News U Can Use

A Supply Chain/Strategic Sourcing learning community devoted to ideas you can use in your work or daily life.

Archive for March, 2010

What do Google, Coke, China and Katrina have in common?

Posted by lowellyarusso on March 25, 2010

So, Google is pulling out of China because of government censorship of internet usage and alleged support of efforts to hack user accounts. Observers believe that Google may have a very difficult time re-entering this market as a result. Coke has been prohibited from entering a joint venture. The reason for the ruling is, in essence, that Coke is too big. Unrelated? Unimportant? I think not.
One of the underlying risks in doing business with China is the role of the Central Government in the economy. Both of these examples highlight the concern. Everyone knows about the issue (or at least they did fifteen years ago). However, like so many other risks, there is a tendency to assume that, because the risk has not reared its ugly head recently, it must not longer be an issue.
Take Hurricane Katrina as an example. “Everyone” knew for many years that there is an inherent risk associated with having a major port on the Gulf of Mexico and that that risk was increased when the port is largely below sea level. So why did Katrina have such an impact? Of course, the size of the storm was one factor. More importantly, the human tendency to assume that yesterday is a good predictor of tomorrow almost certainly gave everyone a false sense of security.
Returning to Google, Coke and China, anyone with interests in China should see that these are the equivalent of New Orleans’ prior close encounters with large storms. For many years, the city dodged the bullet. Complacency set in. Risks were not adequately evaluated nor were mitigation strategies seriously debated, much less implemented. When the inevitable occurred, it was too late for anything but the finger pointing.
If your organization is (or will soon be) doing business in China, it is critical that you not limit your risk assessment to the obvious. Everyone knows about things like lead point on toys, poison in the pet food, and so on. These, and many other, supplier risks pop up frequently enough that it is hard to overlook them. What about all the other areas of risk that, while they have not been encountered lately, still need to be on the radar screen?
Whether we’re talking China, India, or any other emerging market, is your organization seriously evaluating currency risk, political risk, social risk, and so on? Or has the lack of major blows in those areas led to a false sense of security? Ask the folks at Google and Coke if they seriously thought of the Chinese government as a source of risk two years ago. I bet they would say, “Why? Who has experienced that recently?” Don’t let the answer be, “You have!”

Posted in News U can Use, Sourcing/Supply Chain - Lessons Learned | Tagged: | 7 Comments »

Commenting on a blog? I’m new at this…can I say that?

Posted by mariecowan on March 18, 2010

So, you are not sure how to approach blogs, let alone comment on one? You are not alone. Even after years of using the online world’s tools, I find myself learning yet another one. Of course, new methods and tools for communicating with each other in this realm will keep appearing, and some will evolve into standard formats. It can be exciting to participate in that process.

In this blog, we encourage you, whether a fledgling learner or seasoned veteran, to join in the discussions you read. If you need basic guidance about posting your comment or seek a refresher, start by referring to the previous post in this category, Blog Guide 1 – Subscribing & Commenting. To the more experienced users, we ask that you not hesitate sharing your helpful tips, stories, and references about blogging in general.

I have come across blogs and forums, in my own search for information, with guides and suggestions for communicating on blogs. Many mention three simple options in formatting your comments:

  1. Use plain text.
  2. Include links to your own blog or site.
  3. Add links to other sites and blogs with information pertaining to the post that first drew your attention.

The articles and blogs I found also offered some basic advice to commentators:

  1. Write freely in your comments to posts.
  2. Welcome responses to your comments.
  3. Make sure your comment pertains to or expands upon the post you are responding to.
  4. Remain open to the sharing of ideas, opinions, and experiences as you join these discussions.

Essentially, blogs allow each of us to share our own knowledge, opinions, and experiences with each other through another format. And, with people we often do not know personally! It provides another method of meeting like-minds or debating with opposite views from all walks of life. Maybe even forge new connections.

On any of the posts in any of the categories within this blog, if you have an opinion or knowledge that is opposite of the blogger, do share! Don’t hold back! Disagreeing with each other only helps fuel ideas and often spurs more conversation or even solutions.

This is an open format.

As I progress in my own knowledge of the blogging world’s technical side, I hope others will find it helpful. Likewise, all the authors working on this blog invite participation from both experienced bloggers and newcomers.

Hear from you soon!

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Could Toyota Win By Losing?

Posted by lowellyarusso on March 18, 2010

There’s an old supply chain joke about the entrepreneur who went to his bank with a “Great Business Model”.  The idea was to buy pencils for five cents and sell them for three. When the banker commented that the margin on that plan was skimpy at best, the entrepreneur replied, “I know. But I figure I’ll make it up on volume.”

In an effort to revitalize its sales, Toyota has, if you haven’t noticed, taken some unprecedented moves. By offering zero percent financing, deep discounts on prime models, and extremely attractive leases, the automaker saw a significant sales rebound in recent weeks. More importantly, Toyota’s actions are getting a reaction from, in particular, the U.S. Big Three. Ford, GM, and Chrysler are scrambling to match Toyota’s application of end-of-year sales gimmicks to the current mix of incentives.

As reported in the press, there is a growing concern about the impact of all these deals on the bottom line of, in particular, GM and Chrysler.  The issue is that the drive for sales at any cost was considered to be a major contributor to the profit woes that led them into bankruptcy.  Analysts are now concerned that, if Toyota continues to pull their American competitors into a price war, the fragile recovery they have experienced may be in jeopardy

It should seem obvious (unless you’re hoping to make it up on volume) that a company can’t continue to sell products or services for less than the cost to deliver them.  Applying the same logic to mid-year sales that seems to make sense at the end of the model run is a potential recipe for disaster  That raises some important supply chain issues for everyone trying to recover from 2009 economic woes.  In particular, it points to the importance of at least understanding total cost and target costing concepts throughout the supply chain. 

Why are total / target costing so critical?  Whether or not the approach is used as part of the Strategic Sourcing effort is really not the point. The critical issue is the extent to which the entire supply chain understands the philosophy of total costing and target costing and uses it to analyze proposed strategies.  Simply put, if you know that your price point is X and your costs are Y, you have to be sure that X is bigger.  And, to make the equation work, X has to include all the revenue sources and Y has to include ALL your costs. 

How does that work for the Big Three?  At the risk of oversimplifying, I wonder how deeply the car makers have analyzed the cost of, for example, a 0% loan.  First, there are the costs of processing the loan in the first place, a component of the “Y” for them.  While not significant on a deal by deal basis, it will add up over the, hopefully, thousands of deals they will process.  More importantly, how does the loss of interest impact the X  in their target cost equation?  Given that, in many cases, the financing is where the profits traditionally accrue, this approach must have an impact on the bottom line.  The same can be said for lease rates and rebates.  And that’s why the analysts are concerned.

What does this tell the rest of us?  Be wary of the pencil pushers in the supply chain.  When proposals are made that increase the cost of the pencil to five cents or reduce the income to three cents, there is no way to “make it up on volume”.  The time to address the issue is early on in the decision process.  That means that total cost HAS to be a way of doing business, not a minor part of the sourcing process.  Embedding a “Total Cost / Target Cost” philosophy is one of the most important tasks for any Strategic Sourcing organization!

How close is your supply chain to adopting a total cost / target cost philosophy / way of doing business?  Have you seen any examples of price cutting that seemingly ignores the cost to deliver?  What other thoughts do you have?

Posted in News U can Use | Tagged: , , , | 2 Comments »