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I recently interviewed Helena Santos Rodrigues at the Business Innovation Conference in Chicago. Helena is from Portugal and works at the Polytechnical Institute Viana Do Castelo in the northern part of Portugal. She has a PhD who is starting her research for her post PhD on the issue of intellectual capital and innovativeness of the firm.


She has been working on the influence of intellectual capital on the innovativeness of the firm. She focuses on the 3 components of intellectual capital:


1. Human Capital,

2. Structural Capital and

3. Relational Capital.


She connects them with product, process and the management innovativeness.


Helena found that human and structural capital are directly and positively connected with product process and innovativeness. She also found that structural capital is connected with management innovativeness.


Helena’s latest research was conducted in northern Portugal and Spain within the automotive sector. This is important because the automotive industry is important to the world.


Helena found that firms may achieve advantage from the intellectual capital perspective and can improve product, process and management innovativeness at the same firm. She thinks further research should focus on supply chain management. The supply chain needs to be split and research should be done on which intellectual capital improvements could be important. The areas need to be identified and then managed. There should be an understanding on how they influence and support the innovativeness of the firm.


Recommendations for supply chain professionals


In terms of intellectual capital and innovativeness you can see which parts of the supply chain influence the final innovativeness. In terms of intellectual capital we can analyze and see the results.


Key Findings


Intellectual capital is important for innovativeness. However, some aspects are more important. Firstly, human and relational capital: human capital deals with knowledge assets and relational capital deals with relations outside the firm. All of these are important for innovativeness, product and process.


Helena’s research showed that product and process innovativeness in the automotive sector are the same and truly connected. For example, when a new car is developed you have a new process. This is important because you need process and product innovation.


Also, structural capital is related to knowledge assets of the firm and is important for management innovativeness.


About Helena Santos Rodrigues






LinkedIn Profile

I recently interviewed Dileep Thatte at the Business Innovation Conference in Chicago. Dileep spent a better part of his career in the private sector. He is a chemical engineer with an MBA and has travelled all over the world and has been involved in businesses in Europe, Asia Pacific, and Latin America. After 20-25 years in the private sector he felt he needed to do something more mission driven. Therefore, he decided to do some consulting with small to medium sized manufacturers. Dileep recognized there are opportunities to rejuvenate the manufacturing sector.


NIST MEP (National Institute of Standards and Technology, Manufacturing Extension Partnership) is a part of the Department of Commerce, and is dedicated to this mission. Dileep has joined NIST MEP group in the capacity of Program Manager. Their focus is to support, help and rejuvenate the manufacturing sector, particularly focusing on small to medium sized manufacturers in the US.



Why we need small to medium sized manufacturers in the US?


Manufacturing is very critical for sustainable growth and maintenance for our economic strength. When you look at the statistics, you can see that the manufacturing jobs are high skilled jobs which create a significant middle class. The pay scale is much higher and manufacturing forms the backbone of this economy.


Within the manufacturing sector small to medium sized manufactures as defined by SBDA as less than 500 employees is indeed where the maximum amount of new employment is happening in the US.


These concepts cover the need to establish the importance of manufacturing. The service economy which people talk about rides on the manufacturing. If manufacturing is strong then the service economy also remains strong. Without manufacturing, the service economy is weakened significantly. Manufacturing is way more important for current and long term sustainable growth of the US economy.


Can small manufacturers in the US be innovative and globally competitive?


Absolutely! Dileep’s work in this sector has demonstrated to him that our manufacturers are capable of global competition. They have the skill set. Some of them may need to be re-trained, but they are indeed capable.


What we need is an injection of more innovation – innovative processes, products and technologies. We also need to take a look at the overseas market. We can be competitive and we can go after export markets with high technology products. If indeed the manufacturers start thinking about business innovation, then they can become competitive and can grow.


This is the focus of NIST MEP. They have in the past help the manufacturers with operational excellence through lean and quality. Currently and over the last few years they have been emphasizing and aggressively supporting the small manufacturers in the area of innovation, innovation supply chains and how to go after new products and markets using new marketing messages. NIST MEP strongly believes as a group that US manufacturers can be competitive by adopting some innovative practices.


Examples of success


Dileep spoke at the Business Innovation Conference in Chicago in October 2011. During his talk he elaborated on how a small manufacturer in South Carolina supplying to the auto industry. When the auto industry was slowing they suddenly switched to fabricating metal parts for home development. There are companies which have divested themselves from traditional heavy industry to wind energy, for example.


There are companies taking a proactive stance and looking at growth areas; whether it is nano-technology, solar, renewable energy, pharmaceutical or medical devices, they are taking advantage of these growth industries and using their technology to diversity. NIST MEP is right in the middle of this and helping them think in these different ways.


How to approach innovation


NIST MEP has a complete system called the Innovation Engineering Management System which helps them hold the hand and lead the company into innovation, innovative products and services. They have realized significant success. Any of the NIST MEP centers operate in the marketplace through their 59 centers across the country. All of these centers are capable of helping the local manufacturers in the regions where they operate. They can really help the manufacturers with innovation.


In addition, NIST MEP has a very interesting platform which is called the National Innovation Marketplace. They have worked closely with a consulting group called Eureka Ranch to develop the National Innovation Marketplace Platform. (it can also be referred to as National Innovation Supply Chain Marketplace) It is a platform where the OEMs, large and even medium sized companies can place their buying requests. If they are looking for some new technologies for example, they can submit their requests.


The manufacturers can register themselves with their capabilities in the registry area. Innovators, such as the researchers from University labs, National labs such as Argon, Lawrence Livermore, and other national labs can submit their innovations to this marketplace. Along with the human network of MEP they can try to match all of these so that everyone wins. To learn more you can watch a short 2 minute video at the National Innovation Marketplace website. This is another way NIST MEP is promoting innovation.


Dileep suggests anyone interested in innovation in US manufacturing should go to the National Innovation Marketplace and if you are a manufacturer register your capabilities. If you want some new products registered you can submit your ‘wishlist’. If you are an inventor and would like to list your invention you can submit it to the marketplace. If you are an OEM such as General Motors you can submit your buying request on the website. There may be an inventor within the US who has the technology you are looking for. MEP may be able to help you match you with them.


Registration is free. Because they are mission driven they believe their success will be when manufacturers become more innovative and the manufacturing sector becomes strong.


About Dileep Thatte

Manager, Supply Chain and Technology

Manufacturing Extension Partnership

LinkedIn Profile

I recently interviewed Charles Fenton at the Global Energy Buyer’s Conference in Chicago on Oct 18-19th. Charles is Head of Consultancy at EnergyQuote JHA. They provide global consultancy solutions to industrial and intense energy users who are looking for risk management, strategy, market intelligence, carbon intelligence and every aspect of energy that may impact cost or compliance.



Energy is now becoming a global commodity


Much of what is driving energy is driven by global commodities such as coal, oil, and even gas. As a result, what you tend to find is that organizations are creating global categories where their centralized global procurement team has an expertise in energy which they utilize in all markets.


The role that Charles and his company typically provides is key intelligence input into that global procurement team in order to allow them to understand how those markets are changing while providing the same level of best practice to optimize cost and carbon or emissions management in those markets.


Charles spoke about the way in which countries such as China, India, Brazil and Russia are growing emerging markets that are beginning to reform electricity and gas markets. What you are seeing are opportunities for cost optimization.


Trends in the energy marketplace


Above all else what you are seeing is a drive to liberalization of energy markets everywhere. Liberalization encourages investment in new electricity production which is needed to allow these developing markets to grow. At the moment demand for energy is outstripping supply.


The downside to this is that you are seeing prices rise to a level which is optimal to encourage independent parties to come into the market and invest in new power production. On one hand it is bad for the end user because it increases prices. On the other hand it does increase your reliability.

This is presenting a lot of opportunities and threats for global organizations which they need to invest time in. They can no longer sit there and do nothing. They need to actively manage energy in these areas which until now were just monopoly situations where there seemed to be no rational for anything.


Solutions which the global organizations are following


Where the market allows it, they are looking at running capacity tenders. They are also looking into self generation options to increase reliability and to ensure there is no forced interruption, which is often a factor in emerging markets. They are also looking at compliance with local regulations to ensure they don’t find themselves in the hole.


Recommendations for global manufacturers


Charles recommends creating a center for excellence and best practice within your organization. With this group you should look at the overall policy for energy and develop local energy strategies. Charles would expert market input and intelligence to drive decision making. This should lead to a much more effective overall optimized cost than the current situation. What is key is keeping up to date because there is so much going on, so much change and so much opportunity.


About Charles Fenton





Head of European Consultancy


LinkedIn Profile

I recently interviewed Peter Balbus, an experienced management consultant, and principal with Los Angeles based HighPoint Associates, a firm that specializes in strategic sourcing for talent acquisition.

We discussed the key issues around strategic sourcing for talent acquisition, and how changes in global business environments are driving changes in the kinds of talent that companies need today and how they acquire that talent.

Brief background of Peter and his company, HighPoint Associates.



  • My educational foundation includes an undergraduate degree from MIT in chemical engineering,   and completion of the University of Chicago executive program in finance and strategy.  I also hold professional certification as a master business innovator through Illinois Institute of Technology.


  • I’ve had the privilege of serving hundreds of clients as a strategic business advisorfor more than 25 years, working for some great firms along the way like KPMG, CSC Index and Booz Allen. Most recently, I joined HighPoint Associates, which provides clients with exceptional advisory, consulting and interim executive resources at highly competitive rates to help support our clients’ most important business initiatives.


  • HighPoint is a new breed of management consulting firm – based on a large network of highly trained, experienced and independent consultants  that we have selected through a  very  rigorous interview and background validation process.  More than 300 of our consultants hold advanced degrees from top-tier educational institutions   and have led successful careers at world-class consulting firms like McKinsey, Bain, BCG and Booz Allen  before joining our team.  More than 200  offer specialized expertise gained by working as both consultants and as senior management in market-leading global companies. Our typical consultant has 15-20 years of directly relevant experience.

·         I hold primary responsibility for developing our client base in the greater Chicago area and Dallas-Fort Worth Metroplex.



How do you distinguish between ordinary sourcing and strategic sourcing -- as it relates to talent acquisition?


  • Much like strategic sourcing for other critical aspects of successful businesses -- like strategic vendor relationships or strategic channel partners -- we use the term “strategic” to distinguish more complex, mission critical challenges from everyday kinds of business issues.  For example, if my company makes desktop scanners, then I would likely have a standard supply agreement with plastic component manufacturers and plate glass suppliers to provide the pieces from which I built my scanner devices.  But I would likely have a more strategic relationship with my optics providers, jointly developing more advanced optical readers and digital imaging components.


  • Similarly, I would likely have traditional relationships with administrative staffing agencies to provide standard office help and with executive recruiters to acquire long-term management talent.  But where would I go to acquire highly specialized individuals that I might not need permanently but are beyond the capacity of a staffing agency to provide?


  • Traditionally, I would likely turn to one of the better management consulting firms with expertise in the areas of interest to me – firms like McKinsey, Bain, BCG, Accenture, CSC, AT Kearney or one of the Big Four accounting firms, for example, depending on my needs.  But today, they are other alternatives that may well offer  a much better fit with my needs and at significantly lower cost.



Can you offer us some more details?


  • Sure -- If my needs are large-scale, involve multiple geographies, and I have virtually no expertise in-house to lead or staff the project team, then a traditional management consulting firm may well be the best choice.  The good news is, these firms generally offer well-educated consultants trained in a wide variety of consulting methodologies and analytical techniques. The bad news is that these firms can often be highly expensive, and are generally limited in the actual numbers of staff members available at any given time to do your project. With their pyramidal structure, the most junior members of the consulting firm will be performing most of the work.


  • Often, you have to settle for whoever is on the beach, and these practitioners are likely to be generalists. Smart, hard-working and motivated, but they may well be learning as they go and doing things on your project that they’ve never actually done before or in the manner in which you need things done.  And when the project is over and they leave, all of the accumulated learnings and know-how developed during the project goes out the door with them.





What is the alternative?


  • Suppose I only need transitional project leadership or want to supplement a largely internal team with a small number of highly specialized subject matter experts?  Or I only want one or two very senior consultants, not the proverbial “kids off of the school bus” from the large, global consulting firms?  What are my options then?


  • Well, some companies turn to online sources like LinkedIn or one of the many independent consultant job posting sites springing up all over the Internet.  The problem with these approaches is that you really don’t know what you’re going to get, and unfortunately, too many individuals get creative with their resumes and will claim education credentials, work experience and skills that they don’t actually have.  You know nothing about their integrity, whether they’ve been fired for cause or non-performance in their pasts or if they’ll drop your project and jump onto another one that appears to be more interesting, less demanding or is paying a few dollars more than you are.


  • Firms like HighPoint Associates represent the best of both worlds – the quality, integrity and expertise of the large traditional firms with a business model that offers exceptional talent like you might find at a top-tier strategy firm, but at a fraction of the cost --  usually 40-70% less.  Perhaps more importantly, you can select the exact individual or individuals that you want based on the specific expertise and experience you need, and you can be fully assured that these individuals are exactly whom the claim to be, have gone to the exact schools with the exact degrees listed on the resumes, and have solved challenges like yours many times before.  You don’t have to take a package deal of multiple individuals, or rely on junior staff being supervised part-time by a senior partner who’s also managing multiple other client engagements.



Sounds good in principle, but how can firms like HighPoint offer consulting talent at such significantly lower prices than the traditional firms and still stay remain in business?


  • The simple answer is that we employ a radically different business model.  With a traditional firm, virtually all consultants are full-time employees, with full-time benefits, and expensive full-time offices provided by the consulting firm. They often receive 4 weeks of vacation or more every year and spend many more weeks in training learning basic consulting skills.  All of these aspects add significantly to the cost of maintaining these consultants.  Clients wind up paying for all of these added costs in the billing rates charged by traditional firms.  Typically, the consultant receives only about 20% of the billings charged – the rest goes to overhead and partner bonuses.


  • In contrast, with the exception of a small number of principals and corporate support staff, all of our consultants are independent contractors.  We don’t maintain a network of expensive offices or carry the costs of our consultants in between projects.  We engage them on your behalf only for the exact duration of your project, and they pay for their own benefits and vacation time – not you.


  • We also only offer fully trained, experienced and self-sufficient professionals.  They require a minimum of supervision, and that  largely to ensure that they execute their services in a manner fully tailored to your unique needs and business environment.  We don’t employ a pyramidal approach to client services with multiple layers of team members – associates, senior associates, engagement managers, senior engagement managers, partners – what have you!  With more talent represented in fewer individuals, your project teams will be smaller, more agile and get the work done expeditiously – and with fewer internal issues.



What kinds of situations lend themselves to this strategic sourcing model?


  • In general, most companies today are doing fewer of the very large supply chain integration, systems development or organizational transformation initiatives than they have done in the past.


  • With tighter budgets and changes occurring faster in both their own and their customers’ industries, projects are smaller, faster-paced, and have to meet more stringent interim financial and operational performance goals.  Organizations are leaner, and there is a real interest in having their own internal resources “learn by doing” and taking more active roles on projects – something that large traditional firms typically reject.


  • We have found that the kinds of business challenges that best lend themselves   to the kinds of strategic sourcing for talent acquisition we’ve been discussing today include:
    • Rapid deployment project management – some business event triggers the need for a rapid response or a planned initiative gets unexpectedly moved up.
    • Immediate need for specialized subject matter expertise – perhaps an existing project has gotten off track or is bogged down working through issues that an outside expert could address much faster and with greater clarity.
    • PMO organization and operationalization – I see a tremendous increase in the number of clients setting up project management offices to coordinate their internal initiatives and are increasingly turning to outside consultants to structure and launch these PMOs.
    • PMI – post merger integration – we’re seeing a lot of consolidation, acquisition and merger activity going on, especially with companies in the smaller to mid-sized segments.  Clients have a real need for short-term, rapid response pre-transaction diligence and planning, transaction support and post-merger integration implementation across all major major business functions.
    • Interim executive positions – often a company needs more than just a consultant, but an individual who can assume day-to-day management and operational responsibilities as a transitional employee.
    • Consultant-to-hire option – unlike traditional consulting firms, strategic sourcing companies like HighPoint are more than happy to provide consulting resources that can be cost-effectively hired by the client if they work out well in the client’s unique business environment.  We are able to source consultants who have expressed a specific interest in transitioning to full-time employment, so their objectives and our client objective are well aligned.



How should our audience get started with evaluating whether strategic sourcing for talent acquisition is right for them?


  • Well, the first step would be to carefully define your needs.  What is it that you’re trying to accomplish and what kinds of talent do you need?  Does it need to be full time, part-time, or engaged strictly as needed on a project basis?


  • Do your projects demand highly specialized strategic and operational knowledge and expertise, or more general administrative or day-to-day management skills?


  • How critical are these initiatives? Is doing them over an option is things don’t work out the first time?


  • Take a hard look at how well your current roster of talent sources is meeting your needs in a responsive, efficient, flexible and cost-effective manner?  Do you suspect that you’re paying more than you need to, or even being taken advantage of by your high-priced outside consulting talent?  Do you sometimes wonder whether project proposals submitted by your traditional talent suppliers are more geared to whom they have on the beach rather than what you need most critically?


  • The answers to these questions will help you gain clarity into whether or not you would be a good candidate for using strategic sourcing for your talent acquisition needs.



What should our audience look for in a strategic sourcing partner?


  • First and foremost, integrity. Look for a firm that has been in business for a while and has a solid base of strong client references.  With the available options, there’s no reason to settle for less.  Look for a company that’s been in business for a decade or more.


  • Secondly, look at the size and quality of the firm’s consultant network.  While larger isn’t always better, look for at least 500 consultants.  And ask hard questions about how these consultants are interviewed, validated and selected.  It amazes me how few firms do more than just a cursory review.  Only go with firms that take the time and trouble to perform a full background check on every consultant they offer.


  • Ask how the firm transitions from sales mode to delivery mode on your behalf.  Are there hand-offs to a different set of account reps, or is there a consistent senior executive managing your project from start to finish?


  • Only go with a firm that offers a written client satisfaction guaranty – and enables you to swap out any individual who does not meet 100% of your expectations without penalty.


Where can our audience learn more about HighPoint or get in contact with you?





I recently interviewed Nate Hutchins at the Business Innovation Conference in Chicago. Nate discussed core competencies as they relate to supply chains. Nate is a Principle with Strategos, a Chicago based growth and innovation consulting firm. He has a background in product development and strategy.



What are core competencies and how are they applied to supply chains?


Nate and his company define a core competence as a complex connection of capabilities that provide sustainable customer benefit and advantage over time for organizations. The term core competence is used fairly widely and broadly these days. However, they hold that it is a very high bar to meet.

It is more than a capability. It is a collection of skills, processes, technologies, values and assets woven together in such a way that it provides sustainable customer benefit and competitive advantage.


Often the capabilities themselves are as important as how those capabilities interact with one another. Typically, their nature and interactions are so complex that it is virtually impossible for a competitor to duplicate them.


This relates to supply chains is that supply chain groups and organizations would do well to think in terms of how supply chain and the benefits of a supply chain capability weave into that broader core competence. How does it help the company more broadly speaking deliver that sustainable customer benefit and competitive advantage?


How does a skill in supply chain weave into an enterprise software program, for example? Companies may have particular IP or technology assets. Or they may have certain values, a work ethic or customer focus. A company may even have processes for capturing customers or product development.

If supply chain leaders can think about how to make their organization fit into and support the broader mission and core competence of the organization, it is really the best they can do to help support growth and innovation.


What if a company finds they don’t have a core competency? How do you discover your core competency?


Nate’s company has worked on helping companies discover their core competencies for quite a number of years. They have established an approach and methodology to help companies firstly identify some milestones or achievements they have realized over the years. Secondly, what capabilities led to those milestones? Finally, they look at how those capabilities weave together to form a core competence.


This is a very good question. What if you do this work and find out you don’t have a core competence?


Strategos finds that most companies do have a core competence. You may have to look beneath the surface. It may not be the obvious things like Apple’s design excellence or FedEx’s overnight package delivery capability, or Honda’s advanced power train development. It may be something more subtle, such as an organization’s ability to identify new opportunities and go after those opportunities in the form of acquisitions, hiring or technology development in a very aggressive manner. It may be the organization’s ability to understand and adapt to new customer needs in a very rapid environment.


Strategos believes that if a company is willing to think creatively and have an open mind about what their core competence is, there is a nugget in there which can lead to top line growth for the organization.

How does one core competence in the supply chain interact with another?


Interaction between core competencies is very complex. Typically, an advanced company may have multiple core competencies that support one another. It is important for supply chain organizations to understand how it supports each of those core competencies and to make sure it is not operating in a way which supports one and undermines the other.


One classic examples of core competencies working together to support one another is Disney. Disney has a core competence in story telling on the one hand and another core competence in set development or atmosphere development (whether a sound stage, theme park, or cruise ship). The supply chain organization at Disney would be compelled to understand how they can support better story-telling, while at the same time supporting better set development or atmosphere.




Nate encourages organizations and in particular supply chain leaders to continue to dig deeper and understand what it is about your company that is truly unique. You should ask what is it about your DNA that makes you unique in the world and where you can deliver value to customers and sustainable competitive advantage in a way that perhaps no one else in the world can. Keep looking for perhaps unorthodox opportunities which emerge from that core competence. You will find yourself in a position of delivering sustained customer value and competitive advantage.


About Nathan Hutchins






Greater Chicago Area

LinkedIn Profile

Phone: +1.312.655.0826

I recently interviewed Larry Carlson at the Business Innovation Conference in Chicago. Larry discussed the trends in outsourcing and what he and his company are doing in Mexico. Larry is an entrepreneur who recently joined a company called Vangtel, which is part of the Offshore Group. They are headquartered in Tucson Arizona. What makes them unique is that they have a business solution which is an innovative approach to outsourcing.



Outsourcing takes on many different components. Vangtel supports IT development, call center support, and back-office functions. As a former call center owner for roughly 10 years, Larry can say that when companies look at outsourcing project based work or looking to reduce costs (in terms of IT development, back office talent, or call center), the traditional outsourcing provider typically gives you what you pay for.


As a client I may outsource work and may have an account management contact. However, I really don’t know what is going on day to day. A lot of companies have experienced headaches or even nightmares with outsourcing.


Vangtel’s business model allows a client company to maintain control of an operation. The company provides a legal entry for a near-shoring solution in Mexico. The client company can select who they want to manage the operation. It can even be one of their current employees. They manage the actual employees which Vangtel hand picks for them. This can be a few IT developers, call center people, or back office and a combination of staffing. They have total control of the actual management and operation. This protects their intellectual property and lets them use their same corporate culture.


Vangtel supports this with talent which the company can hire, along with the secure facilities. The advantage at the end of the day is that the client is having the work done at their operation the way they want it done. They are typically achieving a 15% lower cost compared with what they would incur domestically.


Compared with the traditional form of outsourcing, the client has more control. Vangtel believes their approach is more innovative. The client walks away saying they can really achieve their controls and ensure that the operation is working the way they want it to. Larry believes this is a huge advantage.


Outsourcing trends


Outsourcing today has many different options. Outsourcing can be broken down into on-shore, near-shore and off-shore. Costs and quality is an issue. The biggest thing is that when a company is trying to protect their intellectual property the fear of losing control and not knowing where that development effort may be going. Vangtel’s business model protects this.


Regarding managing off-shore, which many companies are facing, when dealing with the same time zone it makes it easier to manage. Vangtel’s facilities are all located within 1 hour from Phoenix by air. Vangtel’s clients appreciate the fact that they can still reduce costs and have a location which is close and convenient to get to if needed. With web and video conferencing for tracking employees remotely, Larry believes Vangtel’s model works great.


Vangtel’s concept is known as a shelter program. This concept is probably the most innovative approach you will find in outsourcing today.


Accessing talent


Vangtel has tremendous support from the university system in Mexico. Some of their clients work with the universities to develop training programs specific to their clients. This is something you won’t get with a typical outsourcing firm. Training is very important to Vangtel’s clients on an ongoing basis.


The training is most relevant not when dealing with a smaller soft-landing operation with shared facilities, but with longer term clients who have a dedicated office and are developing a career path and need training. Many of the university partners perform on-site development of employees at the universities. The client has the advantage of a base from which to draw for the specific positions they want to support.


Part of the value with Vangtel is that they know the base that is out there and have some dedicated resources for both recruiting and developing talent.




Larry understands small business. He comes from a background of incubating a company, graduating it and needing support. If someone is looking at outsourcing opportunities Vangtel works hard to develop a one-on-one relationship with clients. Any good outsourcing partner will do this. This is the most important thing for companies to question, namely how is the interaction and is how is the partner looking out for my best interest?


About Larry Carlson


Marketing Manager

Vangtel - Nearshore Solutions

LinkedIn Profile

I recently interviewed Jose Briones at the Business Innovation Conference at the Illinois Institute of Technology in Chicago. Jose is a partner at a startups software company which has developed an innovative flexible workflow software product for supply chains. You need flexible workflow software when you have more suppliers and products you have a larger number of combinations of products and suppliers which can exist and which follow different paths.



Process flow and innovative ways to work with processes


Jose and his team have been working with the issue of work flow management. They found that there are two types of work flow:


1. Rigid workflow – where all steps are pre-defined and you must follow each step in your business process


2. Flexible workflow – this is a new area of investigation and discussion. Very few products deal with this.


What it means is that in a business process the path that the document/product/order follows may be different every time. While there is a path forward, it moves through different paths.

Very few products on the marketplace can handle flexible workflow these days in a manner which would be of value to people in the supply chain industry.


Examples of traditional versus the new way of working


The product Jose and his team is designing will initially handle sales, production and purchase orders for small and medium sized companies. Most of the products out there consider a sales order as one entity where it follows the progress of the entire order in a sequence of steps.


Instead of following the order as a unit, each individual item in the order can be followed along different paths. How this works in practice can be explained as follows: Let’s say you own a furniture store and a lady comes in to buy 3 pieces of furniture consisting of a chair, table and lamp.

It turns out the chair is coming from the Mexico. The table is from a supplier in North Dakota. The lamp is custom made by a supplier across the city. After two weeks the lady calls and wants to know the status of her order. As a result you have to scramble to find the suppliers and the paper work.


The solution is programs and software which can handle tracking the workflow of different items through different paths, no matter where and what they may be. At the same time you can combine them into an order at every single point where you make a request. You know the status of every single item, no matter where and when they are in the process.


The typical software product used for this typically limits the number of paths you can take, or it cannot handle and track individual items separately.


What type of mindset does the customer have?


The customer who has this type of need already knows it. You need to have a complex supply chain process. If you have a very simple supply chain process with a very limited number of products from a limited number of suppliers following pre-determined paths, then you don’t need this product. A fixed work flow product will probably work for you.


You need flexible workflow software when you have more suppliers and products you have a larger number of combinations of products and suppliers which can exist and which follow different paths.


Benefit to supply chain managers


Jose and his team works with the customer to do a simple map of their processes in order to determine the level of complexity. This helps them determine if they are an appropriate candidate for the flexible work flow product.


The idea is to identify their needs and determine if a simple fixed work flow product would work for them, or if a flexible workflow product is what they need.


Where to learn more?


The product is currently in beta. It is not yet commercial. Jose and his team are interested in approaching companies who are interested in helping them realize full commercialization. Jose can be contacted via the following:


Jose A. Briones, Ph.D.



Skype:  Brioneja
Twitter:  @Brioneja

LinkedIn Profile

About Me


I interviewed Joel Larner who attended the Business Innovation Conference in Chicago on October 10-12, 2011. Joel Larner is a Vice President of Program Management for Schneider Electric. He currently focuses on their buildings business where they do a lot of buildings infrastructure, and in particular dealing with security. He also spends about 50% or more of his time helping to build a culture of innovation to expand the innovative products that the company offers for new markets.



Supply Chain Innovation


Innovation is vital for the future survival of any company. It used to be that you could develop products at a reasonably pace. If you had new ideas you could be competitive in new markets. Today, the pace of change has grown so fast that if you just keep doing what have done with incremental innovation, you will become a dinosaur.


It doesn’t matter what topic of discipline you are operating in; whether it is Research & Development or Supply Chain, the case will be the same. In the case of Schneider Electric and the Pelco brand within Schneider Electric, they are very vertically integrated. Everything that they do in product development basically goes through the manufacturing and industrialization processes in their facilities in California. It goes through their logistics centers in Chino California, as well as other logistics centers worldwide. While they are being innovative in their R&D space, they also need to be equally innovative in the supply chain world to match those new technologies and products.


You can’t keep bringing out new products, technologies or solutions and deliver them through the same logistics done in the past. There may be new markets requiring new logistics. There may be new parts and components. You also need to be driving supply chain efficiency for cost efficiencies. As much as they focus on innovation in the R&D space they need an equal amount of innovation in the supply chain space to be competitive there.


What is incremental innovation?


Incremental innovation is taking products, solutions and technologies which you currently have today and doing some small advancement on the same technologies or solutions. You will often see this referred to as ‘little I” in the innovation world. You need some amount of incremental innovation and some amount of radical innovation, or ‘big I’. Typically, in an organization you are looking at perhaps ¾ little I and ¼ big I. You can’t be all big I. You will be taking way too much risk and getting very little return for it. Schneider will done some incremental innovation, but will also be looking at how to radically change some of the things they do, whether in a Research & Development/Product Development space or in a Supply Chain arena.


Influence of Culture on Innovation


Culture is huge. It defines where people feel comfortable and not comfortable innovating. For example, if someone comes up with a new idea and they walk out into a hallway and mention it to some of their colleagues: if their colleagues get excited about it what ends up happening is that more discussions take place. The idea grows very quickly. New people bring in new pieces. Within 5 to 15 minutes of discussion the idea has blossomed. This is a positive culture of innovation.


Conversely, if your culture is totally focused on delivery the reaction of your colleagues may be “why are you wasting my time?”, “what a stupid idea!”. You can’t expect that this individual will ever raise another idea because they got their head chopped off. The person was just told what behavior is permissible and which behavior is not.


This is just one example of many where culture plays a huge part in whether innovation takes place, or whether it is stifled in your organization.


Organizational structure and its impact on innovation


Organizational structure has a huge impact on innovation. Innovation occurs at intersections. You need individuals with many different thoughts coming into an idea to really make it blossom. If you have an organizational structure which limits this cross functional discussion you have lost the huge value an opportunity to have those intersections occur. If it is always a homogeneous conversation you will get limited growth in your ideas.

Instead, if someone brings out an idea and you have an individual from Product Development, Customer Support, Global Supply Chain, and Logistics; each tossing the idea around and bringing different viewpoints into the discussion. In the end what you get is a new idea which meets needs in many of these different areas. Ultimately, you will get a much more innovative solution.


Recommendations for those in large non-innovating firms


This is a real challenge. In large firms you have very ingrained ways of doing work, which goes back to culture. The single largest thing Joel recommends is to get leadership support from the very top and all the way through the organization. People respond to what the organization values. They see what is valued by the behaviors around them and by the behaviors of leadership; what is recognized, rewarded and acknowledged. Upper leadership should be supportive of innovation and recognize and reward. Rewards do not necessarily have to be with money, but recognition.


Recognition includes acknowledging the great work that someone has done. It signals to the organization what is important in the organization. That is critical.


Often in large companies they are so focused on the top line that the bottom line where the turning of the crank of innovation is stifled. You need to change the expectations at the upper management level and the desires at the upper management level so that they are delivering an expectation of innovation in the organization.


About Joel Larner


Vice President , Program Management

Buildings Business

Pelco by Schneider Electric

LinkedIn Profile


I interviewed Rupa Rao who attended the Business Innovation Conference in Chicago on October 10-12, 2011. She works at the California site of a large global medical device company. Her role is in R&D as a Principle Systems Engineer where she designs the new next generation products. The role Rupa plays in innovation is a ground up effort which was started about 3 years ago to encourage employees to think outside of the box and come up with unconventional solutions to some traditional products their company has in the market.


Their team cannot wait for any kind of incentive to come from the outside. They can’t wait for marketing to tell them what to do or for management to give them the indications. Instead, they harness the ideas which employees already have. It is an effort that she started roughly 3 years ago. There is a lot of good participation from the R&D employees, as well as from outside R&D.



Examples of results


One of the biggest things they had to keep in mind when engaging employees was to make it fun and give them some incentive to participate and play. Employees, especially R&D, come from a creative mindset. They want to make a different, especially in medical devices where they want to improve. The motivation is there. It is a question of how to harness it.


They implemented a few unique techniques. The team started with a brainstorming session every month where people presented any ideas which they had. The presenters had 5 minutes to give their pitch, which was followed by a brainstorming session which provided them with feedback on how to build upon the idea and make it better.


The important thing is that one of the things we as human beings do best is point out the flaws in someone’s ideas. In response, they used different thinking techniques and brainstorming techniques such as the Six Hats and Lateral Thinking which enable you to harness some of the ideas which come out of the session, while minimizing the amount of criticism and utilizing the criticism to brainstorm on how to overcome the limitations identified.


They also went out on a few field trips to local places which don’t play in their field, but acted as an outside inspiration to try to come up with creative ideas. They idea was to get out of the box. On one trip they want to the innovation tech museum which had a lot of exhibits; all the way from semiconductors to unique robotics. The idea was that people group themselves of 4 or 5 and take their time to view all of the exhibits and think about an exhibit which inspired them to come up with a solution which they had.


Surprisingly, there were no stumbling blocks. People came up with many creative ideas. One example was a design of a cover for one of their instruments which was more green and which was cheaper and better. It was very exciting both for the employees and Rupa’s team to see what they could come up with. There were different techniques which people were asked to try and which they otherwise wouldn’t apply in their day to day jobs.


A change in perspective


One of the things that the company values with this effort is how they are able to get in people from different functions to participate in the activities. All of the innovation activities have been open to other functions such as manufacturing (supply chain and operations), quality and marketing. Rupa believes it is really interesting to see their perspective and how they are able to apply the techniques in their day to day lives, as well as to get their perspectives in designing new products. Just because Rupa and her team are in R&D doesn’t mean they always have the best ideas.


Sometimes the cross fertilization and pollination is necessary to come up with out of the box ideas. This is where they encouraged and asked people to get engaged with these processes.


Final recommendations


For individuals and employees that are not at the senior executive level it is possible to get together a group of people just to think about some of these problems that exist whereby a customer solution currently does not exist. You can try to think about what it is you can make better. A lot of the R&D employees and especially manufacturing and supply chain know and use the products and are intimately familiar with their flaws and where they can be improved. There should be a way to harness this and this input is very valuable.

Eduardo Saavedra is currently the Vice President of Business Development for the Offshore Group. The Offshore Group is a US-Mexico group of companies which helps manufacturers and service providers located mainly in the US, Canada and Europe to set up operations in Mexico. Eduardo has been with the company nearly 10 years and has been in the US-Mexico trade industry for 25 years. He has worked primarily with US manufacturers who have set up operations in Mexico over the last 15 years.



Comparison of manufacturing in Mexico versus China


It has taken companies about 10-15 years to finally understand what their actual landed costs are. Everyone knew that labor in China was cheaper than anywhere else in the world. This still is pretty close to being true. Vietnam and other areas are also coming up as lower cost than China. However, companies did not think through clearly what their move to China would do to their supply chain costs and delivery times.


The question of whether to manufacture in China versus Mexico first starts by looking at where your market or final destination of your finished goods will be. If it is in Asia or China, it makes sense to be in China. China is a huge and growing market and they should be in China making products for that market.


The question becomes if your market is in North America or Latin America, should you be making your product in China? If you just take the labor component, the monthly wages of a relatively unskilled assembly line or fabricator in China is approximately $350/month. In Mexico it is closer to $450-$475 for the same level of skill. There is a differential. What makes the difference is the number of hours an employee in China will work, versus the number of hours they work in Mexico. By law, the work week is 48 hours in Mexico. In China, the law is 40 hours, but it probably isn’t observed by companies. For the $350/month wage you hear of people working 60 or more hours per week.


This helps you compare and see which is cheaper. Mexico is actually cheaper. Wages are going up in China and the government is starting to be more cognizant that people are being over worked. On the labor side you need to understand if you are going to make products in China to sell in North America, China will still have an advantage.


However, offsetting the cost differential in the supply chain, which includes logistics. Everyone knows it takes roughly 2 weeks on the water. It probably takes 3 weeks by the time your truck to the final destination. This is a lot of time to hold inventory that is perhaps not even passing quality. A lot of dollars are being held in transit, which is not producing money for anyone.


Another offset can be the supply chain costs, the costs of your raw materials. This is where the challenge lies with most manufacturers today. If I move a portion of my production from North America to China, or vice versa, certainly changes things in the supply chain. It can potentially become more expensive compared with if the supply chain stayed where it was and remained localized.


The challenge is to find in North America suppliers which you normally had in China. It is a complex issue. Many companies have concluded they need to go through this exercise. It is not just about labor. Labor is approximately 20% of the total value of a good. The other 70-75% can be materials. This is where the supply chain comes into play.


Recommendations for companies who have manufacturing in China


Eduardo recommends that companies who are currently manufacturing in China either analyze their supply chain disruption internally or outsourced. There are companies that are experts in sourcing and supply chain development. The problem with doing this in house is that there may be biases. Eduardo suggests to use outside expertise to determine what the move will imply in terms of supply chain costs in terms of the procurement of raw materials.


Due diligence is also needed. Everyone needs to do as much research and homework as possible in order to make an informed decision. We don’t know what the future holds anywhere. There is a lot of information out there today in terms of the condition of manufacturing. China is a little more difficult to find information you can rely on. However, there are a lot of experts who have the experience and are now consultants. Mexico has a lot of information available on the Internet. A lot of international consulting firms know Mexico well. The key is to look for outside experts so that you can make an informed decision.


Trends in outsourcing and manufacturing


We are in a very strange economic climate right now. You read the news and listen to the radio and see that jobs are coming back to the US, from China or even Mexico. This is true in some cases, but is certainly not a trend. It makes sense for some companies to do it. There may be incentives that the US is providing. There may be nationalistic reasons.


However, in terms of being competitive, meaning not just having the lowest cost, but also having the best price, delivery, flexibility to your customers, and innovation. If all 5 of these elements are optimized, you will be the most competitive.


China will become more expensive. Mexico will probably stay the same or get slightly more expensive. There will be political initiatives to get companies to return manufacturing to the US.


While the trends seem to be pulling people in multiple directions, you still need to do your homework and not listen too much what you think are trend. What may appear to be a trend could just be isolated decisions that some companies have made.


About Eduardo Saavedra



Eduardo.jpgVice President, Business Development at Offshore International, Inc.

Office: 520-889-0022 ext 1400

Mobile: 520-360-6644

Email: eduardo.saavedra "at"

LinkedIn Profile


Eduardo has a background in logistics, supply chain, import/export, customs etc. Over the last 3.5 years he has been involved in business development, which can also be referred to as sales & marketing and client retention. Eduardo is a systems engineer who graduated in 1984 from the University of Arizona. He has been in Arizona since 1975.



I interviewed Alexey Deryabin who discussed supply chain implementation, supplier management and sales forecasting in Russia. Alexey Deryabin is optimistic about the future of supply chain in Russia. As a supply chain manager for Ariston Thermo Group, a company that sells heating and hot water products, systems and services, his team is dedicated to resolving issues surrounding operational logistics, supplier management and sales forecasting. Collaboration on all fronts has been the key to success.




Supply chain implementation in Russia presents unique challenges, something Alexey Deryabin has experienced firsthand in his role as a supply chain manager for Ariston Thermo Group. The biggest challenge, according to Alexey is the general business environment, primarily the region's strict customs regulations tied to goods arriving from Europe. Logistics, he says, represents another set of obstacles, including unpredictable lead and transit times often due to delays in customs clearance. One way to work around the issue is to maintain stock of trading goods as long as possible. Long term, Alexey says his logistics team continues to collaborate with the company's Italian colleagues (who supplier most of the company's raw materials) to iron out any clearance wrinkles with customs representatives before they disrupt the supply chain.


Alexey won't go so far as to say that all of the problems have been solved, but many of issues that existed in the past have since been resolved. Today, he says, there are new issues to resolve, but he is optimistic, because Ariston Thermo Group is always focused on improving operational logistics, especially as it relates to importing materials from abroad.


Most recently, Alexey has been involved with a large-scale supplier management project in cooperation with the company's purchasing, production and management divisions. The idea is to help strengthen the position of Russian suppliers, many of whom are relatively new to production. "There was a time in 90s when the industry was practically dead," Alexey said, "now people are starting to work and starting grow their own businesses." By sharing knowledge with this new crop of homegrown suppliers, and providing very specific production guidelines, Ariston Thermo Group has created a win-win situation. The suppliers benefit from best practices that help them reduce costs, while Ariston Thermo gains the advantage of reduced expenditures for materials.


Alexey Deryabin is also enthusiastic about a renewed interest in the area forecasting, where he says the company has made great strides in working closely with internal and external sales teams to improve their ability to deliver more accurate forecasts. It was simply a matter of helping them understand the vital role forecasting plays in lowering the cost of finished goods and delivering excellent service to clients, Alexey said. It's not always about mathematical equations, he continued, it's really a matter of communicating -- sharing information internally, and where prudent, sharing information with clients. In general, the initiative is designed to train sales managers to use proper forecasting techniques and to provide them with new methods of collecting information for planning and forecasting.




About Alexey Deryabin


Supply Chain Manager

Ariston Thermo Group


Alexey Deryabin began his career with Ariston Thermo Group in Russia as a production manager before moving into the area of supply chain planning. Today Alexey is a supply chain manager specializing in implementation.

Allyn Armstrong is working on Leveraging ‘Best in Breed' Global IT, Procurement & Supply Chain Management Strategies, Processes, and Technologies. Allyn has been in the manufacturing, retail, and distribution space for many years. He worked for Fortune Fifty companies. Then he went to work for KPMG Peat Marwick and cut his teeth in management consulting. As the current managing partner at ViP Global Enterprises, one of the areas that he has the greatest leverage is in the procurement and logistics area.



If you take a peek at this industry, there is very good data from a source I use, which is CAPS, the Center for Advanced Purchasing Studies. They will tell us what percent of spend is relative to revenues. If for example, a manufacturing company spends 47% of their revenue dollar on purchased items, and if we can make a small impact on the purchased items, it has a greater impact on the bottom line by increasing revenue up to 30%. If we reduce cost by 5%, it’s the same impact on the bottom line as increasing the top-line revenue 30%. Every industry is a little bit different, but the averages are anywhere from 40% to 80% of revenue. The overall industry average is about 47%, 50% rounded off.


The other big cost component in products is the logistics piece, and that tends to be anywhere from 3.5% to 4.5% of revenue. Purchasing and logistics are the two areas that we started being in tune with at Peat Marwick years ago, and what I found is that if we can leverage the buying power in these areas, then you can reduce costs significantly. For example, a hundred-million-dollar company will have a certain leverage in the marketplace. If I create a consortia or buying group of ten of those companies, then we have a billion dollars in opportunity. We are leveraging the spend in that category.


Lately, I’ve been focusing on transportation costs, and I don’t think that a collaborative is essentially new. What is new is using today’s technologies. Technology makes it a lot easier than it was back in the ’90s. I built their (Peat Marwick’s) practice in supply chain management when that term wasn’t a very common. I think we kind of invented it. It wasn’t a term that was really out there in literature etc. That was in the ’92 vintage, ’95 vintage. Now supply chain management is commonplace; everybody understands what supply chain management means.


And a lot of the development of supply chain management came out of the movement away from looking at functional groups. Instead we took a peek at processes, like the order-to-delivery cycle time or the design-to-market cycle times. This whole process orientation was pushed into supply chain management. Supply chain management means different things to different people. SCM means logistics or shipping to some people. SCM means procurement to others.


However, we look at the cradle to grave from when a product is sourced globally all the way through consumption or putting it into a landfill. We are looking at all the raw materials as they move through all these networks; being converted at the manufacturer, being distributed, being staged on the retail shelf, being purchased, and then being consumed.


With the green phenomena going on, the ultimate disposal of these items in processing are important. What my group does today is I have a group that goes out and does the procurement or purchasing analysis, and then we look at a spend in the organization and carve that up, put them into categories, and then we go out, and we’ll either:


1. Help them source that or

2. Leverage them with other companies to go out and create more of a volume buy with the company.


The shipping piece of it is very important today. As you know, for a lot of the manufacturers, their revenue is down anywhere from 5%—I talked to a company recently; their products shipped are down 60% over last year at this time.


Instead of focusing on revenue, everybody’s really focusing on cost right now, so it’s a very timely service that we provide, and we do it through a variety of ways. We’ll do it individually by company or we’ll consolidate them and then take that spend and utilize various tools in the industry to do that. For example, with our freight rating tool, we’ll combine this buying power, and then we’ll go out to about 50 carriers, and those carriers will have the opportunity to bid on that business.


We have pre-negotiated on a monthly basis. We will go out and negotiate with all the carriers based on our volume as we accumulate it, so we’ve gone from one dollar to five hundred thousand, to twelve million dollars, to a hundred million dollars a month in shipping. As a result we have a significant leverage not only in the supply chain, but also with the carriers. This makes the carriers happier. In addition, the client is feeling that savings as well. So we’re not only doing reselling-selling from a logistics standpoint, but also finding better ways to ship in a more cost effective way for the client to get on board with this.


I think what’s unique about our approach is that people are doing bits and pieces of this, but I don’t think they’re looking at it from a comprehensive perspective. And I don’t want to give away too much of our strategy, but again, I think a lot of people out there are doing bits of pieces of it, but we’re looking at it not only in transportation spend, but we’re going to come back around to this group and say, ‘Well, you all have a common theme in buying pallets or whatever,’ packaging material, for example, or industrial chemicals etc.”


Commerce One years ago—which I don’t think they’re in business today; they were pushed into Ariba—they have a similar approach, and that’s the strategy that we take. They’re more of a software provider. Well, we’re their full-service entity, and we just utilize their tools.


Do you have any recommendations for companies that want to innovate as far as reducing their transportation spending?


The recommendations are to leverage their spend with other companies that are similar in their niche.


And that’s absolutely the number one recommendation.


The second one is to do an analysis of your shipping or transportation spend dollar and benchmark that to other people in your industry. The average is 4% of revenue. If you find out your spending 10% of revenue, then there’s a big gap. You will need to identify what are the strategies to close that gap to get closer to the average. If you’re at 2% or 3% of revenue, then you’re best in class, best in breed. So there’s a whole gap analysis that companies can do internally. For purchasing and logistic professionals, they would probably do this on a large volume or the top twenty percent, but I’m not so sure they have a convenient or a quick way to do it for every shipment.


I think eBay was the first to come out and create this auction scenario that’s been around for years. The traditional approach is here’s our volume, farm it out, give us a bid, and go through that process. Well, today it’s much quicker to do. I would encourage everybody to do a nice spend analysis of whatever category it is—whether it’s transportation, commodity groups, etc.




About Allyn Armstrong


I recently interviewed Sara Husk who discussed collaboration with suppliers and customers. Sara works for a company called Imaginatik. Imaginatik specializes in providing innovation infrastructure both from a technical and services perspective, primarily to Fortune500 companies. Sara works with a lot of companies on their innovation program on a day to day basis.



One of the things Sara and her team is noticing is that companies increasingly want to go outside of their four walls to collaborate, innovate and develop new things. This can be with customers, suppliers or vendors. They really want to get the most that they can out of the entire group they are working with. It can be partners, universities, community groups, state regulatory groups, etc. These things can all help bring value back to the company.


How would this be done?


The first things Sara usually asks are “why do you want to get into this?”, “what is it you are hoping to gain?”, “what does success look like?”, “what are those intangible outcomes?”.


The tangible outcomes might be to get some type of new way of manufacturing a part. Intangible might be to build a strong relationship with suppliers so that they bring some of their best and creative ideas.


You are also looking at things like why you want to be the brand of choice in the marketplace to be the group to collaborate with. You also need to think about who owns the outcome and how to handle these types of pieces as well. There is a lot that goes into it in terms of the thought process up front.


There are a lot of things that are involved with thinking this whole thing through. You need to ask questions such as: How do you get people aligned with you? How do you get people participating with you? What is in it for the other parties?


Putting ideas into practice


Every time Sara and her team work with a company these questions get answered. For example, they work with a team which collaborates with universities. Up front they would have had to thought through the entire process around not just talking back and forth, but what happens to that information and where does the ownership lie? How do we engage others and what is in it for them? All of these need to be answered up front.


Sara also has groups that engage with their suppliers. Similarly, they have to go through this thought process to really make it a program that will work for them. Many think they can just jump right into a software platform or other things to support all of it. However, it really does take time to think everything through to do it right.


When is the right time to start?


Right now! Sara says these only because a lot of companies are already doing this. When you think about some of the logistics and the timing to get people engaged; if you have some time of supplier forum or get together where you bring a large group of your suppliers together, it is really an excellent time to start something like this. You can talk face to face about what you want to accomplish, why you think they are such an important part of your value chain. You can discuss how you hope to work together in the future.


Sarah and her team has seen this work very well, where they are just getting started to get that face to face effort.




Companies need to sit back in think about what you want to get out of this. You can work with your consumers, suppliers etc. on virtually anything. Is it a process improvement we are looking for? Is it a faster way to get things to the marketplace? Is it a brand new product or blue ocean capability?


This is why it is so important to think through what you want to get out of this. As you think it through you need to back yourself into how you will support it. Now that you have decided you will work with your suppliers or consumers you need to figure out how you will get back to those people. How do you really help close the loop and make sure you have that credibility with your suppliers or consumers? This is a pretty big task that people don’t always consider up front.


In addition, when asking people for their concepts or ideas, you need to ask how you are going to vet that out? If you are the one that is going to implement the idea, how will you get all of this done? You need to have people ready and waiting to do that.


You also need support at an executive level in order to be able to move the whole process and program forward.


About Sara Husk




Innovation Solutions Client Consultant


LinkedIN Profile

I recently interviewed Brian Habacivich who discussed the global energy markets and energy procurement. Brian is Senior Vice President of Fellon McCord & Associates in Louisville Kentucky. Fellon McCord is an energy management consulting practice. They manage energy for large industrial consumers globally, managing natural gas, power procurement and spent, sustainability programs and carbon foot printing, and they are in the business of reducing costs and risks for large industrial consumers of energy. These consumers can be in the space of building materials, aerospace, First and second tier automotive, primary metals, steel and aluminum, processed foods, institutional end users such as large colleges and universities, and municipal generators of electric power. 



Natural gas markets are generally understood as open and de-regulated in the United States. What is the structure in Europe?   


Europe has a very different structure. Starting from the UK moving eastward we see that the UK has a very open market. In fact, the UK is more open than the US market in that if you are a residential consumer of natural gas you have the choice to purchase gas from a whole host of suppliers whereas in the US the market is open to the industrial and commercial end user in terms of being able to select your price and supplier and how much and when you buy. But in terms of the retail market in the US it isn’t that open.  The UK is a wide open market, very deregulated with a lot of price discovery and suppliers, liquidity and choices. As you move into the continent you find that in France and Germany there is considerable choice for industrial users of natural gas.


As you move into the German market you have some choice in terms of the very large consumers. As you move eastward that choice becomes more restricted.  This is all rapidly changing. The markets are opening rapidly, with a lot of trading hubs for discovering prices. There are third party suppliers who are able to contract with industrial end users in those markets. There is whole litany of things going on in the European market to open it up more. It is a rapidly developing market creating more price transparency and choices for industrial end users. 

What are the energy prices like in China and what are the primary drivers of that structure?  


Energy prices in China in terms of electric power or natural gas are higher than in the US. This is not widely known. Prices are very non transparent in China, you can’t discover the price of power. In the US if you were in the state of Pennsylvania, for example, you would be able to fairly easily discover that if you have a supplier which could access the price grid for electric power. It is not something that is so hidden or unavailable. 


In China it is a very controlled market. There really is no price discovery. The central government controls generation, transmission and distribution, bundling the costs into a singular price. You can’t really discover what the commodity price, transmission costs or generation costs are. It is a very bundled structure and is considerably higher on a cost per kilowatt basis than the average price compared with American prices. 


The drivers for the market in China on the power and thermal side have to do mostly with coal. Coal is the primary fuel driving the Chinese industrial revolution. Coal will continue to be that driver. The second largest fuel input into their electric grid and manufacturing is hydropower. They have two big buckets. The biggest bucket which is responsible for 80% of the power generation is coal. About 15% is hydropower. Coal and hydropower are the big drivers at present. 


One of the future drivers will be nuclear power as they are getting ready to put a number of nuclear power plants on the ground in China.  If you are looking at the drivers you should be looking at international coal prices. You should be focusing on Indonesian coal, Australian coal and South African coal, and to some extent American coal because the US does export some metallurgical grade coal to China.  You would look to the direction of the international coal market in order to get a view into the direction of coal prices in China. If the direction is moving up for international coal deliveries out of Indonesia, Australia and South Africa (the biggest coal exporting countries to China) into China, then you would have to conclude that internally in China prices should be moving up for electric power. 


What is the state of third party purchasing and open markets in Brazil and do you expect changes?  


The Brazilian market is maturing and getting more price transparency and availability of natural gas and the power side. It seems to be maturing more quickly on the natural gas side, meaning you can discover prices and can buy from someone other than a utility. You can choose, shop and look for better prices or contract terms. 


On the gas side there is some level of maturity. It is still very nascent, but rapidly changing. In 2 years from now there should be decent price transparency and liquidity in that market. The power side is more sketchy. There is emerging availability of price discovery, but most of the deals are very much described as one off in nature. There is not a very broad and deep market there right now. 


What have the effects of the Arab Spring been on the crude oil market?    


The Arab Spring had a fairly profound effect coming into the second quarter of this year. When you look at the factors in the marketplace which drove prices up to $110 in the WTI side, it was over $100 in our market here in the second quarter. It was all predicated on Libya’s production coming off line and essentially knocking off a considerable amount of the global spare capacity for crude oil, which now stands at 3 million barrels a day in the OPEC side. 


There is about 3 million barrels a day of spare capacity in OPEC right now, representing most of the spare capacity for producing crude oil. It was closer to 5 million barrels a day until Libya came off line, bringing it down to 3. This created a lot of upward price momentum in the market, which has since been defeated by bad economic news globally. 


The Arab Spring had a very profound effect on pricing in the second quarter of this year. At this point the oil markets are holding steady. They are looking toward the global economy a lot more than the effects of the Arab Spring. If something were to happen in Iraq, a major producing country, it would change the crude market overnight. 

Who should attend Fellon McCord’s Global Energy Conference in Chicago on October 18-19 and what should they expect? 


Attendees should be corporations with overseas interests in terms of manufacturing and that are fairly medium to large consumers of energy who use natural gas and power. They use power and natural gas in China, India, Greater Asia, Europe, Brazil, North America and/or one or two of those regions. 


Attendees will be those involved in the procurement, supply chain management or risk management in terms of energy and supply chain management issues, and or sustainability and carbon issues.  Those who have facilities in various countries and are energy consumers concerned with what and how others are doing with respect to global energy management and the best practices involved in global energy, carbon and sustainability management. 

Fellon McCord: Global Energy Buyers Conference

October 18 – 19th  Chicago, IL USA 


Best practices in Global Energy Management with break-out sessions on the EU, South America and Asia.

Optimize your energy procurement strategy with holistic, global methodologies.


To attend, please directly contact:  Trevor M. Joelson – Fellon McCord  502-214-9335 

For more:


About Brian Habacivich


Brian Habacivch_small.jpg


Senior Vice President

Fellon McCord & Associates

Louisville Kentucky.



E-mail: bhabacivch "at"


Mary Beth Enggren has been working with the Steel Valley Authority, mostly with the Strategic Early Warning Network since December 2009. Prior to that, she worked for the Pennsylvania Department of General Services for 23 years as the Marketing Director for several purchasing/surplussing/sales programs. While based in Pittsburgh, the Steel Valley Authority administers a state-wide job retention program call the Strategic Early Warning Network.




What is the Strategic Early Warning Network?


The Strategic Early Warning Network's goal is to save manufacturing jobs throughout Pennsylvania. We provide free, professional turnaround consulting services to small- to medium-sized manufacturers. The Strategic Early Warning Network likes to focus on the small firms because the larger firms can afford to either hire their own business retention person internally, or they can afford to hire an outside consultant. Smaller firms generally don’t have that luxury. In a smaller firm you may run into a case where the owner of the company is also the chief marketing person, the chief financial officer, and the head of personnel. Given all of this, he or she simply doesn’t have the time to concentrate on any one given area. Or they may not have the expertise in one given area.


This is where the Strategic Early Warning Network comes into play. The network can work with a company that is struggling, or with a company that is just concerned about its future. The services are provided free of charge. A lot of companies will offer free initial consultation. However, the Strategic Early Warning Network actually works with their clients until they are satisfied and back on their feet. All of this is free of charge in Pennsylvania.


The services provided include Financial Restructuring, Operational Restructuring and Cost Management, Ownership Transition, High-Performance Workplace Strategies, and New Market Opportunities.



The goal of the Strategic Early Warning Network


The only goal of the Strategic Early Warning Network is to save manufacturing jobs in Pennsylvania. The organization takes this goal very seriously. They do a lot of outreach into the communities. They work with the small business development centers, chambers of commerce, and try to meet with small manufacturers on their terms so that they can become comfortable with them and turn to the Strategic Early Warning Network when they do need assistance and advice.


The way that they save manufacturing jobs is really very simple. They meet with the owner of the company, or the President or Chief Financial Officer, and go over the operations, their finances and their goals, where they see themselves over the next few years. Even in the first informal setting it is surprising how much information can be gathered. Many of the small to medium sized manufacturing firms are not necessarily very clear about where they anticipate their business going, or how to do a cash flow forecast model which would enable them to see whether or not they are pricing their products appropriately.



Helping communities to remain vital


According to the American Alliance for Manufacturing, one manufacturing job supports two supplier jobs and two consumer jobs. Therefore, the loss of one manufacturing job impacts four other jobs. Additionally, according to the Department of Community and Economic Development, manufacturing jobs pay, on average, 20% more than the average state wage.

In many rural communities, the local manufacturing companies provide the bulk of employment opportunities. When one such company closes its doors or experiences mass layoffs, the entire community is affected. Additionally, most manufacturers contribute to the welfare of their communities. The manufacturer may assist with infrastructure improvements that benefit the community while raising his productivity. Most manufacturers support community events, fundraisers, Little League teams.

Finally, manufacturing careers provide individuals with the opportunity to earn while they learn. Many vocational/technical schools offer articulation agreements with the local community colleges whereby a graduating high school senior not only has a viable skill but he also has earned several credits towards his Associate's degree. Upon completion of his Associate's degree, he will earn more money and can articulate those credits towards a four-year degree, if he so desires. His employer may well pay for some of his credits as part of a continuing education program, leaving the student with a marketable skill, a degree, and no student loans.


The Strategic Early Warning Network works to save the jobs that provide the economic revitalization and health of that community.


Examples of results


A lot of the western part of the state suffered tremendously with the collapse of the steel industry back in the 70s. Many of those companies have since been able to re-purpose themselves to provide other services and goods. This is where the greatest impact of the Strategic Early Warning Network is right now and this is where the program began.


About 7 years ago, the Pennsylvania Department of Labor and Industry took notice of the program and asked the Strategic Early Warning Network to expand eastward in the state. They opened an office in central Pennsylvania and again some of the rural counties were some of the best clients. The central part of the state in general is dependent on the hardwoods industry. There is a lot of timber, wood working and they experienced a tremendous impact with the decline of the housing market recently.


When the Strategic Early Warning Network opened an office in the central part of the state they were able to save literally hundreds of manufacturing jobs in small counties. They were able to work with these companies who were primarily used to work with construction firms to build houses. The organization helped them get into new market places for their wood products. One manufacturer started to product wood pellets for stoves, which was part of the green energy initiative.


2 years ago the Pennsylvania Department of Labor and Industry asked that they expand into Northeastern Pennsylvania. Conversely, they are seeing more impact on the more urban counties such as Berks County. Berks has a tremendous manufacturing base. It is where the city of Reading and Allentown.


A few weeks ago the Strategic Early Warning Network opened their final office in the Philadelphia area. This will be a tremendous boon to the program and the Philadelphia area. It is the most populous metropolitan area in Pennsylvania. It contains the greatest concentration of manufacturing industries.


The Strategic Early Warning Network has been able to do this through the partnerships with the Department of Labor and Industry, the economic development organizations in each area and the Pennsylvania industry partnerships. It has been a very cooperative venture to be able to provide these services throughout the state.


The proof of effectiveness is that over the past 5 years they have been able to impact approximately 4,000 jobs in Pennsylvania. When you take that multiplier effect of 2 supplier jobs and 2 service jobs for every manufacturing job, you get 16,000 jobs in Pennsylvania. In the past year they were able to save over 1,000 jobs in Pennsylvania.


When they save jobs it has a tremendous impact on the community. Not only does it keep that manufacturing firm vital, but it also prevents unemployment. If they have retained a job it is one less person on unemployment who is spending has decreased and who is dependent on state and federal money. This is a tremendous benefit, both to the communities and to the state as a whole.


The two deciding factors in a company's success are that the Strategic Early Warning Network starts to work with them before they have filed for bankruptcy and that they are willing to take a hard look at current business processes in order to make the necessary changes to return the company to solvency.

About Mary Beth Enggren

Administrative Assistant

Steel Valley Authority

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