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2013

I interviewed Kent Handelsman who discussed Win-Win Negotiations.

 

 

 

1. Please provide a brief background of yourself

 

Thanks, Dustin and thank you for the invitation to talk today. I have been involved in relationship management – procurement, supply chain management, contract management, and related areas – for over twenty-five years now.  For much of my career, I have been connected with companies in leading-edge technologies including aerospace, mainframe computers, high-end consumer electronics as well as the Internet including from routing and switching to technologies and services the Internet enables.  The complexity of these product spaces means that partnering with others for the right outcome is usually required, so my background includes complex systems sourcing and supply chain management, including a focus on the sourcing, negotiation and life-cycle management of these complex systems and the relationships needed to make it all happen in a productive manner.

 

2. What are win-win negotiations and are they real?

 

There are many views on what “win-win” means in negotiations.  A nice simple definition I found on-line is “When each party is better off after a negotiation has been completed.” (1)   In a broader sense though, it means all participants actually wanting the outcome to be good for and – to the extent feasible – optimized for all participants.  So, yes, win-win negotiations are real. Win-win is a function of intention before-the-fact as well as execution throughout the process.

 

3. Why are they important?

 

Humans are a very competitive species.  We – as a rule – love to win.  We’ve all heard the saying: “winning isn’t everything, it’s the ONLY thing!”  We are taught from the earliest games we learn to play that winning means the other players losing.   There is nothing wrong with competition and nothing wrong with adversarial negotiations.  It is a matter of what the desired outcome is and whether it is an event or an ongoing performance-based relationship.  Competing-to-win/lose with fellow stakeholders has routinely been demonstrated to be bad for the relationships, bad for the desired outcome, and likely negatively impacts the overall performance of the organization.  If you think about team sports: competing against the other team is the goal versus competing against the other players on your team.  I am not saying, by the way, that competition has to be removed from relationships in order to have win-win negotiations.  Just as there can be try-outs for roles on teams followed by collaboration among the competitors, competition to arrive at the negotiation is a healthy thing.  It helps to keep all players at their best.  In a value chain, it is critical that all the links in the chain are strong and resilient. All organizations rely on other parts of the organization for both input and for consumption of their output.   So knowing that the interactions are mutually intended to be symbiotic is foundational to win-win.

 

The buying and selling of simple goods and services has, in many cases, evolved into complex interdependent systems that must collaborate over time and across multiple events for a customer-focused outcome.  The value chain stretches from the initial ideation with a customer and perhaps a sampling of stakeholders and continues across the providers of products and services and across the total lifecycle of the customer experience.  Doing this well requires robust relationships that have a common good in mind -- an underlying understanding of the steps and roles and stages of serving the customer, and a foundation of trust that allows the interactions to perform as a synergistic chain.

 

We now rely on our value chain for everything from early access to advanced technology and product ideas to product fulfillment, customer service and an end-of-life strategy that our customers can live with.  We have all heard of – and perhaps experienced – cutthroat negotiations.  We have seen companies claim productivity gains by simply transferring risk or value from themselves to somewhere else in their value chain.  These are not sustainable acts generally and they are not win-win in my sense of it.  As an example: the American automobile industry nearly destroyed its value chain (and itself) in its downward spiral race to the bottom.  People and organizations cannot be vested in your success if they have to defend themselves from your assaults at their very survival.

 

4. How are they done?

 

If you are familiar with Steven Covey’s “7 Habits of Highly Successful People,” a lot of this will sound familiar.  The second segment of “habits” (habits 4-6) is all about optimizing for better, mutual outcomes.  There are other frameworks as well, such as the “Mutual Gains Approach” by Lawrence Susskind,(2) which outlines four steps.  Regardless of framework, it really comes down to the following:

 

1.    First is internal requirements definition and clarity in order to truly understand your needs.  This includes a deep dive into your wants versus needs and, where possible, the ranking of priorities.  You need to also understand the process you will go through to select and down-select options and choices in the process of reaching a deal.

 

2.    Second is understanding the other team.  This means to truly anticipate and understand your partner’s needs.  But unlike in normal win-lose game theory, here you are trying to understand for the sake of knowing your partner and how they will prioritize.  Here your goal is actually to study how to create value for your partner – from their vantage point.  With benefit of the deep dive you did in the prior step, you can look for enabling elements are well as blocking elements and assess for workarounds.   Did I mention before that often the toughest negotiations are internal ones?  In this stage you are particularly prone to that.  You will hear things like “I am not going to negotiate with myself” and other things reflecting people both vested in the win-lose paradigm as well as worried whether the partner has the proper mindset.  This dialog is still internal and should be encouraged to be bring all issues into the open.  You do have to be honest with your collective selves in assessing the anticipated strategy of your partner and whether or not they are believed to have your best interests at heart.  By the way, even if the consensus on your team is that the other team does not play well with others, it doesn’t mean you can’t craft a win-win strategy, it simply means you have to convince the partner to adopt your priorities as their own so that when they propose them back, you can accept them as theirs.  This does work, but requires a lot of advanced work and dynamic team engagement with the partner’s players as well as letting go of the ego of claiming the winning ideas as your own.

 

3.    The last stage is the complete negotiation.  The dance.  This stage is best considered around the concept of achieving something neither party could do alone and with the goal of not simply living through the experience but actually working it for mutual benefit as discussed earlier.   There are many different approaches to effective negotiations and all can be considered.  I would say that the keys, in addition to what we have already discussed, are listening and agility.

 

a.    Listening to understand is not easy. Particularly with Type A, competitive personalities, we think of conversation more like a fencing match:  I am hearing your words only to determine my counter-move, versus to actually “get” what you are telling me.  It is important to have multiple people listening and to collectively reflect on what is being heard.  We all know from family and politics, etc. that the same words are interpreted differently by different people, so the collective listening, asking for clarity where needed and coming to an understanding of what the partner is saying is critical.

b.    Agility.  Dictionary.com has two great definitions for agility that get to the point here (3):.

 

i.    The first is: “the power of moving quickly and easily; nimbleness”

ii.    The second definition given is: “the ability to think and draw conclusions quickly; intellectual acuity.”

 

In these definitions you can gather that the point is that negotiations are fluid things, and the parties need to anticipate that fact, even consider variable “what-if’s,” but ultimately to be able to hear, consider, decide and respond with an intended outcome in mind – all in real time.

 

It is also worth noting that we often have no choice on either side of the table as to whom the players are going to be.  In a perfect scenario, we would hand-pick all the players for skills in listening, problem solving and articulating for effectiveness.  We might also try to factor in chemistry as in working well together.  Absent the ideal, we need to each try to approach each other with an open mind and an assumption of benevolence.  What I mean by that is: when we hear other’s communicate, how will we filter what they say?  We know we all have “buttons” that can be “pushed” that make us lose objectivity.  What I am suggesting here is that: absence evidence to the contrary, we all need to listen with an assumption that the speaker intended the most benevolent or value-oriented interpretation possible.  Keep listening for clarity and understanding.

 

One other point:  I stated earlier we want “complete negotiations.” I bring this up because there are a LOT of organizations that get to only 80 or 90 percent of the deal and “table the rest” to be settled later. It should be no surprise that it is usually the case that this last 10-20 percent is around some tough issues.  Intellectual property.  Limitations of liability.  Share cost of changes. Service level agreement, etc. It is always wise to take the time needed to reach good outcomes.  But that is not “indefinitely.” We need to behave as grown-ups and finish the negotiations all the way through AND to do so BEFORE we award business or start work on the efforts.  Not doing so is a recipe for losing outcomes.  Members on both sides will fight you tooth and nail on this.  “Time to market means we have to start last week.” “ This issue will take care of itself, so just leave it alone.”  Here, the seller knows that the balance of power rests with whether or not this stands.  I have seen many situations where final contract terms are not reached for years because the business was awarded and the urgency was lost forever.  This is simply wrong-headed behavior, in my opinion, and goes to whether or not the parties really do want a mutually good outcome and are committed to seeing it through.  If you can keep people focused on the goals and the requirement to finish first, you can make it work

 

So, win-win is real.  It is manageable and, I would argue, it is the only sustainable deal practice in commerce where leadership in product and service and value are the desired outcomes.

 

Thank you again, Dustin, for this opportunity today. 

 

Footnote references

 

 

1.    www.evergladesplan.org/utilities/glossary.aspx

2.    Susskind, L. & Cruikshank, J. (1987). Breaking the Impasse: consensual approaches to resolve public disputes. Basic Books Inc.: New York, NY

3.    Agility

 

American Psychological Association (APA):

agility. (n.d.). Dictionary.com Unabridged. Retrieved April 09, 2013, from Dictionary.com website: http://dictionary.reference.com/browse/agility

Chicago Manual Style (CMS):

agility. Dictionary.com. Dictionary.com Unabridged. Random House, Inc. http://dictionary.reference.com/browse/agility (accessed: April 09, 2013).

Modern Language Association (MLA):

"agility." Dictionary.com Unabridged. Random House, Inc. 09 Apr. 2013. <Dictionary.com http://dictionary.reference.com/browse/agility>.

 

About Kent Handelsman


 

 

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Kent Handelsman

 

Trusted Leader & Change Agent in

Supply Chain, Procurement and Contract

Management bringing Customer & Corporate Value

LinkedIn Profile

I interviewed Peter Di Wit who discussed State of Development of Logistics Networks in China.


 

 

 

Dustin:              Can you start by providing a brief background of yourself?


Peter:               My name is Peter. I came to China eight years ago. I’ve been working for some international companies in logistics; first in Hong Kong, later in Shanghai, and now I’m back in Hong Kong. I’ve mostly looked after selling logistics to international companies, companies that want to either sell or want to source in China. Over the last eight years, China has developed with an incredible pace and so has logistics. You really see that also the logistics is growing at an incredible pace.


Dustin:             Can you talk more about where do you see China’s logistics networks, where are they headed?


Peter:                I think just by developing more into a consumer market, you’ll see that you need, also, good, close to your markets; therefore, there’s a growing need for more warehouses, and there’s a growing need for more reliable distribution networks to really make sure that the delivery is done on time, in full manner. To grow these networks, basically, you start with building group infrastructure first in the larger consumer markets. Usually, you see that the logistics is developing quick in the first-tier cities. But because everybody is also developing in a way that they think a lot of activities can be managed centrally, people like to further build a network from city to city as well and to centralize the logistics at hot spots where they can serve a far bigger market.


Dustin:             Who is benefiting from this development?


Peter:                I think the one that is obviously, of course, benefiting is the consumer itself, the Chinese consumer, but the one that can organize this best is the one that is also getting the most benefits out of it. The companies that really can build this next step and can build this next network in an efficient way, they are the ones that are benefiting most.


Dustin:              Is there anything you could say about how you can establish your logistics network in China?


Peter:                I think it all starts with knowing the market pretty well, so on one end you need to know China; on the other end you need to understand your customers and your suppliers; and then, of course, you need to know logistics products, and you need to find an ideal mix that both works for your particular industry or your particular clientele.


Dustin:             Do you have any final recommendations?


Peter:               I think what is very important apart from the infrastructure is that things are done in a compliant way. I think that the Chinese government needs to look after overloading pretty, pretty strict because truck overloading basically ruins the development of logistics. Because you're overloading, you’re not going to televise product, and because you're not televising product, you basically have difficulties through to make your logistics efficient. I think overloading is really a big drawback for logistics. And another thing that I think is the VAP and a lot of other things. They can still be harmonized in China. It needs to be done, because if you’re not harmonizing things, then, slowly, it’s also very difficult to standardize your logistics front.



About Peter Di Wit


 

 

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Peter Di Wit

General Manager in China

I interviewed Peter Balbus who discussed What Drives Supply Chain Excellence?

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My guest today is Peter Balbus, Managing Director of Pragmaxis LLC.  Peter specializes in assisting clients with their strategic innovation and performance improvement initiatives, with a focus on Strategic Supply Chain Management.


In this segment, Peter and I will be discussing some of the key learnings he has gained through his consulting work about what truly drives supply chain excellence.

 

1.    Welcome Peter – and please provide a brief background on yourself.

 

•    Thank you Dustin – great to be chatting with you once again.

•    I would describe myself as a consultant who specializes in strategic innovation management, with an emphasis on strategic sourcing and supply chain transformation.

•    I help clients accelerate their achievement of world-class operational performance and customer fulfillment capabilities.

•    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 a great offered by Illinois Institute of Technology.

•    My clients are varied in terms of their size and industries. Most are mid-to-large scale firms with complex global operations, and are spread across multiple industrial segments including manufacturing, chemicals, energy and electronics.

•    I’ve also done some significant recent engagements for clients in the food & beverage and office products segments, as well as working with the portfolio companies of a couple of leading private equity firms.

•    Prior to founding Pragmaxis in 2001, I held senior practice leadership positions with KPMG, CSC Index and Booz Allen & Hamilton.

 

2.    How would you define and summarize the business metrics of Supply Chain Excellence?

 

•    I would argue that supply chain excellence isn’t really so much about defining and implementing a set of metrics taken at fixed intervals. It’s more about achieving and sustaining a level of balance, efficiency and discipline leading to outstanding customer satisfaction that in turn leads to growth in revenues and profitability measured over years.

•    Too many companies view their supply chain merely as a cost center expense to be minimized. This can often result in very short-sighted behaviors throughout the organization that wind up costing much more in lost opportunities, express handling charges and reduced customer satisfaction. While efficiency and effective use of cash is a critical aspect of supply chain excellence, top companies view their supply     chains as perhaps the most critical asset they have to assert market leadership and sustain optimal levels of customer satisfaction.

 

3.    Are some industries doing better than others in achieving supply chain excellence?

 

•    In most companies, senior management believes they have made great strides in reducing costs, improving inventory turnovers, managing complexity and enhancing customer satisfaction.  The reality is that data from their own financial statements tend to say otherwise.  And the results do vary widely by industry. While virtually all industries have made significant progress in improving performance through the use of technology -– especially as measured by revenue per employee -- substantial progress on cost efficiencies and inventory management is really only seen in high-tech and electronics industrial segments.

•    For everyone else, progress has largely stalled. The worst results today are found in pharmaceuticals and industrial manufacturing groups. In general, low-margin businesses and industries facing major inflections during market downturns tend to move the fastest in maturing supply chain processes and achieving supply chain excellence before industries with higher margins and less sensitivity to external macroeconomics.

 

4.    Interesting observations, Peter.  You say that reducing supply chain costs is not the best pathway to achieving supply chain excellence.  Yet supply chain managers would argue that they can’t cut costs, enhance operational capabilities and increase customer satisfaction all at the same time.  How much emphasis do you see on cost reduction in your work?   

 

•    Great question Dustin – and the answer may surprise you.  My experience is that cost reduction is still by far the most important goal for most companies, and this was confirmed by a recent study published by Aberdeen Group.  According to their surveys of 127 corporations, the #1 business pressure senior management indicated they were experiencing was “reducing supply chain operating costs.”  Fully 54% of respondents named supply chain cost reduction as their number one goal.

•    This was even greater than “improving top line revenue”, which came in at number two.

•    Managing increasing demand volatility was number three.

•    Meeting customer mandates for faster and more accurate fulfillment was 4th

•    The need for tighter integration between planning and execution was last.

•    Interesting insights, huh?

 

 

5.    Are there specific ways that supply chain and general managers can look at their levels of performance and gauge how well they are doing?  Is there a “stages of growth” analysis that can help individual companies determine where they stand and what they should be concentrating on to become excellent? 

 

•    The simple answer is “yes there is.”

•    The complexity comes from recognizing that achieving sustained supply chain excellence comes from mastering successive processes within the total supply chain operation, and this typically can only be achieved with a disciplined, step by step improvement strategy.

•    In my work, I would define the First Stage as The Efficient Supply Chain.

•    For many companies, supply chain excellence is simply defined as achieving the lowest possible manufactured cost. Through the evolution of supply chain processes, costs were reduced, inventory levels lowered and waste eliminated.

•    But these companies eventually reach a point where they can no longer cut costs any further without adversely impacting customer service levels. They had reached their efficiency frontier.

•    The Second Stage is The Evolution of the Reliable Supply Chain.

•    The lack of reliability to deliver customer service is the efficient supply chains’ Achilles heel. This realization gave way to the concept of the reliable supply chain.

•    With this shift, the focus changed to how companies could balance costs and also achieve reliability in customer service and working capital management. The goal of this supply chain is to get the right product, to the right place at the right time -- and at the right cost.  At this level of maturity, companies focus on improving the decision-support systems to increase the potential of the supply chain.

•    For many companies this becomes a detour. There is a prevailing belief that the best supply chain is a tightly integrated supply chain. As companies work on the implementation of processes to become more reliable, they generally find that tight integration is not always beneficial. Instead, they find that the supply chain needed synchronization of processes through the building of strong horizontal controls.

•    These horizontal controls are generally defined as revenue management, Sales and Operations Planning (S&OP), supplier development and corporate social responsibility.

•    During this stage, planning grows in importance and there is a need to focus on “what-if” analysis and simulations to test for reliability. Each planner needs their own workbench to test the feasibility of solutions and these solutions required a different technology configuration and this tends to run counter to tight integration

•    The Third Stage is Building the Resilient Supply Chain.

•    During the Great Recession of 2007-2009, companies quickly learned that they had to build supply chains that could withstand the gale force winds of demand volatility and supply disruption.

•    Companies in this stage of supply chain evolution, companies move to develop greater outside sensing capabilities and change the supply chain response based on external market conditions. Supply chain leaders that built resilient supply chains and decreased the latency of sensing demand and supply changes were best able to adapt to rapid market changes.

•    The Fourth Stage is The Adaptive or Demand-Driven Supply Chain.

•    In the demand-driven supply chain, companies increase their sensing capabilities and extended their internal sourcing, make and deliver processes into the discussions with both buy- and sell-side trading partners.

•    In these top-to-top meetings and relationships, the discussions become much more data driven. As a result, the metrics change.

•    Procurement discussions focus on total landed costs, not just purchase costs. In addition, suppliers are incented to contribute through innovation networks and alignment to Corporate Social Responsibility (CSR) programs. Scorecards and performance management processes evolve. The emphasis shifts to focus on building win-win partnerships through supplier development programs.

•    To build supply chain sensing capabilities in the downstream channel, many core processes need to be turned outside-in. Demand planning processes change from focusing on predicting what to ship from factories to predicting what will be sold in the channel.

•    For many companies, this makes the investments they made in “integrated supply chain” and multiyear Enterprise Resource Planning (ERP) programs obsolete.

•    It is no longer sufficient to be tightly integrated to order and shipment processes. Instead, the company needs to define the process of demand translation: that is, the translation of market demands to supply operations with minimal latency. These processes are built on channel data, not corporate history.

•    In the demand-driven supply chain, the processes first sense and then shape demand based on revenue management practices. Demand shaping includes the active processes of new product launch, price management, trade promotion management, marketing and advertising, and incenting sales against revenue management processes. These processes are designed outside-in to evaluate “what really matters to customers.”

•    Companies that mature in this capability usually are also mature in the processes of determining customer profitability through cost-to-serve analysis and looking at product profitability to decide upon the right product portfolio. They actively manage complexity.

•    This stage of development requires tight integration of the research and development efforts (R&D) to the supply chain processes.

•    Since 60-80% of the costs of a product are contained in new product launch and many supply chain networks are defined at the time of launch, companies need to carefully define the coupling of cross functional, horizontal processes. This includes the integration of Sales and Operations Planning (S&OP) with R&D Stage Gate Planning -- and the coupling of Corporate Social Responsibility (CSR) with Supplier Development programs.

•    In this stage of supply chain development, one of the toughest change management issues is the elevated role that “sales” takes on in driving a profitable demand response.

•    Since most sales organizations are incented on volume, not profitability, there is a strong resistance to shape demand unless the incentives are aligned to focus on selling a profitable unit.

•    But this is a change management issue worth fighting for. As the demand-driven supply chain evolves, we find that one of the largest impacts is improved customer service and the reduction of cost of sales as a percentage of revenue.

•    Customer satisfaction improves and the dialogue is now focused more on what the customer values versus internal, self-serving metrics.

 

6.    Wow!  That’s a lot of information to digest!!

 

•    Well, yes.  I admit that supply chain excellence and achieving world-class levels of performance are not for the faint of heart.  These are very complex concepts that demand exceptional talent, planning and execution capabilities. There are no shortcuts or silver bullets to achieving world-class performance – it takes careful planning, full-time resources and excellent project management to move through these stages of growth.

•    Like most complex business initiatives, bringing in some outside resources who have been through these processes before to help drive these complex initiatives can go a long way to reducing the risks an costs of working through these stages of growth.

•    But even more important is the understanding that supply chain excellence is not a final destination – it is an ongoing, relentless process of improvement over time and as technologies evolve.  The goals and definition of supply chain excellence also evolve and mature over time.

•    The only constant in business today is one thing: change!

 

Thank you Peter


About Peter Balbus


 

 

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Peter Balbus

CEO & Managing Director

Pragmaxis LLC

LinkedIn Profile

I interviewed David Rajakovich who discussed Procurement Innovation: Combining Data Analysis and the Wisdom of the Crowds.


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I understand you have been working on an innovative way of conducting opportunity analysis, how could prediction markets be used to enhance opportunity analysis?

 

  • The idea behind using prediction markets in opportunity analysis is the same one that prompted the United States Department of Defense to consider establishing a prediction market for the next terrorist attack – they only abandoned the idea because of misguided public outrage. If you think about it, it is very difficult for a small group of experts to know about a widely decentralized terrorist network. However, the masses, aided by the profit motive, will be much more likely to be in a position to identify the greatest threats.

 

  • The better your information source is, the more you would be likely to wager on the outcome. In your supply chain, there may be unacceptable working conditions, unethical practices, huge opportunities, or huge risks that those at the top of the supply chain hierarchy simply can’t be aware of. Prediction markets will bring that knowledge to light.

 

How can commodity buyers best limit their risk?

 

  • Companies are often in the position of doing spot buying when it comes to commodities. That is actually quite a dangerous position to be in…commodity prices fluctuate wildly, which means that your organization’s margin will fluctuate significantly as well. Instead of being in the commodity speculation business, food companies and others should be in the food production business. That means building a model to explain commodity cost drivers. Having worked a great deal with statistics, I understand that commodity models should be kept as simple as possible to focus on the key drivers.

 

  • My approach is to then use prediction markets to get a range estimate of where those drivers will be over the next 3, 6, and 12 months. If you have a good forecast for your demand – again, we can do this through prediction markets - then you are almost completely out of the commodity speculation business and back in the food, construction or engineering business.

 

 

There is a trend toward using 'Big Data' in procurement, what are your thoughts on how data could be used?

 

  • Many companies have spent a significant amount of money on spend analysis and business intelligence tools. I believe it is fair to say that companies, in many cases, can get more out of the data that is available to them. Iasta, for instance, has an excellent tool that provides spend analytics in just about any way that want to slice and dice the data.

 

  • The key is understanding how you want to use the data. If you are doing opportunity analysis, what are the corporate objectives that you are working towards? Is it cost reduction? Reduction of risk? Improving new product development? Etc. It is only then that you can use the data to find out what you need. 

 

  • You also will want to test the assumptions behind the data. Some analytics tools will provide you an estimate minimum savings and estimated maximum savings…find out what is behind that, and make sure you are comfortable with it. It might not hurt to invest in third party market research to get a more objective view of the level of savings that are possible.  

 

  • The keys is thinking about data, and getting people to think creatively about how to use it.

 

  • Data can be about analysis the market – for example, there are seasonal items so we can detect trends in the data about when to buy.  We can connect this analysis to data from finance about the cost of capital to make decisions about whether to hold inventory, or we can see that there is enough of a problem to go deep into improving supply chain efficiency. 

 

  • We could also detect trends to understand what is causing problems – for example, spend on replacement valves always increases after a certain cleaning process is undertaken. That discovery could be the impetus for a change in the process. The beauty of data is that when it is used well, it can uncover significant opportunities. I think the gap right now is that we need people who understand data and statistics or to bring in people that understand those things to make it work.

 

How can we take advantage of the wisdom of the crowd in terms of procurement strategy?

 

Procurement departments generally are not getting larger, especially in Europe at the moment. I spoke to one category manager at a major food and beverage company yesterday that told me that experienced personnel are being replaced by younger, cheaper personnel. So, we need all the resource that we can find to solve problems. And, this may be heresy to experienced procurement people or experienced business people generally, but innovative solutions generally come from people that think differently than the people who thought about the problem previously. That is why innovative companies – Procter & Gamble is one – are using crowdsourcing to solve even scientific problems. Chemists are solving physics and biology problems, so why can’t production or marketing solve procurement problems or vice versa? I believe there is a great deal that we can do in terms of using collective wisdom to solve problems and make better business decisions.


About David Rajakovich


 

 

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David Rajakovich

 

CEO and Founder

Prometheus Procurement Ltd

LinkedIn Profile

I interviewed Mary Adams who discussed Open Source Tools For Creating an Inventory and Visualization of your Intangibles. The tools provide a great way for thinking about supply chain. They talk about production and then about the distribution and the partners that exist on both sides, on the supply side or the distribution side.

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Dustin:             It’s good to speak with you again, Mary. We’ve had several good discussions in the past regarding intangibles, and I’ll put those links in this blog post. Can you start by providing a brief background of yourself?


Mary:                Sure, Dustin. I’m a person who started my career in the financial industry. I was with Citicorp and Sanwa Business Credit for close to fifteen years and then started my own consulting firm almost fifteen years ago. I spent the next chapter in my career helping companies with their strategies and figuring out how to grow in this challenging economy. I became really interested in the field of intangibles. I hear in the U.S.—and, really, all over the world—intangibles are the dominant asset now. In the U.S. eighty percent of the value of the average business is off balance sheet. It’s intangible, it’s not being counted using the traditional business tools, and so the challenge and why I started a new company in January that we haven’t discussed before, Dustin, called Smarter-Companies. Smarter-Companies is creating a marketplace of tools and ideas around intangibles to help educate, really, all kinds of businesspeople on how to think about these, how to see them, make them visible, measure them, and improve the monetization.

 

Dustin:             You mentioned that you have some open-source tools on your Web site. Can you talk about those?


Mary:                Sure. One of the big challenges for everyone is just starting a conversation. I had a book come out a number of years ago, it’s about three years ago now, talking about intangibles and that helps, and there are a lot of people having conversations, but there’s nothing like just putting in people’s hands some simple steps and some simple tools and that’s what we’ve done on the Smarter-Companies Web site, Smarter-Companies.com.


                        If you look under iCounts Tools, we have about four open-source tools that you’re welcome to use. The first one helps you figure out the relative importance of intangibles to the future of your business. It’s a simple calculation; you can do it right there on the Web site. The second one tells you how—it’s called the iCounts inventory that tells you how to ask seven questions that will get to the heart of all your tangibles. It gives you an inventory. It sounds silly but that’s one of the basic things with business; if you’re going to measure something, if you went into a store or you went into a warehouse, you went into an office building, your first instinct as a businessperson would be to say, “Well, what do we have here?” Everyone would naturally take inventory, but with intangibles, nobody’s been taught to do that, so this tells you how to take an intangibles inventory, how to identify the key components of your intangibles. I’ll talk about how some of those break down in a second.


                        Then we have two visualization tools that, again, are critical because these are intangible, people aren’t used to thinking about them, being able to lay them out and visualize them. One is kind of a free-form map approach that you can do using sticky notes on a wall, and the other is a more formal canvas approach that’s derived from the business-model canvas that’s also an open-source tool. That gives you a framework, literally a framework that you can enter in your inventory in this framework so that you can kind of look. It’s a great way for thinking about supply chain. It talks about production and then it talks about the distribution and the partners that exist on both sides, on the supply side or the distribution side. Really, that’s what’s so fun. Those are the four tools; they’re all available on the site. I think they’re really relevant to folks in the supply chain area because you're the essence of an intangibles system. You have to think about people and competencies; you have to think about the processes of your partners; you have to think about what the business model is, what the culture is in each organization, how good a fit there is there; and you have to think about all these relationships among different types of partners. The supply chain is clearly an intangible-based system. Even though it’s designed in many cases for delivering tangible goods, it’s that whole system that surrounds the tangibles, that’s really important and drives the success of an organization.


Dustin:             Do you have any examples of the application of these tools for supply chains?


Mary:                Every time we use it, it ends up incorporating the supply chain into the analysis of a company, and that’s really one of the things that’s so powerful about intangible capital thinking is that it’s a holistic view of the enterprise. It’s not just saying, “Okay, here’s an org chart,” and an org chart doesn’t show your partners; it’s really designing a visualization and designing all of the measurement and understanding and the strategy of an organization. Seeing it as an integrated network with the suppliers and distribution partners totally integrated into that view, so in terms of an example, my favorite example—and this is somebody that I’ve interviewed a number of times over the years in my different programs around intangibles—was one of the representatives from the Disney Corporation. In many ways I always say that he had one of the best understandings of the intangible nature of supply chain and intangible capital of almost any businessperson I’ve ever seen because they understand that their reputation is completely tied to the reputation of every supplier in the entire supply chain.


                        How do you manage an external force and an external organization without having an understanding that this holistic system? As I said, it’s not just about having the right contracts; it’s about knowing the people, it’s about understanding the strengths of their processes. One of the things we’re focusing on more than ever—and I think Disney is a good example,—I think most successful leading companies today, what unites them and what creates the fail safe and degree of comfort as you're managing a far-flung enterprise or even a local one, it’s the ability to develop and maintain a strong culture. We actually adapted our tools a couple years ago to add culture as one of the key things that we’re measuring when we measure all the elements of intangibles. I have more and more respect and, really, I’m giving it more and more importance in our work to understand what the culture of an organization is because a culture is a stronger police force than any kind of top-down system that you can put into place, because a culture tells people how to behave. You can’t have enough rules to tell everybody how to behave in every situation, but if you can create a culture and an environment where people intuitively understand what they’re supposed to do, then you have an amazingly powerful organization.


Dustin:            Do you have any final recommendations for supply chain executives or professionals who want to try your tools on your Web site?


Mary:               The real lesson that I try to share with folks is that if you can understand all these different elements—the people, the processes and knowledge, the relationships, the culture, the business model—and develop a holistic view of it and if that holistic view is something that you can share with all your other partners, then you’re gonna have much better results than trying to deal with it using the old-fashioned accounting and industrial models that most of us were taught as classic business tools. Break out of that, try to use some of these new tools to think holistically to see how, really, enterprises today are just a series of networks rather than individual org charts.



About Mary Adams


 

 

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Mary Adams

Founder

Smarter-Companies

LinkedIn Profile

I interviewed Scott Massie who discussed The State of International Logistics Competition vs the US.

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Dustin:             Can you start by providing a brief background of yourself?


Scott:               I’ve been in the field of logistics for forty-two years. I graduated from college in 1970 and went to work for the Military Traffic Management Command in Oakland, California. I initially to involved in the field of transportation logistics. I started with rate quotations, then I got into rail routing, then truck routings, air routings, and then ocean routings. I actually became the resident expert on shipment of oversize, overweight, hazardous materials.


                        At the time, everything was very regulated with the Interstate Commerce Commission regulating rates and what carriers could get involved in logistics. Internationally, there were regulations as well. I went to another part of the government, which was the General Services Administration, in 1974 and headed up the distribution for the whole Midwest, a seven-state area, for all the different supplies and things that the government used to support its own internal functions. Then I went on after that in 1979, to work for Eastern Airlines, which, at the time, was the largest U.S. airline in terms of revenue. Unfortunately, due to deregulation, they didn’t quite plan correctly, and they ended up going out of business in 1984. It is still today the largest U.S. company to go out of business; forty thousand employees lost their jobs. It was attributed to the unions, but, of course, management played a big part in the unions’ development.


                        From there I worked for Hertz-Penske Truck Leasing; I helped them set up various types of distribution operations, contract carriage, single-source leasing, and also to run their carrier operation. They decided they wanted to get out of that business and they sold it. This is what brought me to where I am in Atlanta, Georgia, with Glasrock Home Health Care. In 1985 I helped them set up a complete distribution network for home health care materials that were shipped all over the United States. There were a total of four hundred branches and fourteen distribution centers. They didn’t get into the IV therapy part of the business when AIDS and all these immunodeficiency diseases started up. They ended selling out to another company in 1991. I then went to work for Sunbelt Coca-Cola as the head of fleet and transportation for them for about two years, until they ended up selling out to another Coca-Cola bottler in North Carolina. That brought me back to working in Atlanta, and I worked with Atlanta Housing Authority during the time there were a lot of things going on with the Olympics in Atlanta in 1996. After that they started shutting down the public housing and got into a Section 8 housing.


                        Then I went on, from 1997 up through now, for the most part. I have been a project manager consultant for various companies, starting with Burnham Service Corporation in 1997. I did all my own software, my own logistics software with my own business, SPOT Logistics, from 2001 to 2004. Then I took a position as the president of operations for an erosion-control company, Georgia Erosion Control Center, from 2004 to 2006. That’s where I got more involved personally in importing shipments from particularly China. They ended up selling out, and then from 2006 I went to work as a consultant for Imperial Tobacco in Canada, helping them with their inventory management and setting up some of their operating systems, and then another Canadian company coincidentally for a couple years, Sandvik Mining and Construction, helping them merge their ERP systems in Canada and the U.S. and putting in a quality management system for them.


                        From 2009 to 2011, I worked for AT&T as a consultant for their need for property-access rights for their new TV and video services. Then I coincidentally got this project with Amoena to implement a foreign trade zone for them and to straighten out their logistics operations. I’ve been basically going, lately, from one project to another, working for different companies. I have worked on projects in between for companies like Steelcase Furniture. I did a big project for UPS. For UPS, I actually created their contract-management system. I have done a variety of different types of audit analyses, different operational improvements for a lot of different companies, so that’s kind of a lot of background, but I’ve had forty-two years in it.


Dustin:             Can you talk about the state of logistics competitions with other countries, such as China and India, compared to the U.S.?


Scott:               Yes, I can and I’ve really been following it pretty closely in a lot of ways. It seems to me, in my opinion, that China is ultimately going take over as a leader in logistics from the transportation standpoint; India, on the warehousing end of distribution. They are both advancing very fast and taking advantage of all the technology that’s available. I see the U.S. falling behind in that regard.

    

                        When you look at business environment, for instance—and this is pretty factual, I believe—90% of management recruiters that recruit for different companies all over the world are from India. They are very qualified people. Most of them are well-educated as recruiters with master’s degrees. They know a lot about IT, a lot of different parts of business. They are virtually running most of the IT departments in a lot of big companies now.


                        My wife happens to be from China, and I’ve gotten to know a lot of Chinese people and have some relatives of her's that have been here and I’ve learned a lot of different things. I know that in the field of math and science, the Chinese are way ahead of us. For instance, at Georgia State University here in Atlanta, the entire math department is made up of Asian people; not all Chinese, some are from Korea, Japan, Vietnam. Even the professors and all the students are basically all from Asia. Nursing schools are also primarily Asian people—at least in this area that I’m familiar with. My stepdaughter just finished nursing school at Georgia State. My point about logistics is that I’m seeing far more professionalism in dealing with the foreign companies than the domestic ones here. They’re more service-oriented, they can compete on prices better because they really focus on how to run businesses correctly. They are not bloated with a lot of bureaucracy like a lot of American companies. I see them really moving forward faster than we are.


                        Technology has definitely leveled the playing field, and countries that haven’t been able to compete with the U.S. are now, because of technology, are able not to just compete but surpass the U.S. I was talking to a fella with one of the companies I worked with who had just come back from a trip to India and told me about the infrastructure of some of the buildings that he visited, because they’re looking at buying companies. They are a private-equity company—buying companies in India like they’ve done in China because they see India really progressing. From the outside, buildings look like they’re falling apart, and in some cases they do. But when you go inside, he was absolutely amazed at how well they have mastered the technology when it comes to logistics and key performance indicators and to be able to see a complete visibility on what’s going on within the operation minute by minute.


                        A lot of U.S. companies still use the…their claim to fame is, they use Excel spreadsheets and have gotten off of the three-by-five cards. Despite the fact that we have the technology that started here and a lot of it developed here, it’s not being used here like it should be. The other countries are demonstrating how the technology can be used. Korea, China, India for sure.


                        Another factor—it may not necessarily be a popular type of thing to say, but as I started in my field of logistics back in the seventies, there was a lot of really, really good professionals that really took the profession seriously. As a lot of companies and businesses started reducing to try to survive, they got rid of a lot of the top managers, and they would replace them with a secretary or a lower person, thinking they could do the job as well. What I think has sort of happened is, other countries don’t necessarily have the same kind of rules like we have in this country, where we’re really big on equal opportunity and advancing people that didn’t have a fair opportunity. Other countries don’t look at it that way at all.


                        I’ll give you an example. I’ve flown Delta Airlines quite a bit. I used to work for Eastern, and I’ve flown on foreign airlines, like Korean Air Lines, and it’s completely night and day between the two companies. The Korean Air Lines flight attendants all look like models out of a magazine. The U.S. airline flight attendants, because of age discrimination and all these kinds of things, a lot of them are, you know, fifties, maybe sixty years old. They still working, which is good for them, but they don’t have the appeal a lot of the foreign airlines do. Also, the service isn’t as good. You usually can get a better deal, and they’ll take more than one suitcase from you without charging you an arm and a leg. It’s just a better overall operation the way they operate as a comparison.


                        My point being is that a lot of this upward mobility which we have here, which has been a good thing in a lot of ways, it has kind of stifled our ability, in my mind, to compete with other countries that don’t necessarily view human rights the same way we do. It may not be a popular thing to say, but I think that it’s definitely had a big impact on the nature of our whole business and economy. It’s a cultural development that we have here that’s not up to speed with countries that used to be far behind us. I don’t know if you’ve heard of this from other people, but I’ve lived through it and I’ve seen it and I know it’s a fact.


About Scott Massie


 

 

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Scott Massie

 

Senior Project

Manager at Fujitsu

LinkedIn Profile

I interviewed Thomas Tanel who discussed Reevaluating Manufacturing Offshoring and Outsourcing.

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Dustin:            Can you start by providing a brief background of yourself?


Thomas:          I’m Tom Tanel. I’m the president and CEO of CATTAN Services Group. We are a logistics and supply chain consultancy and training firm, specializing in purchasing and procurement in supply management; distribution, freight transportation, warehousing and materials management. I’ve been doing this now, let’s see, been involved in the business for about thirty-eight years.


Dustin:            Can you talk about Offshoring versus onshoring? What’s going on at the present?


Thomas:          That’s an excellent question. I think people are getting more confused. I think it’s been a phenomenon we’ve been working with. It’s increasingly popular now for companies to claim they’re reevaluating off-shoring and the outsourcing and manufacturing of the world’s local services. I’m sure everybody has heard the terms onshoring, nearshoring, rightshoring, and probably you’re kinda dazed and confused at the same time. Part of it has to do with making sourcing decisions and the due diligence that’s involved.


                        People, years back, started to make these wholesale moves to outsource their functions based upon the fact it’s cheaper to do things overseas. I think people have found out over the years that may or not be true, and in today’s world or environment, those enamored by lower labor costs and lax environmental conditions have actually moved a lot of our manufacturing overseas. Those signs have been there for a long time and that’s also because people have viewed what’s called “low-cost country sourcing,” which people also call “best-cost country sourcing,” and now the new terminology is “best-value country sourcing.” I still think that people have some confusion with the results, what’s there. When people talk about competitive advantage, where does the value reside? Where do you manufacture products? What place should you do it around the world, where it allows you to still satisfy both your internal and external customers and your constituencies that you’re dealing with? I think that’s a big problem today.


                        I think the offshoring phenomenon has deep roots and long-term implications that, unfortunately, I think a lot of the people who were the proponents urgently, going back ten, fifteen years ago didn’t understand some of the implications of that, and we’ve, as a result, have been profoundly impacted by the phenomenon. I think the global financial crisis back in 2008, 2009 kind of brought some of these things to the head, where people started to say, “Let me look at what’s happening out there,” as far as the potential for what’s happening.


                        I think it’s important to understand some of the counter strategies to offshore and some of the terminology that’s being bantered around out there. For example, some people refer to something called “onshoring,” which is actually the transfer of business process or service to non-metropolitan areas in the same country as your business is in. The cost of labor and operations are lower. Example: Boeing recently moved a lot of their airplane manufacturing to the Carolinas because they are right to work states to avoid Washington State, where that manufacturing pretty much resided for Boeing, which is heavily unionized. Nearshoring is moving the business process to a foreign country that’s really close by. For example, now you’re seeing things coming back to, say, Mexico or Central America; that’s called nearshoring. Another term that you hear people use is backshoring; kind of the trend of returning manufacturing from an offshore location back to the home country where it was originally based. I’m sure you’ve heard anybody who’s read in the newspapers, industry magazines companies like Hearst, Master Lock, GE Appliance, NCR, Otis elevator, for example, are making the transition to bring things back to the U.S. that they had previously sent out of the U.S.


                        This is kind of an important thing. And then the last term that you hear is reshoring, which is backshoring, which can lead to onshoring at lower-cost locations in the home country or nearshoring, which are lower-cost options in the home country’s specific geographic region. You’re seeing things coming back now to the Caribbean Basin, Mexico, Central America, even South America, where some of that stuff has moved on. China no longer is going to be the only place where things are done because their labor costs have increased as well, so people are looking at areas in Southeast Asia, India, for example, those the countries that might be a data resource to offshore as well.


                        One of the things I think that’s happening today is, a lot of companies have realized that having offshored much of the manufacturing and supply away from where the demand locations has hurt their ability to meet expectations. When you start looking at the lead times that you have, the problem has been that low-cost country sourcing in the last decade, few people have questioned the wisdom until recently. A lot of guys were just looking at what the price was, and we’re looking at total landed cost, the total cost of acquisition. You’re then making what we call a good, ol’ shift-cost challenge. There’s actually been a paradigm shift; there’s been an evolution of what we call low-cost country sourcing, which is a sourcing approach based upon the selection of supply and you have many cost advantages and the exploitation of what they call labor arbitrage, which is cheap labor. They have bodies versus an automation. That was pretty good from 1980 to about 2001.


                        Then from about 2002 to the present, the term changed around to the best-cost country sourcing. It started to really catch on, I would say, about when the financial crisis happened. We have cost-driven sourcing strategies based upon total cost of ownership, and some of the qualitative factors. More of a long-term approach versus low cost country sourcing is kind of an outsourcing, a short-term strategy approach. Today the new term that you hear bantered around is what’s called Best-Value Country Sourcing, which is the sourcing approach based upon total cost of ownership that you had previously, but looking at the qualitative areas but also looking at the logistical factors.


                        When you look at that, it is more of an approach that is more sustainable. You can possibly also switch a source that you have in one area. For example, “I might have something in Southeast Asia, which I moved to Eastern Europe,” or vice versa. I think a low-cost country, for example, today is not automatically a best-cost country for a certain product category, company, or even industry today. Probably, I think a lot of this is most effective right now; the industries where you really see it affecting are electronics, consumer goods, the retail sector.


                        As our marketplace becomes a lot more dynamic, we’re driving further that word that people hear bantered around: commoditization. Global players have pushed to compete not only on innovation and cost but on flexibility and the ability to interact with people. An individual best-value country sourcing criteria has gained massively in importance. Probably the biggest area you have of concern is for lack of environmental standards. People don’t want talk bout that, but a lot of places that people have outsourced to, don’t have the same things you have here, which increase the cost; even legal uncertainties. Just look at intellectual property. I always think of China when Apple found out they had Apple stores in China that they weren’t aware of.


                        The other area, I think, that you have is the labor phenomenon and jobs are moved to nations where the labor and cost of doing business is inexpensive. Impoverished labor moves to nations with higher-paying jobs. For example, if you go to the Middle East and you look at most of the populations doing the work, in some cases forty, fifty, sixty percent of the people who are doing the work are not native to that country. They are bringing in people to get the job done. Places like India, Philippines, et cetera. In addition to realizing labor and import costs, I think some of the issues that people are now looking at and addressing are the impact of longer supply chains, shipping reaction times, inventory carrying costs. If you have something coming from China to the middle part of the United States, you’re talking probably sixty, seventy-five days in the pipeline.


                        Just think of the inventory that you have to maintain the cost to do that as well. I think a lot of this is kind of true, and I think that companies are sourcing more capital equipment from some of these regions to reduce their overall capital expenditures; things like pumps, chemical plant equipment, storage tanks, glass furnaces, for example. In many of the multinationals involved in mining, oil explorations are sourcing big-ticket capital equipment from low-cost countries for use not only in those countries, but even in the Western countries. I think if you take a look at the total landed manufacturing cost it is still a continuing factor in company site selections. People have to consider the cost of the raw material and components; the cost to manufacturer and the logistics; the inventory; investment in carrying costs; as well as taxes and duties.


                        Projections vary widely depending upon the company and the industry, but anyone who has a high labor cost component, total landed cost, there are still financial advantages of offshoring things, and they are very compelling and sustainable. In other areas, companies may have to reevaluate their sourcing decisions based upon changes in regional market conditions and also the cost gap and, in some cases, domestic manufacturing may or may not be feasible. People don’t think about if you send things out of the U.S., where is that capacity to bring a plant back online, as well as the expertise?



About Thomas Tanel


 

 

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Thomas Tanel

CEO

CATTAN Services Group

LinkedIn Profile

I interviewed Raymon Krishnan an Asia Pacific Logistics & Trade Compliance professional who discussed Combined Distribution Networks and supply chain collaboration and using a lead logistics provider, or 4PL.

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Dustin:             Can you start by providing a brief background of yourself?


Raymon:           I have been involved in logistics and supply chain management for about twenty-one years. I started out my career with a 3PL, or freight provider. I worked for some local and multinational companies—you may have heard of some of them, such as Panalpina. I worked for Panalpina in the 1990s. After about five years with a service provider, I went to work with a shipper for one of our customers. I worked as a logistics manager for a Swiss confectionary company. After that I moved on to a U.S. multinational, which I think still is the largest distributor of network cabling and IT support systems. I did that for a while, and then for the last decade, until 2010, I was working as a consultant in supply chain management and also involved in academia, as an educationist.


                        I used to teach certificate up to master’s-level programs for people at the University of Wales, which is a U.K. university; the Australian Logistics Academy; and the University of Wollongong, which is an Australian university based in New South Wales. For the last four and half years I have been working in trade compliance and logistics. I head up the function here in the Asia-Pacific region for WR Grace, which is a specialty chemical company listed on the NYSE. It’s a fairly old company, about a hundred sixty years old. We have a presence in Asia, Europe, the Middle East, Africa, India, and, of course, North and South America. I worked as a shipper, service provider, consultant and educationist in the span of twenty-two to twenty-three years.


Dustin:             What are combined distribution networks?


Raymon:           The concept of CDNs, or combined distribution networks, is fairly easy to understand. At a very high level, it is combining supply networks of different companies in the supply chain. The goal at the end of the day is to increase efficiency and effectiveness, which is something that we all strive for in logistics. Collaboration or having a lead logistics provider or 4PL is something that’s not very new. We have heard about it since the time of the launching of that concept with John Gattorna in the nineties. Combined distribution networks is considered the alias, an extension of collaboration. In collaboration with our suppliers' suppliers and our customers’ customers, which is real supply chain management. We combine distribution networks. We merge our supply chains or work with our competitors to achieve greater economies and efficiencies. We leverage off volumes within a particular logistics pipeline.


Dustin:             Why are combined distribution networks important?


Raymon:           The commercial driver for it is, of course, greater efficiency and effectiveness, which will then result in lower cost. This is lower cost possibly to be passed on to the end user or the customer but very often just to make your supply chain or your distribution network more competitive. Therefore, you are returning that value to your bottom line. There is a commercial driver for it. If you talk about it from a corporate social responsibility perspective, having your trucks, for example, fully loaded instead of sending out a less-than-truckload shipment, that will help you reduce your carbon footprint. You will be reducing or eliminating back haul. You send a truck to a particular location full, and then you send an empty truck back. That’s not environmentally friendly, so with the combined distribution network model, you have the opportunity to better optimize this.


                        Lower cost from a commercial perspective; reducing your carbon footprint from a corporate social responsibility perspective; and I think, also, it is going to be the next evolutionary step in supply chain management. A few years ago, when the concept of RFID started becoming popular, everyone was talking about RFID. But the uptake, as we’ve seen, has not been that aggressive or not that successful, if you like, for a lot of reasons. However, something like CDNs is fairly easy to understand, fairly straightforward to implement if we can get rid of many of the soft issues related to it. I think this and possibly 3-D printing, which I’m sure you’ve heard of, are two of the biggest things that are gonna happen in our industry in the next three to five years.


Dustin:             Who can benefit?


Raymon:           Well, first off, shippers or end users. For example, if you have a McDonald’s, a Taco Bell, a Pizza Hut, and a KFC all located in the same shopping mall, all these four companies or outlets would have four different trucks servicing them. In a combined distribution network, you could have all four competitors’ products in the same truck, delivering to that one mall. You reduce your transport costs by 70% to 75%.


                        The obvious beneficiary would be the shippers—people who ship products between points A, B, C, D. The next group would be end users, because, hopefully, with this lower freight cost, some of the savings will be passed off to the consumer. Therefore, the rate of increase of the price of products that we want to buy off the shelves or out of a restaurant will not be as high. Third, I think is society in general. There is a driver, although not so much lately, but there is still a very significant drive for us to be environmentally friendly, reducing our carbon footprint. This combined distribution network would benefit society. Last but not least, I would say it would benefit transport providers, be it an ocean-freight carrier, air-freight provider, or road freight provider through better utilization and optimization.


Dustin:             How are the CDNs, combined distribution networks, established?


Raymon:           I would say that normally, with the most successful model, it would be through a third party. However, if you search the Internet, you’ll see that Hershey’s and Ferrero—I think they’re two of the world’s largest candy makers— announced in 2011 that they would work together and would combine their logistics pipeline (their distribution network) to reduce their carbon footprint. This was done in North America. They ahve launched a collaborative warehousing, transportation, and distribution network, which is a really good step toward realizing the CDN dream. Ferrero and Hershey, both brands will reduce truck miles, carbon dioxide output and energy costs. At the same time they will reduce freight costs. They have not, however, combined manufacturing, selling, or marketing activities.


                        Really, [with] combined distribution networks, you don’t have to merge everything within your logistics department or within your organization; you just merge the things that mutually benefit two or three or however many organizations are participating. Normally this is done with a third party, but this is one real-life example where it has been successful with two companies coming together. The reason why I think a third party needs to be involved is that very often, the handicap or the mind-set with people when it comes to combined distribution networks is, “I can’t put my products in the same warehouse as my competition. They’ll know who I buy from, or they’ll know what raw materials I use,” things like that.


                        What you need is a third party who’s impartial and who has no vested interest in any organization that takes part in a CDN. We’ve seen that happen in 2012; in fact, 2011 as well. It was an organization called Tri-Vizor, and they’re a spin-off of University of Antwerp. They’ve become the first company in the world that specializes in the creation and management of combined distribution networks, or what they call horizontal partnerships. They act as impartial trustees, if you like, or impartial parties to bringing organizations together and combining their distribution networks to achieve all the things that we want to achieve in CDNs. They’ve done that with UCB, which is a Belgian health care company, and Baxter Healthcare. They use software—they manage the software—they look at the shipments that UCB and Baxter have, and do the route planning for them and load optimization and delivery planning.



About Raymon Krishnan


 

 

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Raymon Krishnan

 

Asia Pacific Logistics & Trade Compliance

LinkedIn Profile

I interviewed John Manners-Bell, a Chief Executive of Transport Intelligence who discussed Supply Chain Risk and Catastrophic Risk.

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Dustin:             Can you start by providing a brief background of yourself?


John:                Yeah, thank you, Dustin, for the opportunity to speak. It’s John Manners-Bell. I’m a chief executive of Transport Intelligence; we’re a research company with operations in the U.K., Atlanta, and in Hong Kong. We’ve been around for ten years or so, writing and researching the global logistics industry.


Dustin:             Can you talk about what you’ve seen over the last twenty years regarding external risks and internal risks in the supply chain?


John:                Yeah, absolutely, Dustin. I think this is really important, and I think this is a high priority for a lot of global manufacturers now and also their logistics service providers. I think over the last twenty years, what we’ve seen is supply chain managers really focusing on reducing their internal cost, the cost in their supply chains. They’ve been focusing on lean inventory, centralized distribution, just-in-time delivery, and, at the same time as that, they’ve been creating these virtual networks for manufacturing and using layers of tier one, tier two, and tier three-plus suppliers, so their supply chains have become really quite complex. What this has done is reduce their internal risks, so they’ve been able to reduce their inventory; they’ve been able to improve their product life cycle in time, so they’ve made it more responsive to their customers. But at the same time, they’ve really increased the vulnerability of their supply chains, which has made them quite exposed to natural catastrophes, as we’ve seen with the Japanese tsunami and tide floods. We’ve also seen it in Europe, with the volcano, which brought the networks to a complete halt. And more recently, we’ve seen it in the U.S., with Hurricane Sandy bringing a lot of the East Coast of the USA to a halt. I think going forward, manufacturers are really gonna have to focus on getting the right balance between these internal and external risks.


Dustin:             Can you talk about how to address these risks?


John:                Absolutely. I think one of the programs which these manufacturers have faced is that it’s a lot easier to actually measure internal cost—the cost of holding inventory, for example—than it is actually the external cost because it’s very difficult to know what impact an event is going to have on the manufacturing strategies or the manufacturing processes of these big global high-tech or maybe consumer-goods manufacturers. So, consequently, there hasn’t really been a lot of focus put in. Because it’s been so easy for boards to be able to focus in on reducing these costs, which they’re able to measure, it hasn’t been so easy for them to actually prioritize the external risks. Now, that’s really changing because following the Japanese tsunami, companies suddenly found that it was absolutely business critical. Companies have been outsourcing their production to remote locations where, for example, high-tech companies and semiconductor companies had been very much prioritizing the development of suppliers in the Asia-Pacific region, in particular, locations such Thailand. But they weren’t actually undertaking proper risk assessment of where their suppliers were actually based. That’s something now that they’re really focusing on to actually get a better understanding of what would happen if—for example, in the Thai floods, big clusters of high-tech suppliers were actually knocked out for several months, and this had a knock-on effect throughout the supply chain and, suddenly, the major companies—the major high-tech manufacturers in particular—suddenly started realizing this could be business critical just because of the way that they’ve developed over the past few years. So, with this changing focus on actually looking whole costs rather than just one element to the cost, the external cost, they’ve really now started to develop their response. Companies like Cisco, for example, over the last ten years, have gone from a very reactive stance, so that, therefore, if there was an event, they’d just deal with it as it came up. They’ve moved through a proactive period when they suddenly started realizing that they actually should start learning more about their suppliers, going down to tier three, tier four, and even tier five, and now their processes are engineered, so risk mitigation is actually engineered into their manufacturing processes. I think one of the main catalysts of this was definitely the Japanese tsunami, because they had very little visibility of what was happening in tier four and tier five. That’s one of the interesting things is when you’re that far upstream in supply chain, any sort of disruption you get to these sorts of supplies has a real knock-on, a real snowballing effect, and it creates bottlenecks all the way down the supply chain, so it’s actually critical to know what supplier is supplying at which level and whether there’s any alternatives to multisourcing of those products. It’s these sort of processes which have been carved wide into their production strategies now.

 

Dustin:             Do you have any recommendations?


John:                Absolutely, yeah. I think it’s very much a case of manufacturers really need to start adopting either a proactive approach to risk and actually understanding, auditing their suppliers, because I think what’s quite standing to me is that there’s still a lack of visibility that many multinational manufactures have below tier one or tier two, so they have very little idea of what an impact of a particular event happening in a particular part of the world is. What Cisco have done is they put in place these processes which allows them to undertake an audit very, very quickly. They have a team of people who are monitoring events throughout the world, and once an event occurs, it can be escalated very, very quickly up the chain of command in Cisco, and the audit can be undertaken, finding out which products are affected, whether there are different sourcing strategies that can be employed, and what the impacts of this certain even can be. I think if I had one particular recommendation, it would be that manufacturers really need to look at their sourcing strategies, whether they need to hold back some manufacturing—or near sourcing, as it’s called—to maybe markets which are closer to their end users, but just to have a number of alternatives, not to put all their eggs in one basket, because many manufacturers have been caught out in the past few years as these natural disasters occur, and I think we’ve been seeing a lot more of these natural disasters over the few years, and I think we probably will expect to see them at regular occurrences over the next decade.


 


About John Manners-Bell


 

 

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John Manners-Bell

Chief Executive

Transport Intelligence

LinkedIn Profile

I interviewed Bill Young who discussed Internal Business Partnering in Procurement.

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Dustin:             Can you start by providing a brief background of yourself?


Bill:                  Yeah, sure. Dustin, I’ve been nine years as an independent consulting and nine years before that in purchasing and corporate and life sciences. Before that I was in sales and product management, so a fairly mixed commercial background. Now I help companies move into new areas of procurement, and what I’m seeing a lot of is companies that want to go into internal business partnering.


Dustin:            Can you talk more about that? Why is it important?


Bill:                  Sure. Without category management for some years, which has been mainly about cost reduction and a lot of companies have been through at least one, two, sometimes three phases of category management and the result is that they have plowed the fields and saved a lot of cash. Now purchasing is starting to look at how it can create value, as well as just reducing costs. In order to do that, they need to be much, much closer to their internal clients, but some of those internal clients are suspicious of purchasing because they have some experiences of having their budgets raided. You can see that purchasing has perhaps a little bit of ground to catch up on before it’s fully trusted as a business partner.


Dustin:              What is internal business partnering?


Bill:                   That’s really a form of consultancy. It’s being the expert on how supply markets work; what you can get out of supply markets; how you can manage them better; how you can improve their efficiency and effectiveness; how you can extend the resources of the organization beyond its direct employees and into the companies that provide it with important services; extending the scope of the resources of a company.


Dustin:             Can you talk about what was wrong with category management?


Bill:                  Yeah, category management was needed because the way in which purchasing was done in organizations about fifteen or twenty years ago, it was very haphazard, it was disorganized, very local, and being able to consolidate standardized and leverage all of that through category management was a great opportunity, but it has led to a reduction in innovation in many companies, and we’re hearing a lot now about how we want the supply network to contribute to companies’ innovation, its capability, risk reduction, and image. Category management never really tackled those areas, and that’s been a big issue over the last few years, so internal business partnering or client partnering is now what a lot of procurement departments are talking about.


Dustin:             What is the future of procurement?


Bill:                  That’s a really good question because what we’re seeing is that IT departments in many companies have already taken purchasing back into their function. You can see companies where they have IT strategic sourcing managers in effect doing exactly what purchasing wanted to do and used to do, and they’ve hollowed out that bit of procurement. The same could be happening in HR, where, if you look at the average HR department, approximately fifty percent of everything they provide to the business is actually coming from external suppliers. They need to have some sort of core competence within the HR function and managing those suppliers, and they’re asking, “Why would we get procurement to do this if it’s so important?” The future of procurement depends on stepping up to the plate and learning how to do this business partnering; otherwise, some of these departments are gonna take it in-house, as IT already has done.


Dustin:              What about value creation?



Bill:                  Well, that’s a difficult thing whenever you’ve been looking entirely at cost reduction. We’re not just talking price reduction here; we’re talking about the cost of purchase, everything associated with the cost of purchase: the total cost of ownership, and what’s called demand challenge, looking at the specifications and making sure they’re not superfluous. All of that goes into cost reduction. All of those are core skills in category management. But when we’re talking to internal clients in our respective organizations, yeah, cost is sometimes a key driver behind a project, but usually it’s other things like they want to improve innovation or capability or reduce risks, or they want to improve market share. A lot of things they want to do, and cost reduction is not always in the front of their minds. And if purchasing turns up to help them and all that purchasing talks about is cost reduction, we don’t have alignment. In order to align with internal clients, purchasing has to take on goals like image improvement, innovation, other areas of capability improvement and own those and be rewarded for them. That’s what value creation is; it includes cost reduction but it’s not limited to it, Dustin.


Dustin:             Can you talk about how hard it’s going to be to make this change?


Bill:                  Yeah. Now, the change from classical procurement into category management, which has been going on for at least a decade, that was pretty straightforward. It didn’t look easy but it was. The reason it was easy is that when CPOs went to their executives and said: “We’d like to standardize, harmonize, consolidate, and leverage—and by the way, the cash payback on this is very fast, less than a year in many cases,” the answer was: “Yes. Why hadn’t you thought of it before? Why have you left it so long?” So, a lot of companies found it pretty easy to move into category management, but moving into value procurement is different. Firstly, you’ve got to persuade the executive that perhaps the savings are not gonna flow quite as easily as they used to; that some of the targets are a bit softer; they’re not cash; and the time scales are a little bit longer; and, by the way, we need to retrain our staff in order to do this. You can see where the problems start to arise. It’s not every purchasing department that is geared up and able to do that.


Dustin:            What skills are going to be needed?


Bill:                  These are skills that people talk about but don’t actually do a great deal about. The skills are things like being able to identify and create value beyond cost reduction, just as we’ve been talking about; the ability to sit down with the internal client and talk about creating value and be credible in that role; also, the ability to take accountability for service performance after the contract. When purchasing sings a contract and hands it over to the business and walks away, that just does terrible things for its credibility. They need to be there, making sure that the service performance is right and keeping that accountability. They also need to win permission to challenge. They have to be able to integrate into those internal functional teams and challenge some of their decisions on the way they’re managing the supply markets, and in order to do that, they need to be able to persuade and sell consultatively. Consultative selling is something that doesn’t come easy to procurement; they’re used to traditional selling. We all talk about the elevator pitch, the thirty-second presentation, but they need to be able to persuade consultatively; it’s almost like coaching. And they need to align with their clients’ goals and objectives and find out what those are and be able to report those as their own. And to accompany that, they all need some really good soft communication skills, being able to identify what sort of personality and behaviors their clients have and how they like to be addressed and communicated with. That’s quite a wish list, Dustin. You need a full program of activities to bring people up to those skill levels.


Dustin:             Do you have any final recommendations?


Bill:                  I think the final recommendations are that companies should obviously think hard about this. It tends to be the service companies that are pioneering this area, and they include the advertising companies, the media companies, a lot of the Internet companies. In fact, I saw recently a job description for what looked to any other company like a category procurement manager at Amazon. The words procurement, purchasing, and buying didn’t appear in the job description. Those companies are moving—I think the next stage is gonna be the high-service companies but still with manufacturing elements, especially pharmaceuticals. They should be looking hard at this area and looking at the transition. The interesting thing will be for a lot of companies who never really fully embraced category management, can they go straight from classical procurement to value procurement? Some have but it’s a big step. So, looking at this area, looking at the skill levels and facing the challenge, that’s the next phase.




About Bill Young


 

 

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Bill Young

Development of Sales and Procurement Capability

LinkedIn Profile