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!

Thursday, October 15, 2009

Happy days are here again

The summer has come to an abrupt end as the fall weather turns a little to the cold side here in Atlantic Canada. In fact, I saw a few snow flakes yesterday, which makes me feel that the summer weather that we are all to quick to criticize maybe wasn't that bad after all. If nothing else, it makes it easier to get our heads back into work, and away from wanting to spend more time enjoying the summer weather.

So back to business it is. On the economic front, things certainly seem to be heating up again, especially in Canada. The glut of houses "for sale" on the market vanished before our eyes, and prices that had softened in the Spring quickly rebounded to their pre-meltdown price levels.

As Supply Chain specialists, there is a real danger in settling back into "the norm", and not being quite as eager to have some immediate impact on the organization's bottom line. Don't get me wrong, its not that we are not always trying to do a great job and bring real savings to the organization, but nothing focuses a person as much as being forced into "crisis mode". And not only that, but the normal struggle to take our rightful place at the boardroom table, and to be able to speak with some volume and actually be heard, is in danger of passing us by as the business leaders back off from hitting the panic button and start refocusing on longer term strategic issues for the business.

It is my hope that all of you were able to have some immediate impact during the troubling times earlier in the year, and that you have gained some well deserved credibility with the business leaders that will have a lasting impact.

As they say, sometimes dark clouds have a silver lining, and we need to take away some positives from the challenges of 2009. With any luck, it has provided us all with an opportunity to rethink our current business practices, and has afforded us the chance to become a little leaner, more agile, and more responsive to our customers.

Best of Luck for the remainder of the year.

Wednesday, May 13, 2009

Economic Meltdown

Well, it's been a while now since panic first set in with our current economic crisis. Although the panic has somewhat subsided in favour of some more rational thought, we are far from the end of this slowdown, although we do seem to have bottomed out.
Although these downturns are indeed somewhat nerve-wracking, it certainly does impact the supply chain management field in a bit of a different way...........usually we are in a profession where we have to fight to obtain our rightful place at the boardroom table, but not these days.
Quite often in times of economic trouble, we are suddenly "a hot commodity", the people who may be able to play a large role in "righting the ship".
It's not that I am enjoying these challenges, especially with my investments in the market, but it is times like these where our role on cost reduction, strategic sourcing, and our impact on the bottom line becomes much more apparent.
There is no question that not only does our role contribute on a day to day basis for business, but in times like these, it is definately a buyer's market. As a result, it becomes easier to lead a successful negotiation and add to our company's bottom line.
It is important to remember that we have to be careful not to take advantage of our suppliers. If we operate in a truly strategic nature, we have carefully selected our supply chain to work as "partners" with us for the long-term, and have realized the value they add with their individual brand of expertise. We also need to remember that they, and their organizations, are also facing challenges, and we need to be cautious that we do not add to their load.
After all, they won't add much value for us if they are in Chapter 11.
Food for thought

Saturday, January 10, 2009

The "Nearshoring" New Years Resolution

Happy New Year to all, and I hope you are as excited about the possibilities for success that await us all in 2009 as I am. Best of luck with your New Year's resolutions.

Over the past several months, the term "nearshoring" has been getting a lot of attention in the media. The panic ensued by rising gas prices has launched this terminology into the "buzzword stratosphere" which if history is any indication, should make us all a little nervous.

So what's the big deal about nearshoring?

Well, here is North America, we tend to have a predisposition about products and services that are not "from here". I have commented on this predisposition in previous postings. This predisposition results in us looking at everything to do with imports and offshoring through a flawed lens, looking for facts to support our predispositions that imports are bad, that they don't make sense, that when you look at things "holistically" we are better off with sources of supply within our own communities, countries, or continent.

Although as I have previously stated, doing business offshore in "far away lands" is not the magic pill that resolves all of our business issues in all situations. It definately can play a critical role in an organization's success, but in some cases, it is contrary to what we are trying to accomplish from a strategic point of view in our businesses.

So what's all the hoopla about nearshoring? The argument goes that there are many reasons that doing business close to home makes more sense from a total business perspective. Whether the argument is to reduce our carbon footprint, to bolster our local economy, or most recently to find a way to deal with escalating fuel and freight costs, nearshoring is a solution that is being escalated to an elite status....the "be all and end all" of great solutions to an ever-increasing cost escalation problem.

Although I agree that in some cases, the fuel crisis has indeed eroded the cost savings with moving sources of supply offshore, this is not the case in most situations. Why? Well, there are a few reasons.

For starters, when companies make the decision to move sources of supply offshore, it is a decision that is most often very carefully thought out as there are not only cost and other benefits, but inherent risks involved in doing so. These risks range from longer lead times, higher inventory carrying costs, and other such factors that are often a natural consequence of moving your source of supply farther from your market.

As a result of these inherent risks, most organizations are very hesitant to make such a move unless the potential gains (such as cost reductions) are substantial. In other words, we do not make these decisions to save one or two percent on our spend.... we make them to save twenty or thirty percent. As a result, it would take an absolutely huge shift in transportation costs to errode these gains.

Well, what we experienced over the last several months can undoubtedly be argued as a substantial shift in the cost of fuel, right? Well, yes it can, although it is doubtful that this could continue for any prolonged length of time, and we are already seeing evidence that it can't. But lets assume for a minute that increased fuel costs are substantial and are sustained for some longer period of time. There are still other factors that we need to consider.

One of these "other factors" that limits the negative effect that this situation can have on offshore opportunities is the fact that most of the goods and supplies sourced offshore are minimally freight sensitive. In other words, the items that are impacted greatly by freight costs (light, bulky, low cost goods) are rarely the goods we tend to source offshore. As a result, the impact of freight increases on offshore products (as a percentage of purchased cost) tends to be significantly less than the impact found on the goods we tend to source closer to home, even though the total cost to move a "unit of freight" is less domestically than internationally. When you also throw in the economics of supply and demand, and the tendency for prices to subside offshore to help prevent demand from sliding too far due to increased transporting cost, or for freight margins to go down due to excess carrier capacity, in many cases doing business offshore continues to provide us with reduced costs and increased competitive advantage.

In summary, we need to be careful not to take an "all or nothing" point of view when considering the decisions we make on a day-to-day basis in our businesses. Most often, the truth lies between the two extremes, and we need to remain aware of this and to not over emphasize the impact of changing trends in the global marketplace. A combination of offshoring, nearshoring, and domestic in-house production in most cases offers our organizations with a balanced solution resulting in mitigated risk and a much less volatile enviroment as we move into the future.

All the best for a great start to 2009!