by Keith Carruthers MBA, SCMP

Welcome to Strategic Sourcing International's blog on Supply Chain Management. It is our intention to provide information on the topic of Supply Chain Management that we hope you enjoy, find useful, or at least find somewhat entertaining. Feel free to provide us with any feedback you may have. For more information on our organization, please visit our website through the link listed on this page. Enjoy!

Tuesday, October 28, 2008

Linking Execution to Strategy

As purchasing professionals, it is tempting to get caught up with our desire and goal of reducing the yearly spend by category for our organizations. In fact, it is often one of our most focused on objectives that are brought up during the dreaded "performance appraisal".
Sometimes, however, we need to reflect at a 50,000 foot view of where our organization is going, and what our corporate strategy is. This seems like a "no brainer", but it is surprising how often we forget this important attempt at ensuring we are on the right track.
If you think about it, how can we possibly work effectively on a day to day basis, at the tactical level, if we haven't first thought strategically about where we are and where we are supposed to be going? How can we actually get to where we want to go, if we are not sure where it is we are supposed to be going? It's kind of like hitting the TransCanada highway heading west, when we actually intend to end up in Boise Idaho. Is heading west enough?
The point is, all of our day to day activity needs to come from our organization's overall strategy. In other words, first you decide "what you want to be when you grow up", in the organizational sense, then develop the strategy that will get you there. Once you have this vision clearly in mind, you have the ability to ensure that the day to day activities are in line with getting you to the end result.
I do a significant amount of business dealing with importing products for domestic manufacturers from low cost labour countries. It is an activity that strategically has to happen for these domestic manufacturers to remain competitive. In other words, without the import strategy, they would lose customers to competitors.
Despite the fact that this is a major part of what my company does, potential customers are often taken aback when I tell them during our initial meeting that importing is not for everyone. I often hear comments like "What do you mean? Isn't that why you're here?". No that is not why I'm here. That would be a very short sighted view of business development. I am meeting with them to see if I can help them reach their goals, and to gain a competitive advantage to grow their business. Don't get me wrong, if I can retain them as a customer, that's great too, but the goal is to find customers that I can add value to....customers that I can make a difference with.....customers for life.
What I am of course referring to when I say importing is not for everyone, is the fact that it depends on what your corporate strategy is. If you are selling your products at premium "value added" prices, and the value that you are providing your customers is high flexibility, short lead times, industry leading service, it is difficult to do that when your supply base is on the other side of the world. I would guess that in most cases, importing is not in line with where you need to go.
On the other hand, if you are in a "down and dirty", highly competitive industry, where your value proposition is (unfortunately) being the low cost producer and therefore the lowest priced supplier, importing is probably one of the most critical strategies to your organization's potential success.
The point is, we need to start with where it is our organizations want to be in 10 years..........What does that mean for us with where we need to be 5 years from now, and then finally, what do we need to do over the next 1 to 3 years to at least get us on the right road? Once we do that, we can then choose our current activity plans that put us in the best position to succeed at making this 10 year vision a reality.
It's all about vision and strategy....................before execution.
It's about starting at the end, and working back to the beginning.

Wednesday, September 10, 2008

The Naked Truth about Product Quality

In this day and age of global sourcing, and the increased competitive battles in the marketplace, product quality seems to be getting its fair share of press. North Americans seem bent on perpetuating the belief that products made in other parts of the world, particularly in China, are of inferior quality, and are even putting our health and welfare at risk. What is particularly frustrating is the fact that the slightest issue of potential quality issues on imported product results in constant and unwaivering assaults on any and all products that are not from domestic sources, yet we seem to have such a high tolerance and forgiving attitudes (not to mention short term recollection) of much more serious incidents here at home.

Let us not forget about some of the major events that have happened in our domestic business world, such as the Tylenol tamperings and most recently in Canada, the escape of unsafe meat products from some of our normally dependable production facilities. These events, I would argue, have had much more serious consequences to our health and welfare here in North America than anything that has come out of China. The fact is, that these situations will happen from time to time, and that is not intended to excuse the seriousness of such events.

One particular event that has occurred in recent times is the "lead paint on the toys" event that has gained so much publicity. What is particularly interesting is that even when the domestic company (who for the purposes of this article shall remain nameless) has publicly taken total responsibility, and has made efforts in the media to ensure that we are all aware that the blame should not be placed at the feet of their supply partners in China, we still tend to ignore this and harp about the "unsafe products" from "over there" that should be avoided at all costs.

Don't get me wrong, there have indeed been instances of substandard quality products coming from China and other low cost labour countries, but my point is there have been just as many instances of the same in Canada, the USA, and every other part of the globe that dares to manufacture products to feed our current over-inflated standard of living.

I am proud to say that in my business life dealing with importing of products from a variety of countries, I have been directly involved in hundreds if not thousands of containers of high quality goods making their way to the North American marketplace. And of those numerous containers, there have been virtually no quality issues to speak of, and of the issues that did arise, it was clear that the responsibility for the shortcoming predominantly rested on this side of the water, and not the other as recent media reports would suggest. In fact, I have been pleasantly surprised, time and time again, at the level of technical knowledge that I've witnessed in uncountable Chinese factories, and the well executed quality control systems that I have had the pleasure of seeing first hand.

I think society as a whole has a tendency to see what it wants to see, when it wants to see it. Maybe it's just human nature, but I think we should all come to recognize that the days of the significant quality gap between production in North America and the rest of the world are long gone.........whether we want to admit it publicly or not.

I remember as a young golfer of 10 or 11 years old (and trust me, that wasn't yesterday) we would pull out our Japanese golf balls that we had found in the woods (because we certainly wouldn't buy them despite our limited financial status) when we were hitting over the water holes. We would constantly argue that those same Japanese balls were probably the cause of us going in the water, more often than not.

How quickly times have changed, and the perception of the quality of production out of Japan. It is only a matter of time until we are faced to admit the same about China, Southeast Asia, India, and the rest of the business world.

Could it actually be the case that these countries are superior to us from a product quality standpoint? However unfathonable that may seem to us here at home, it is certainly a question worth pondering.

Tuesday, August 19, 2008

It's all about Relationships

Ah..............the good old days. The suppliers would come and visit, almost begging for our business. We, as purchasing professionals, would make them compete with each other, like it was the "procurement olympics", or some such significant event. Then, once we got the best price, despite the cries of misery from the successful candidate, we would proudly announce that it still wasn't good enough, and ask for a kidney, or maybe their first born, just to make them understand that we were in fact doing them a huge favour by even letting them compete, let alone awarding them the business......and we were proud of our accomplishment! We would shout from the roof tops, "I AM A NEGOTIATOR...........go ahead, make my day!"

As society has evolved, so too has our procurement profession, evolving into what we today call Supply Chain Management. We have finally come to realize, that suppliers can do much more for us than shave a couple of points off the purchase price. It is not that we can afford to have a source of supply today that is not competitive, but we are now focused on the big picture...... What can our suppliers do for us to help us be more and more competitive? How can we use their expertise in their specific industry or process, to help us improve our bottom line? What is the true "total cost of ownership", and not just the sticker price? How can they help us gain a competitive advantage and gain marketshare? What is the effect of their product on our operation? What is the effect of their "system" on our distribution network?

As this evolution has taken place, it has become increasingly evident that business is all about relationships. As the Lean gurus at Toyota would say, respect for our customers, respect for our suppliers, respect for our employees..... We want our suppliers to be our partners in business, to help us grow our top and bottom lines. As a result, we need to involve them in our process, to share information with them, and to not treat them like the enemy.

Now I will be the first to admit, that several years ago when I would have sales people come to visit me, and tell me that they wanted to be my "partner"(the buzzword of the day), I wasn't overly enthused about the prospect. In fact, most suppliers at the time were only paying lip service, and what they really meant to say was "I would like to be your partner in business, when it is to my advantage, but would rather not have anything to do with you, when it is not to my advantage". No win-win thinking there..... (Now it is always possible that I may have been a little too sensitive to their comments, and that most of this was in my imagination, but it's my story, so we'll go with my perception of the world, if that's all right with you).

OK, that's enough of the dirty laundry. We as purchasers were not perfect, and neither were the sales people on the other side of the desk. Enough said.

Gladly, we have now evolved to a point where we are actively working at establishing relationships. Not the definition of relationships from twenty years ago, wine and dine to get a PO, but true "let's see what we can accomplish if we work together" kind of stuff. Situations like "I'll take on a little more work which will increase my costs, but it will allow you to save many times my cost, and we can share in the gains". And not only share in the gains between the supplier and the customer, but also share it with others in the supply chain, and reduce the price to the end consumer as well. What a concept!

And it's working. Just look at the price today we pay for many of the things we buy each and every day. There are numerous items that we buy today that have the same and often superior quality, at a fraction of what we once paid, not to mention the value of money then compared to now.

So what does all this mean?

It means that although it is good to challenge your supply chain partners, and to expect superior results and continuous improvement year after year, we need to view these relationships as long term commitments (assuming of course you have done the due diligence upfront and have chosen the right partners), and to do everything we can do as supply chain partners to compete in the marketplace.

Remember, competition today is often competition between supply chains, so choose your partners carefully, but once you have them, involve them, and work as a high performance unit to bring the utmost value to the end consumer, and you'll come out ahead every time.

Thursday, August 7, 2008

How Critical is Culture?

Over the past number of years, the global nature of business, and in particular, doing business with China, has been a hot topic that has gained considerable coverage by the press. If one was to look at any large news source with a reasonable amount of business coverage, we would be hard pressed to search the business section and not find some coverage of China. It has indeed become a fact of life in the North American business world.

Equally popular over the past decade has been the prevalence of articles discussing the critical nature of "understanding specific cultural aspects" when doing business internationally, and that lack of this critical knowledge would make doing business in these countries all but impossible. But is this really the case?

Although most reports of our ineptitude in understanding and recognizing cultural difference as North Americans is not unfounded, I believe that culture is not nearly as substantial a roadblock as the media make it out to be. Although there is no doubt that recognizing these cultural differences and modifying our business practices to show respect to the diversity that exists in the business community makes us feel good, is the right thing to do, and is indeed a positive step towards developing solid business relationships, the explosion in the global nature of business today has led to an enhanced familiarity in the ways in which different countries do business. This familiarity has in turn helped cultivate a strong sense of acceptance with behaviours outside of our normal cultural business practices. In other words, we are more understanding of each others cultural practices, and as a result, are not as sensitive to violation of these practices, as maybe we once were.

In my experience doing business internationally, I have run in to many practices that I was once unaware of. Despite the fact that I do my best to follow the majority of these practices as a means of showing respect and attempting to establish strong and meaningful new business relationships, I inevitably find myself "falling from grace" from time to time, albeit unintentionally. Despite these occurences, I have never felt disadvantaged in my business dealings as a result of these occasional "faux pas'".

In the end, maybe the truth lies somewhere in between the two extremes. Maybe the concept of how critical cultural practices are, was once very much the case, but has simply become less and less critical as we have continued to evolve as global business citizens. Familiarity often leads us to becoming desensitized to our surroundings, so it is possible that our individual and unique cultural practices is yet simply another area that has become desensitized over time.

Monday, July 28, 2008

Does your organization have an import strategy?

In todays global economy of rising fuel costs, fluctuating exchange rates, labour shortages, and rapidly shrinking margins, organizations without an import strategy are finding it near impossible to compete. Global competition, and in particular competition from low cost labour countries, is resulting in lost customers and deteriorating profitability for many domestic manufacturers.

Despite these competitive pressures however, domestic manufacturers need to be careful before jumping head first into sourcing from overseas. Not that I dispute the enormous value that these low cost manufacturers can bring to the bottom line, but these initiatives need to be grounded in the organization's strategy, and not simply a knee-jerk reaction to shrinking product margins, or be undertaken as a "keep up with the Jones' " type of initiative.

What is it that the organization is trying to accomplish? What are the critical to quality issues for your customers? What is it that they value most?

True, you may very well be in a market that is extremely price sensitive, and you may in fact be strategically placing yourself as a "low cost producer". If this is the case, it is clear the critical role that imports can have in your business. But what if you are not in that market, or are not trying to position yourself as the low cost producer? What if you are offering a value-added product offering? What if what your customer values the most is speed and flexibility? In such a situation, sourcing products overseas can be more of a detriment than an opportunity.

That is why it is important to begin with strategy. Where do you see your organization in 5 years, 10 years? What do you want to be when you grow up? Once you are able to answer these questions, you then can work back to develop the short to mid term plan to reach your objectives, and to ensure that you are providing value to your customers in order to build competitive advantage in the marketplace.

Like most things in life, it's all about balance. There is no question that in most organizations, using import sourcing as a strategy can definately play a role in gaining competitive advantage. It is critical, however, that you know what you are trying to accomplish with this strategy, and that it fits the overall organizational strategic plan.

Combining a solid import strategy, with the other areas of strength within your organization, is a sure recipe for success.

Monday, July 14, 2008

What is Supply Chain Management?

As the years go by, buzz words come and buzz words go. Some we tend to ignore in the hopes that they too will be washed away by the tide of time, never to be heard from again. From JIT, to Quality Circles, to MBO..............they come, and they go. Some disappear altogether, while others simply take on new names that refer to the same things.

So then, what exactly is "Supply Chain Management", and is it too just a fad to be washed away by the tide of time?

Well, it sounds like a pretty simple question, which would lead us to believe there would be a simple answer............. but that is not necessarily the case. For starters, nailing down a definition of supply chain management, for some, has seemed to be a daunting task. As a result, it seems that there is still little agreement on how it is defined.

In addition, in a race to "stake claim" on the profession, the various groups involved in components of supply chains (purchasing professionals, manufacturing operations professionals, distribution managers, transportation specialists, etc), are all bent on using the term "Supply Chain Experts", or some such moniker, in their bid to describe their unique and meaningful skill sets that they bring to the table. All of this only adds to the confusion. We are not here, however, to debate who is the rightful owner of such a title, but are here to try to shed some light on exactly what we mean when we talk about "supply chain management".

Manufacturing organizations, over the past few decades, have grown to realize that their traditional view of their environment, dividing tasks into small work units and analyzing them to death for efficiency improvements, may not be an optimal approach to getting results. Over time, they have become more and more focused on "the system", taking a holistic view of the interdependent work centers which they once viewed as independent units. In realigning their approach, they have started to look at processes, mapping the movement of information, product, and people throughout the system. They have begun to talk about value, streams, chains, interdependency, and as a result, the "chain theory" type of thinking was born. This same type of thinking is what has now evolved into the discipline we now refer to as "supply chain management".

In supply chain management approach, we look at the entire chain of activities involved at getting the raw product components through to the end consumer......from the "supplier's supplier", to the "customer's customer". In other words, we are looking at each and every activity and transaction that occurs in the entire chain, not just within the walls of our own organization, in order to identify and eliminate cost. By finding and eliminating the waste or excessive cost, we are creating value, for each and every chain member, up to and including the consumer. As a result, this approach is focused on a collaborative, holistic, view of the system, and by focusing on the entire system and on how it effects each and every member (and ultimately the end consumer), we are able to make the chain operate in a more efficient and optimal manner, to the benefit of all chain members. It is important to note that in this example, we are "assuming" a cost cutting focus, but this is not the case in all situations. Supply chain management is a strategic approach to managing the chain, and as a result, the goals of your actions are grounded in strategy, and therefore may not be focused on cutting costs, but other objectives such as increased flexibility, or reduced lead times, to name a few.

In summary, it is clear that the building and reinforcing of relationships between all members of the supply chain, with a trusting and collaborative approach, is key to establishing effective supply chains. Each of the different factions listed above, represent only a portion of the actual supply chain, and need to shift their focus to a more strategic and more holistic view of how they operate, each and every day, to be worthy of the name "supply chain manager", or some such title. The reality is that Supply Chain Managers will need to be focused on the entire chain, and we will find people who hold this title coming from a variety of the disciplines mentioned above, as opposed to from one or the other.

Keith Carruthers, July 14, 2008