Category Archives: Inside Baseball

The cost of being a bad customer

If John Henke’s calculations are accurate, General Motors could boost its operating income by $400 million per year just by improving its relationships with its suppliers. For Ford the number is $327 million, and Chrysler, $308 million.

We are not alone in claiming that suppliers don’t give their best stuff to their worst customers, but Henke, who is a Ph.D. and president and CEO of Planning Perspectives, Inc. has finally projected a dollar cost for bad relationships. He’s been studying supplier relationships and cost concessions within the automotive industry for many years, and he developed an index to measure it.

For the first time ever, however, Henke used proprietary data his firm has collected, public records, and media reports to calculate the costs when suppliers do such things as shift their innovations, A-Team support, or added value service to other customers. Foreign automakers have been able to take advantage of those shifts and have saved significantly over time as a result, according to Henke.

You might quibble with Henke’s formula, but the conclusion is pretty solid for any manufacturer in any sector. Beating up suppliers on price is a short-term tactic, not a long-term strategy for profitability. Are the Big Three listening? Here’s an Automotive News video report with Ford’s chief purchaser sounding like he’s read the study and is trying to catch up, while Toyota’s purchasing chief is taking steps to shore up his declining supplier scores.

 

Conversation starters

Keep looking forward, don’t forget the basics, and what goes around comes around.  Those three messages were at the heart of three conversations I have had with magazine and web editors recently.

After I spoke at the first Drug, Chemical & Associated Technologies Association (DCAT) “Sharp Sourcing” event, Rob Wright, editor in chief of Life Sciences Leader took note of this video that I shared about the technology outlook for 2020. It underscores the need for procurement organizations to look for innovations from suppliers – especially in supply chain transparency, sustainability, and value that positions your organization for success. Identifying key suppliers and building strategic relationships are essential. Here’s the link to the blog post.

U.S. manufacturing is the phenomenon that is coming back around. I had a good conversation about that with Rachel Leisemann Immel, Associate Editor, IMPO. As the cost of labor in China has risen, the issues of distance, lag times, transportation costs and other risks are bringing manufacturing investments back to the U.S. I say “investments,” not “jobs” because the work that is coming back generally involves a good degree of automation, and fewer workers. Our discussion covered a lot of ground. You can find it here.

Finally, no matter what you are buying it’s always smart to know whatever you can about your suppliers’ costs. It’s a pretty basic part of procurement, but it can easily get sidelined when you get into strategic negotiations or are buying parts that are difficult to find. We covered those basics with Bridget McCrea at Digi-Key Corporation, which is in the electronic parts business.

Apple vs. Samsung — Landmark or Side Show?

Obama stepped right into the Apple vs. Samsung battle recently by instructing his delegate to veto an import ban the International Trade Commission had placed against Apple. The ITC ruling would have affected iPhone 4 and older iPad models that the ITC felt had violated Samsung’s patents.  Here is some of the latest coverage in BloombergBusiness Week.
Since the models affected still have selling power, Apple did get a material win from the ruling. However, this dispute between a company and a significant supplier does seem to be more of a unique case than an example for purchasers everywhere. Technology moves quickly, so turf that was once important loses its significance over time.
The lesson to manage your supplier relationships carefully — because conditions can turn your supplier into a competitor — should have sunk in a long time ago. Maybe the news from this turn of events is that it shows the President carries an iPhone 5 rather than a Galaxy S4.

Global Inter-connections Continue for ADR

Please excuse this bit of promotion, but smart sourcing has become valued throughout the global economy and as a response to demand in the Middle East for procurement expertise, ADR International, Ltd. has established an office in the United Arab Emirates (UAE) to serve that region. The new company called ADR Middle East will provide the same full range of Consulting, Learning and Sourcing services that ADR offers to its clients in other regions of the world.

ADR’s local Arabic & English speaking team in the Middle East region will use the same skills, methodologies and processes developed globally by ADR over the past 25 years.  This know-how that has transformed the way ADR International’s clients buy across the globe is now available to Middle East organizations. The Managing Director of ADR Middle East is AbdelGhani Sinan.

And speaking of connections — hurricane Sandy of course, created huge disruptions in global supply chains, primarily from the damage and delays at the Port of New York and other logistics hubs in the northeast.
On the other hand, the supply chain profession is supporting humanitarian relief through the American Logistics Aid Network (ALAN) http://www.alanaid.org/
Their mission is “Engaging the Supply Chain Community to Support Humanitarian Relief Efforts.”

 

 

 

ADR North America’s New Home

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.

Still at risk …

The economy may be topsy-turvy, but issues such as risk management are timeless.

I was reminded of that when Jan Husdal recently reviewed an article our consultants Jim Kiser and George Cantrell wrote in 2006 for Supply Chain Management Review.  It lays out six steps necessary to manage risks in the supply chain. Here’s the link:

http://www.scmr.com/article/CA6329866.html

One of the messages we often forget is to look beyond direct suppliers right through the supply chain. As we were saying on the PI Window on Business Blogradio program recently purchasers are prone to focus on what’s immediately in front of them. I like to use the term “supply management” or “sourcing” rather than “purchasing” because they both imply a deeper approach to the profession.

How “New” is the New GM?

It’s obvious a lot of us are waiting to see how “new” the new GM is going to be in its supplier relations. Jason Busch recently chimed in with this posting. (The link is also in my link list.)

I’ll be talking about GM and supplier relationships in general in a few weeks with Jon Hansen at Procurement Insights’ Internet radio show. More on that as we firm up the details.

Time to Rethink

As light begins to appear at the end of the economic tunnel, there are some key steps businesses should take to streamline their procurement —

Read more of this article published in the ADR International e-Newsletter.
Also in the current e-Newsletter, an article by Rebecca Howard about getting the most out of every training dollar. Professional development for procurement teams is usually a slam dunk return on investment — but training programs are not all equally effective.  Read more here.

ADR has recently launched its own ADR Academy with nine online courses on fundamental topics — from portfolio, cost and market analyses to global sourcing. Here’s a link to an article about it, and another link directly to adracademy.com.

Pro to Know, Five in a Row

Bill Michels, chief executive officer at ADR North America LLC, has been named by Supply & Demand Chain Executive magazine as a “Pro to Know” as a consultant advising companies about purchasing strategies and managing supplier relationships.
Every year the trade magazine for purchasing executives honors industry leaders who have made substantial contributions to the supply chain field. This is Michels’ fifth time earning the “Pro to Know” designation; Michels was recognized for his leading expertise in identifying troubled suppliers and mitigating the risks if they fail.
Michels is a nationally known expert on strategic purchasing, cost and change management.  He has pioneered new methodologies and theories, practices and tools for the transformation of the supply chain, helping businesses increase profitability and value. Michels writes regularly for trade publications and general business periodicals and is called on to present his expertise at seminars and conferences in manufacturing, wholesaling, chemical, pharmaceutical and commodity industries. His blog is http://www.sourcingguy.com.
“This year’s Provider Pros to Know have shown themselves to be thought-leaders in their respective supply chain segments,” said Andrew K. Reese, editor of Supply & Demand Chain Executive. “Their efforts in developing the tools and processes have enabled companies to weather risky economic conditions and place themselves in a position to surge ahead in better times.”

Cost Containment and the Economy

Congress and the President are getting ready to put a few hundred bucks into the pockets of most American families as a way to keep the economic pump primed. But how much difference will that make if manufacturers try to take advantage by passing along their higher costs across a broad spectrum of commodities?

Record commodity prices, such as $100-a-barrel oil, record wheat and soaring precious metal prices, have penetrated many of our supply chains. However, it’s pretty clear that consumers are not in any mood to simply absorb higher prices. Cost containment strategies by manufacturers are imperative to avoid a sharp reduction in consumer spending.

To avoid a spike in consumer costs, take action now:

Conduct cost analyses. Manufacturers should analyze supplier costs to understand the mix of material, labor, overhead and profit that are driving costs higher. An understanding of costs puts manufacturers in a better position to negotiate with suppliers seeking price increases.

Don’t accept price increases as “business as usual.”
Manufacturers should make suppliers work hard for price increases by demanding three months notice, in writing, of all increase requests and insist that they are accompanied by a detailed statement of the actions the supplier has taken to reduce or eliminate the need for an increase.

Know your options.
Investigate alternative materials, designs and suppliers now, before you face requests for higher prices. Manufacturers who don’t have options and market intelligence are at a disadvantage when they negotiate with suppliers.