In recent years Low Cost Country Sourcing (LCCS) has been a huge initiative in many sourcing organizations resulting in relationships with suppliers in regions like China. Riding on this wave is the call for companies to have a Corporate Social Responsibility (CSR) to the consumers who purchase their products. This is not just [...]
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Last month, the Strategic Sourcing & Procurement Group on LinkedIn hosted our 1st Group conference call. Things got off to a great start with Chris Sawchuk leading a discussion on “key issues” in 2010.
Now, for our February call…
Kate Vitasek, who literally wrote the book on “Vested Outsourcing”, will be leading the discussion. So, come armed [...]
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Innovation seems to be pouring out of the Tata Group at a very rapid clip. The Tata Nano, which relied heavily on the company’s suppliers for their cost savings and creativity, raised the proverbial innovation bar by dramatically lowering the cost of an automobile thus making them available to a larger portion of the Indian population (and perhaps the rest of the world in the future). Now the company is back in the headlines with a new, revolutionary, potentially life-saving product with huge demand. The Tata Swach is a low-cost water filter aimed at the HUGE number of people in India and worldwide who lack access to clean, safe drinking water.
I’ll let this CNBC video fill you in on the details of this low-margin, high volume (in terms of sales, not water volume) water purifier Tata want to have in 3 million Indian homes within the next 5 years.
The collaboration story thus far focuses on Tata Group companies. But I wouldn’t be surprised if the more in depth story on the life saving device (approximately 380,000 children die each year of diarrhea in India alone) actually tapped into their suppliers in order to keep costs down and innovation up. Given Tata’s success with that model in the past, it seems likely they’ve employed across much of the Tata Group, particularly when trying to achieve a game-changing design AND a low price point.
What’s the lesson here for other companies, that are striving for differentiated products at a lower cost than their competitors? Tata’s key to success seems to be … starting with a price point and product, then working backwards through the R&D process with a constant eye on the bottom line. And to get there, they rely heavily on their suppliers for innovation – in terms of specifications and process efficiencies.
Can you do the same? Are your suppliers ready, willing and able to help?
Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.
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In the context of last week’s surprisingly positive job numbers (so surprising in fact that President Obama had to do a last minute rewrite to his speech Friday), two news stories have shared additional good news for US manufacturing. They’re largely anecdotal evidence, but perhaps they show a return of manufacturing jobs to the US for a number of reasons, including hedging against currency fluctuations and utilization of manufacturing capacity.
First, there was news that Daimler AG is moving some production of US bound Mercedes C-class cars from Germany to Alabama. Citing currency fluctuations as the key driver, Daimler officials plan to shift 20% of the production of their most popular model in the US to this Southern US state that is gaining traction in the automotive manufacturing industry. Interesting, the NPR report also points out that Alabama is a “right to work” state that requires far less vacation and other benefits than the 1,800 Stuttgart employees who are losing their jobs enjoyed.
The second story covered the emerging trend of jobs returning to historic manufacturing counties in the US. The AP article focuses on the furniture industry in western North Carolina. The industry has seen a drastic turn-around in the last 6 months, with companies going from layoffs to aggressive hiring to keep pace with demand. In fact, it’s that demand and the lack of a ramped up workforce that proves to be the underlying lesson of the article. Were companies too quick to shed jobs in the last 18 months? Can they ramp up quickly enough or will their customers see shortages in their supplier’s capacity? And is that excess capacity in manufacturing centers enough to draw renewed hiring from domestic, foreign and globally based companies?
These stories probably stir up more questions than answers about the future of manufacturing in the US. For starters, are these just a nice anecdotal case (Daimler) and a statistical blip (manufacturing jobs) rather than the start of a strong, lasting trend? Will the new normal – in regards to global risk from currency fluctuations, shipping/commodity costs, and consumer demand – lead to more jobs being “onshored” to the US and other countries that had fallen out of favor for low-cost countries in recent years? And if we do see more manufacturing jobs in the US, will they last?
What do you think? Where are we headed? Insights, anecdotes and questions are welcome in the comments (leave them anonymously if you must).
Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.
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While Supply Risk has been a hot topic in procurement and supply chain circles for some time, it’s been difficult to find broad-based empirical information about what organizations are doing on this front. The MIT Center for Transportation & Logistics is looking to do something about that. They are currently conducting a “Global Scale Risk Survey” to determine “experiences and attitudes toward Supply Chain Risks and Risk Management”. Key targets are companies in the Manufacturing, Retail and Distribution industries.
This looks to be a compelling snapshot of the priorities and challenges associated with Supply Risk. You can find more information and a link to the survey here.
Kris Colby is a Director in Ariba’s Spend Management Services group. Kris specializes in strategic sourcing and risk reduction with retail and CPG companies.
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While there may be some early signs that the global economic recovery has begun, we’re not out of the woods just yet. The “Great Recession” has fundamentally changed the way businesses organize and measure success. and recalibrated supply markets, introducing new cost and operational risks that businesses cannot overlook. It has also created new state of normal for business — one in which supply volatility, capacity constraints, and global uncertainty will be commonplace and must be carefully managed.
The concept is now beginning to enter the broader public dialog. Recently, there have been multiple references to the New Normal in both the mainstream and business media:
European Spend Management professionals have been learning to cope with (and succeed in) the New Normal for some time. Examples are numerous:
To prosper in the New Normal with its reduced resources, increased reliance on partners, and lower tolerance for error, organizations need to be able to more rapidly respond to changing situations without the typical lead times and permanent investments. They will do this through on-demand access to the capabilities, technology and community they need to serve their customers that can scale with their needs.
Agility is the key to surviving the current downturn and thriving in the post-recession European business landscape.
Ted Kondis is Vice President of Services for Ariba’s European operations.
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One of the recurring themes of the New Normal is the increasing complexity of and reliance on extended supply chains with many participants beyond the Tier 1 supplier. Gibson Guitar was given a first-hand (and very unwelcome) lesson in this reality just yesterday when its manufacturing plant in Nashville was raided by the US Fish and Wildlife Service as part of an investigation into the transportation and use of endangered rainforest woods.
By all accounts, Gibson is an industry leader when it comes to establishing sustainable raw materials practices and expectations for its suppliers. Its CEO sits on the Rainforest Alliance and the company has won plaudits on its environmental practices from Greenpeace, not exactly a frequent cheerleader of Corporate America.
Since it’s safe to assume that Gibson’s sourcing practices and company ethics are rock solid, what could have happened? Without knowing the details of the case, it could be that Gibson set all the right expectations at the beginning when it put its Tier 1 supplier agreements in place but didn’t have sufficient visibility, resources or detection capabilities to see far enough up the value chain to where the real problems were.
We speak often about the 3-3-4 of Supply Risk (3 types of risk, 3-step process, and 4 component solution) and the middle “3″ is the one that matters here. Controlling supply chain risk is a three-step process (Find, Fix and Follow-through). Finding and fixing known risks (e.g. setting expectations with your supply base on acceptable material practices, not signing with uncertain vendors) can only take you so far. In order to make your risk management as sustainable as your materials policies, you need to have the right visibility, reach and alert systems in place to both be notified when something happens and streamline the process of regularly checking in on happenings up the value chain. Since this represents an immense of information on thousands of suppliers literally around the world, you MUST have sophisticated information systems in place to make it happen. Otherwise, you’d be swimming in “data” and have precious little “information” to show for it.
So, while US Chief Justice John Marshall may not have had the exact phrase “Suppliers may lie” in mind when establishing the legal doctrine of caveat emptor, that’s certainly what he was getting at in the Laidlaw vs. Organ decision back in 1817. And it is even more valid today. Unfortunately for Gibson, many consumers will likely not know about Gibson’s long commitment to sustainability and instead will only remember the headline “Gibson Guitar plant in Nashville raided by Feds”. The costs associated with lost sales, brand damage, etc are certainly more than those associated with any proactive alert system and process.
Kris Colby is a Director in Ariba’s Spend Management Services group. Kris specializes in strategic sourcing and risk reduction with retail and CPG companies.
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After sharing his insights into supply risk management, Dr. Uwe Schulte gave a great example of when the best course of action to protect his company from a supply risk was … to do nothing. Of course, he stressed that choosing to do nothing and doing nothing by default are two different things.
Has anyone else ever reached the same conclusion about a particular risk and consciously chosen to do nothing? Care to share your story and results (anonymously if you must) in the Comments?
Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.
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Last week on SpendMatters, William Busch covered the shutdown at a Canadian Ford Motors factory that was caused by labor unrest at an auto parts supplier facility in India. I provided my views in the Comments, but wanted to share them here as well, since Supply Excellence readers may also have some insights on the topic.
Unfortunately for Ford, this case caught them off guard and demonstrates how tricky risk management can be. You never really know where an impactful disruption might occur. However there are structured ways of being prepared.
Firstly one has to be aware of all the different kinds of risk that might hit you; disruption, financial, reputational or even major disasters like a tsunami. Probably nobody has the resource to cover every possible risk. During my time as global head of procurement, we developed a risk segmentation prioritized by profit at risk. This way one can deploy moderate resources and protect the business where it matters most.
In such an approach, one cannot stress enough how important it is to have solid, up-to-date supplier information. So, supply risk management and information based supplier management are two sides of one coin. You should not attempt one without the other. Fortunately today there are information providers and systems available to help with these tasks. However, this can only help if you get your spend management house in order and know exactly how much you spend for what.
In the past many have shied away from what can appear a daunting task that could potentially devour all of your valuable resources. With structure, good base data and possibly some external help, one can manage comfortably. This appears infinitely better than having to explain why 5,000 cars could not be built and huge sales are being lost.
Uwe G. Schulte’s LinkedIn Profile.
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UPDATE: CNBC picked up Pat’s advice today.
With stock markets surging (thus diverting investment money from t-bills) and the US dollar expected to continue its downward slide in the face of “loose” monetary policy, currency fluctuations are reemerging as a spend management priority. Although the ebb and flow of foreign exchange markets are far beyond the influence of even the most powerful CPOs, there are steps organizations can take to prepare themselves and in some cases, reduce the impact of these macro-economic forces.
Although the podcast is a few months old, Jason Busch’s Category Chatter interview with SupplyExcellence contributor and global category management team leader Pat Furey is as insightful and applicable today as ever (download the podcast here).
Pat’s key take-aways for managing the risk posed by currency fluctuations:
Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.
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