounds appealing when it comes with fancy names like SaaS or e-Catalogs, or Supplier Enablement..
Take a look at this post and all the others. Its worth the time.
This summer, I am going to experiment with some new styles of posts, which are essentially just redirects. They will not take the place of your regularly scheduled programming, but just add to the current stream of consciousness that is coming out of ESF.
Personally, I think there are a good number of quality blogs out there, that cover supply management. Next week, I will start making 3-5 “micro-posts” in the afternoons which highlight something interesting on another blog. There will be little, if no, additional editorial from me, just shining the light on other’s works.
As long as you do not expect a whole lot of linking to Minahan, it should be pretty helpful.
I have long held the view that if you factor in all the costs associated with Low Cost Country Sourcing (including mistakes driven by long lead times as requirements change) then the benefits are no longer what they initially seemed. As pointed out in a previous blog and also more recently here by Michael Lamoureux, there are many risks associated with LCCS, but I feel these have now been surpassed by the increased cost of distribution driven by the price of Oil.
In a recent paper “Will soaring transport costs reverse Globalization” published by CIBC (Canadian Imperial Bank of Commerce) and written by Jeff Rubin, and his colleague Benjamin Tal, it details the turning point in the global supply chain.
For example, the cost of shipping a 40ft Container from the Far East to the Eastern Seaboard of the US, has almost tripled since 2000 ($3,000 to $8,000). This will double again once the price of a barrel of Oil reaches $200.
Furthermore, at Today’s oil prices, every 10% increase in a trip distance, translates into a 4.5% increase in transport costs.
Not only does this suggest a major slowdown in the growth of world trade, but also a fundamental realignment in trade patterns. The chart below emphasizes the shift in the structural costs of distribution between 2001 and today. The chart also shows how the costs will change when we reach $150 and then $200 a barrel!
In particular, the report points out that those commodities that have a higher ratio of freight cost in relation to the selling price are now possibly more competitively priced locally than sourcing from the Far East. A current example is in the US, where a delivered cost of 1 tonne of hot-rolled steel (manufactured in the US) has now a lower delivered cost than sourcing from the Far East.
The report highlights that non tariff barriers pose the “greatest threat world trade”. Clearly, this is the start of new challenges for supply chain professionals and the answers may now lie closer to home!
Green, eco-x, sustainability…there is a lot of talk right now about all of these principles being applied to the supply chain and supply management. In fact, there is even a really good blog at 2sustain, dedicated to the topic.
Many times, however, some of the simple starting points are left behind to concentrate on granular detail. I was interested to read a paper from AMR about green purchasing, which calls out the benefits and the need for procurement’s call to action.
Four areas of opportunity were identified as:
Switching from toxic to nontoxic substances
Water reuse in manufacturing of supplied products
Air emission and hazardous waste reductions
Supplier energy efficiency
There are also 3 nicely described case studies that can be reviewed for ideas of implementation of green purchasing and supplier collaboration. They show how participating suppliers were able to benefit from the buyer lead surveys. This is true win-win supplier relationship management. The buyers paid for an assessment, which identified savings and could be implemented with shared benefit.
Personally, I think this is a fascinating way to discover and implement cost savings. All the while, it is done with a social conscience.
I used to work as a design engineer in my early work career and often ran into issues with Procurement and Quality Assurance when it came to production problems with suppliers. Parts would come in slightly out of specification which would raise quality issues, the procurement group was usually on the side of the supplier trying to justify the errors, and then I as the engineer would have to get in between the two departments. As an engineer my main concern was not with meeting the specification, but the effect the deviation would cause on the form/fit/function of the part and would there be issues regarding the design calculations.
Looking back on this I learned that the issues that arose between the departments (Engineering, QA and Procurement) were mostly because of lack of communication in the early part of the process of procuring the parts. If all the departments had been able to review and discuss the design and the production of the parts more easily they would have been much more informed of critical tolerances, key items, supplier difficulties and many other facets of the project. This would have helped immensely when production problems did occur, as QA would know what was a “major issue” verses a no big deal and procurement would be able to help the supplier understand key areas in the parts.
Since our groups existed in different parts of the country, this collaboration was expensive and difficult to accomplish. Today there are software tools that make this process much easier and less costly, giving all departments visibility into the entire procurement process. Procurement organizations should lead this effort and be the conduit for open communication. This would save much time and money and improve quality, which is what procurement is all about.
According to a report from the Manufacturers Alliance/MAPI, China’s increasing investment in its educational system will accelerate the move toward rapid wage growth, higher levels of consumer demand, slowing population growth, and overall economic development.
In my opinion, there is a lot to learn from this. Even though China’s education initiative is a much larger, macro-undertaking, the key principle of education applies to any company who wants to succeed in the world of eSourcing.
Most obvious and discussed all the time is the need for executive sponsorship. Whether we are talking about the government or a company’s corporate executives, sponsoring the initiative by challenging the status-quo and being involved and supportive. And of course, implied in sponsorship is a focus on investing time and funds. But it is the way these funds are distributed amongst the eSourcing purchase that sometimes puzzles me.
I would think the #1 goal (ok #2 after savings but without #2 you wouldn’t achieve #1 – stay with me) of any eSourcing initiative is adoption. Adoption means individuals in the company understand the need and benefits associated with eSourcing and they are comfortable with using it for their day to day sourcing needs. And guess what the key to adoption is? Sourcing training & support.
Time and time again, I see Sourcing Training and Support be underrated when evaluating and rolling out eSourcing. This is exactly what caught my attention in this article – the huge impact that education can have to the overall success of a country, a company or an initiative such as eSourcing.
AMR Research did a study that concluded that “Most organizations lack operational excellence that allows them to benefit from investments in advanced technologies”. Companies spend lots of funds, time and effort ensuring that the tools they purchase have every bell and whistle available in the marketplace (even though over 50% of the functionality will probably not be used initially or maybe never), but little time and money is placed on purchasing the right sourcing training and support.
Having sold and managed eSourcing programs for over a decade now, I can often predict how big of an impact eSourcing will make in an organization based on the amount of training and support that is purchased vs. needed.
So my recommendation is don’t cut corners when it comes to eSourcing education. Your initiative’s success depends on it. Tremendous ROI can be achieved by ensuring that everyone has been given the “educational” tools to succeed.
In China (and I would presume the rest of the world), higher education translates into higher domestic product and manufacturing rates. In the sourcing world, higher education translates into higher adoption, visibility and process efficiencies = higher savings.
Who doesn’t want more free stuff? Well, you asked and we listened!
Check out the new tab at the top of header banner, there is a new page named Sourcing Magazines. If you click through that, you will see a nice roster of industry leading magazines, all available for free.
UK based Supply Management magazine, had a summary level article regarding suppliers attempting to disrupt the e-auction process. I think the title was a little misleading because, generally speaking, suppliers cannot disrupt a good auction with adequate competition. However, that statement is heavily loaded, and the article does point out some auction best practices that have been around since Tron, or so.
According to Huthwaite International, supplier disruption tactics include: refusing to participate, submitting bids outside the auction process or offering their lowest price at the start of the auction, limiting its effectiveness.
These are all accurate observations and some suppliers do attempt to sabotage an auction event. Many times this gets dangerously close to collusion. In some cases, supply bases decide not to participate in any auction activity – a calculated gamble, for sure. However, probably a decent one because their auction experiences have likely been very unfavorable and executed by sourcing teams that had no idea what they were doing before cocking the hammer.
I think the value that this article brings, is in the recognition of the basics, when it comes to reverse auctions. Give the suppliers enough time, quality specifications and EXTRA communication and you will discover most will take the opportunity to win easy business, even if the margins do compress.
Managing Iasta’s user group conference, reSource ’08, was much, much easier this year thanks to SmartSource SRM. Yes, its true, a marketing professional used an eSourcing application. I used SmartSource SRM to collect information and negotiate favorable rates for our conference facility. This included meeting rooms, guest rooms, parking and wireless Internet access, among other things. The process saved me vast amounts of time, not to mention providing direct benefits for our attendees.
After I confirmed the facility, I expanded my use of SmartSource SRM to communicate with Iasta’s potential attendees. This is where I benefited the most. Once I organized my invitee list by customer, I was able to create standardized emails to announce details about the conference’s dates, agenda or other important information. I then used SmartSource SRM to manage attendee registration, payments and conference activity participation.
Now that reSource ’08 has concluded, I’m surveying the attendees about their experiences so we can improve next year’s conference. I’m also distributing post-conference information to conference attendees through SmartSource SRM. This step is very easy since all the attendees are already SmartSource SRM users (often called ‘suppliers’ when used in a sourcing project).
Though this year’s conference is over, the really big benefits will come in the future. I am in the process of helping coordinate our European reSource ’08 conference that will be held in October in London. And, I also have next year’s, not yet announced, reSource ’09. I’ll simply reuse all my recent project work as templates and make a few adjustments to account for new information. And if I have someone else helping out, they can easily see the project’s history.
Most marketing professionals reject the use of eSourcing for marketing initiatives. Perhaps they think it stifles creativity. I think it helps stimulate creativity. By developing repeatable processes for certain areas, I have more time to focus the areas that need creative energy. Also important, not all marketing projects need to be auctions, many are RFx surveys. Non-auction projects add just as much value. Categories that are great candidates for marketing sourcing projects include meeting/guest room rates, giveaways (pens, bags, shirts, etc.), limousine services, media, printing … among numerous other possibilities.
There was an interesting study done by Management Consultancies Association (MCA), regarding the value and usage of procurement consultancies during economic turbulence. Not surprisingly, the results came back strongly in favor of the continued practice of using consultants.
According to the latest SM100, 54 per cent of purchasers have not been put off commissioning consultancy over the next six months.
This information was UK based, but I can say definitely, that I have seen nothing but more interest in consultative services for the last year. Of course, some of this could be attributed to Iasta moving into a newer, solution oriented position for organizations. However, I think it is generally a much needed service.
One thing corporations are doing…looking under every rock for cost savings and avoidance possible.
One thing corporations are not doing…hiring or adding head count.
There it is; the need for experience and rapid execution. Consultants also bring in an outsiders view, which can be very effective for energizing a team and understanding what is working for other companies.
Another buyer stressed that if consultants are used properly, they will always be important. “Cutting back because of the changing economic climate seems to suggest that the reasons consultants were being brought in previously were not thought through and a little frivolous,” said Gary Moore, strategic procurement manager at Bournemouth Borough Council. “You need someone from outside an organisation to deliver a message that will be listened to and acted upon.”
This love fest for consulting and sourcing advisory services is not without a strong word of caution, however. You can spend a truckload of money on consulting firms that do the classic “A-team sale” + “C-team delivery”. I have seen the greenhorns come in, many times, and the results can range from inefficient to disastrous.
A recent article in Global Logistics & Supply Chain Strategies, as reprinted in Supply Chain Brain, on Emerging Economies: Cheaper Production — and More Headaches described the hidden price tag of low-cost labor. Although many of these have been covered here in this blog and over on Sourcing Innovation over the last two years, they’re worth a recap.
Longer Lead Times
Let’s face it. You can’t source products from China next-day, even if you are able to air-freight. With all of the import and export requirements, including the new 24 hour advance manifest rule, it’s at least two days now, and probably three. Have to ship it by ocean-bound cargo carrier? At least 13 days, and that’s if you manage to score a couple of almost-miracles in the process. If not, you’re probably looking at a minimum of 21 days, on average.
Guaranteed Cost Increases Over Time
Outsourcing bolsters developing economies, which builds and expands the middle-class who, in turn, demand higher wages.
Increased Logistic Risks
With multiple ports and carriers involved, there are greater opportunities for interruptions due to strikes, slowdowns, disasters, and political embargoes.
Currency and Foreign-Exchange Rate Risks
An outsourcing focus on a developing country will eventually raise the price of its currency, which will decrease your savings. If your home country currency is simultaneously declining, you’re hit with a double whammy.
A Lack of Visibility
The current hodge-podge of supply chain systems in the marketplace make it hard to forge a coherent view of the global supply chain.
Infrastructure Nightmares
The transportation infrastructures of some countries are not up to snuff and it can be a logistical nightmare to get stuff from the factory to the port in a timely basis.
Free Trade Agreements
The current explosion of bilateral and multilateral free-trade agreements offers a source of confusion, and overlooking one can cause a host of headaches down the road when you get hit with new taxes and increased documentary requirements because you don’t operate in the Free Trade Zone.
The Need for Security
Cargo security is a pressing issue in many developing nations. In some countries, some manufacturers have taken to shipping small shipments in unmarked packages using couriers and busses to try and thwart thieves in their attempts to steal lightweight valuable products like cell-phones, laptops, jewelry, and pharmaceuticals that fit in small boxes.
Total Cost of Ownership That’s More Than You Think
There’s the unit cost, the freight costs, the export duties and associated costs, the import duties and associated costs, and the additional management, travel, and communication costs that arise from selecting a supplier half-a-world away.
I have noticed that most companies tend to start cost savings and efficiency efforts when things are not going well in their market sector or in the economy overall and they usually start by trying to save money on supply cost. This means reducing supply or reducing the cost of supply, which can be very difficult in a tough market.
Suppliers are impacted by this in the same manner as a buyer and they in turn try and reduce their costs as well. During the good times, buyers are mainly interested in maintaining a steady supply to feed production and are less concerned with cost savings. Suppliers tend to increase pricing (if possible) since the demand for their products are generally high and they get many more single source opportunities rather than competitive bids.
These are the two extremes in the supply chain market and it feels like we either live in one or the other. Companies tend to start sourcing programs during the bad times (which is the most difficult time) and tend not to do them during the good times (don’t want to jeopardize my supply).
I believe it is always the right time to do the right thing. Purchasing groups should always be looking for cost savings and should always strive to be as efficient as possible. Whether this means always bidding contracts competitively, using sourcing tools, starting strategic sourcing projects, or any other effort that a company may undertake, it is always the right time to start.
According to Eyeforprocurement, Emptoris assembled six experts with backgrounds in finance, operations, procurement and technology and tasked them with developing five actions CPOs could take immediately to gain greater control over spending and cut costs without reducing operational effectiveness.
At the summary level, the points were:
Strategy #1 - Get Quick Visibility into Spending
Strategy #2 - Take Steps to Mitigate Inflation
Strategy #3 - Renegotiate and Enforce Compliance to Contracts
Strategy #4 - Mitigate Risks When Pursuing Cost Reductions
Strategy #5 - Do More with Less
You can read the details behind each strategy in the newsletter. These are all solid ideas and certainly ones that have been covered extensively in our repository - eSourcingWiki. When times are good, you can be sloppy and still look smart. However, when it gets a little rough, organizations better have everything battened down with good process, visibility and control.
A recent Industry Week article offered up Four Tips to Understanding the BlogSphere for companies new to the modern web. What is needed is a companion article for new readers to the blogsphere. In this post, I am going to offer you some tips on how to get the most out of your blogs.
Make a Sincere Commitment
Whether you are a corporation trying to get your message out or a user trying to get some information, the first tip is the same - make a commitment. Blogs are like everything else - you get out of them what you put into them. That means taking them seriously, reading them regularly, and thinking about the knowledge they are attempting to impart. Scanning a few entries every couple of weeks isn’t going to help you much, but reading the blogs that are most relevant to you daily is - even if you think the post of the day has nothing to do with you or your job. Good bloggers are always trying to put things in context, and that means helping you understand the bigger picture.
Be Marketing-Savvy
There are two kinds of blogs - personal publishing platforms driven by the passions of the blog-masters behind them and thinly disguised marketing vehicles for the company sponsoring them that offer up nothing more than press releases and marketing spin.
Although this blog is completely funded by Iasta, a for-profit corporation selling e-Sourcing SaaS, I make a concerted effort to keep this blog free of marketing, as Iasta has a whole website for that. This blog, like the companion e-Sourcing Wiki, is to help you understand e-Sourcing and how you can get the most from it.
Do Your Homework
Don’t just pick a collection of random blogs to read every day, seek out and identify those blogs that are most relevant to your needs and your interests. Look for blogs that publish regularly and that focus on content and not spin. Check out not only the blogs and resource sites they link to, but who links back to them (e.g. Technorati) and / or how many incoming links they have (e.g. Traffic Estimate). Good blogs publish regularly, link to relevant resources, are linked to by other relevant resources, and make an effort to keep their content fresh and informative. You tell can which sites are “trusted” for their valued content, by their relative rank to one another. Alexa has the most information for cross blog comparisons. Although it is not scientifically precise, it can be directionally accurate and show which blogs are being read the most.
Engage
Ask a question or leave an informative comment. Most blogs have a comment feature, but many readers don’t contribute. Engaging in the conversation forces you to think about what you’re reading, which increases comprehension and retention, but generally results in the blogger or other readers contributing even more useful information. It’s all about making a sincere commitment.
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