Sourcing Guy

U.S. Still Holds Economic Clout

smartsourcingblog — Thu, 05 Jan 2012 21:19:06 +0000

We all know that we live in a truly global economy, and that emerging economic powerhouses such as China, India, Russia and Brazil have enormous influence. Nevertheless, the ISM Annual Report on Business PMI that was released this week showed the U.S. manufacturing was growing, albeit slowly, for the 29th consecutive month. When you consider the disruptive influences on the economy from natural disasters, political upheaval, volatile commodity prices and a continuing European debt and currency crisis, it is remarkable that the U.S. manufacturing sector has slowed but never reversed course for more than two years. We may have challengers from around the world, but the U.S. economy still leads the world in resiliency.
Here’s the link to the news release and ISM Report on Business manufacturing summary.

ADR North America’s New Home

smartsourcingblog — Wed, 04 Jan 2012 19:20:14 +0000

SourcingGuy has found a new home. ADR North America has had a successful partnership with the Institute for Supply Management for three years offering high quality professional development courses through the ISM-ADR School for Supply Management. We were interested in building on that partnership, so we have merged our organizations through an acquisition of ADR North America by ISM.
We think it is a very good fit for ADR NA and ISM. We will be continuing to better integrate our professional development offerings with our consulting practice, and ISM expands the services it can offer its members and the supply management profession generally. ADR NA continues to be a licensee of ADR International, so we will still be providing our innovative products such as Development Needs Analysis (DNA) and PRISM. And, of course, I’ll still be writing blogs and articles for a number of publications and presenting at the ISM Annual International Supply Management Conference and Educational Exhibit. See you in Baltimore.
Here’s a link to the news release on the acquisition.
The Twitter hashtag is #ISMADR.

Conflict Minerals

smartsourcingblog — Sat, 24 Dec 2011 03:37:09 +0000

One year ago today, the SEC released its draft rules requiring public companies to report whether or not their products were manufactured using “conflict minerals” — materials mined in the Democratic Republic of Congo (DRC) or surrounding countries that were being sold to finance lawless militias and violence in the region. The minerals covered are — tin, tungsten, tantalum (the “3Ts”), and gold.
This is a case of establishing a chain of custody all the way from a specific mine to a smartphone I might be using to update a blog. That’s a huge undertaking, and perhaps in deference to that, the SEC has not rushed the rulemaking. Final rules are expected sometime next year, but no deadline has been set.
While the final rules may not yet be clear — what is certain is that they are coming. There is considerable discussion of their final cost to companies and consumers, but the benefits seem to lining up already. A letter from a UN agency monitoring the violence in Africa told the SEC that “private sector purchasing power and due diligence implementation is reducing conflict financing, promoting good governance in the DRC mining sector, and preserving access to international markets for impoverished artisanal miners.” In other words, even before they are implemented, the rules appear to be working.
And if chain of custody disclosures are working for 3T+G, there is no reason to think they will stop there. Are you ready?

GM’s Carbon Fiber Diet

smartsourcingblog — Thu, 22 Dec 2011 15:54:03 +0000

I have a friend who trains and races on several light-weight, high-tech bicycles. He calls them his “carbon fiber diet.” I know golfers who have a similar appetite, and now General Motors seems to have acquired a taste for carbon fiber as well.

According to the Wall Street Journal, “General Motors and Tokyo-based Teijin Ltd. on Thursday disclosed plans to jointly develop lightweight automobile components using an advanced carbon-fiber materials process.”

WSJ reported that GM Vice Chairman Steve Girsky admitted that GM’s internal capabilities were limited in the new technology, so it went looking for a new strategic partner. That’s a significant statement coming from GM. Considering its long history of rocky relations with suppliers, this is another sign that GM is recognizing the value of the supplier community in delivering innovation as well as cost savings. We’ve been hearing executives talk the talk in the past, but this is concrete (or should we say carbon fiber) evidence that they have begun to walk the walk. What do you think?

The New “China Syndrome”

smartsourcingblog — Tue, 20 Dec 2011 14:16:27 +0000

The original meaning of the term “China Syndrome” described how the fuel in a nuclear reactor might overheat and melt down, creating a disaster by burning through the reactor’s layers of protection. A new meaning for China Syndrome might describe how an overheating, or possible meltdown of the Chinese economy could create disastrous volatility in commodity demand and prices.
The Wall Street Journal has a good capsule summary of three scenarios over the next decade. Here’s the link, if you have access:

As China Goes, So Go Commodities – The Wall Street Journal

Under any scenario except a complete collapse of China’s hard charging economic growth, there is almost certain price pressures on energy sources as well as certain grains over the next ten years, and continuing pressure on construction materials as long as China keeps building infrastructure at an astonishing pace.

Over the long-term, successful supply chain strategies will not only need strategies for containing costs, but a continuing focus on innovations that provide alternatives to traditional materials, reduce waste or use recycled products.

Stress Test

smartsourcingblog — Sun, 04 Dec 2011 03:10:57 +0000

The ISM Report on Business for November pegged its Manufacturing Index of 52.7 percent. That’s 1.9 points higher than the October number and continues a 28-month trend of growth. The October number was perilously close to ending that growth streak, so the increase in November suggests that the U.S. manufacturing sector continues to pass the “stress tests” of lingering high unemployment, a lethargic housing market, and global financial worries.
(Over the Thanksgiving weekend, a record 226 million shoppers visited stores and websites and spent an estimated $52.4 billion, so consumers seem to feel the same way.)

Of course, the Report also showed manufacturers are hiring, but not very quickly. As one respondent said, “Trying to do twice the output with the same amount of people.” So slow growth with minimal new hires appears to be the “new normal.”

The skills of current staff are critical to success in an environment like this. Smart companies are using the chance to upgrade the skills of staff — figuring they won’t be hiring soon, and neither will competitors, so it’s worthwhile to invest in current employees. Popular topics for training are negotiations and cost analysis — although effective procurement now requires much deeper skills in supplier relationship management building long-lasting strategic relationships. What are you doing to keep your team sharp?

BMW Gets It — Suppliers Bring Value Beyond Cost Savings

smartsourcingblog — Thu, 10 Nov 2011 22:01:04 +0000

In a news release, BMW recently announced it has launched a supplier innovation award program — recognizing nine suppliers for outstanding technological advances. The innovations included a new automatic transmission, a camera-based driver assistance system, fully adaptive LED headlamps, and a new way to fuse lightweight aluminum sheets for greater structural strength.
BMW cut to the chase in a statment, “With its new award, the BMW Group aims to demonstrate that innovation is a crucial success factor for the company. Working closely with suppliers is extremely important to the BMW Group in expanding and reinforcing its leadership in the field of innovation.” That’s about as strong a statement as you are likely to see that recognizes the value of suppliers as an extension of a company. I think it’s very significant that BMW, which has a brand already so strongly associated with innovation, was willing to essentially share that recognition with its supplier community. It is not likely that BMW would take such a step unless it had strong strategic relationships with those suppliers and felt comfortable that no competitor would be able to break them.

GM CEO Appears to be listening

smartsourcingblog — Thu, 03 Nov 2011 13:01:30 +0000

General Motors CEO Dan Akerson recently told Automotive News that it had to be more upfront about telling its suppliers about its product plans, adding “we have to be willing to say that, if they’ll bring a good idea to us first, we’d be willing to pay for it.” (Quote as reported in Crain’s Detroit Business.)
Congratulations. We’ve been saying for years that a well-managed supply chain is a source of innovation as well as cost improvements. In it’s most simple expression — you can’t expect suppliers to bring their best ideas to their worst customers.
Sounds like that message has finally arrived in the corner office at GM.

Having it both ways

smartsourcingblog — Tue, 25 Oct 2011 12:59:11 +0000

In the words of a former executive, Jean-Louis Gassée, Apple Computer has been using its supply chain strength as a “strategic weapon” to maintain its market dominance. Gassée was quoted in a New York Times article (10/24/11) that describes how Apple has become both an innovator and a price-leader in the smartphone and tablet markets. The Times describes how Apple has used its successes and cash to make bold supply chain moves — such as a five-year, $1.25 billion deal for flash memory for iPods and other devices — that have been giving it a cost advantage against its competitors. It made that deal in 2005 and it has been paying off ever since, along with many others.

According to the research firm iSuppli (as quoted on epicmobiles.com), Apple’s cost to produce the basic 16GB iPhone 4S is $196. Those models sell for $199 online with a two-year carrier service contract. That means the fees Apple collects from AT&T, Verizon and Sprint are not subsidizing any of Apple’s costs. They are pure gross profit.

As The Times points out, for years Apple was considered a brand that offered cool, but pricey products. However, it has managed its supply chain so well that it now delivers it both ways — cool products and competitive prices.

You Cannot Know Too Much, Too Fast

smartsourcingblog — Mon, 17 Oct 2011 17:42:55 +0000

When something goes wrong deep in your supply chain — you can never find out the precise source of the trouble too fast, or in too much detail. Time spent creating a chain of custody is well spent when a crisis breaks. Even when the problem is minor, it can have a big impact. Case in point: according to “Baking Business,” Jeff Sobell, senior manager, global packaging, Kellogg Company, Battle Creek, MI, recently told a panel at Pack Expo that the company’s quarterly net income dropped 15% last year when it had to pull 19 million cereal boxes from stores shelves because the packaging had an odor.
He was making a point about how important packaging standards are to food products, but there’s also a lesson there for a tight chain of custody. Kellogg is a global corporation and an industry leader in supply chain practices. However, this relatively minor issue that had no impact on the quality of the product inside the boxes, nevertheless, hit Kellogg’s bottom line. I am pretty certain Sobell mentioned the case only because Kellogg had learned from it. You can, too.