Geopolitical Sustentation 31: China and the New Silk Road

As per our damnation post last year, as part of it’s Grand Strategy, China has recreated the Silk Road, which has been active since November 18, 2015 when the first train left the city of Yiwu in Zhejiang province for a warehouse complex in Madrid, which it reached on December 9th. And it’s not going to stop until it crosses all of China and connects the entirety of Europe and Asia.

And when we say it’s not going to stop, we mean it. As per an article on Forbes on January 21, 2016 on how China is Moving Mountains for the New Silk Road – Literally, they won’t even let mountains get in the way. Four years ago, the entirety of the downtown Lanzhou New Area (LNA) was hundreds of mountaintops, which have been removed to make flat land for development. That’s right, they cut down mountains. In North America, it’s sometimes a massive undertaking just to flatten a few hills for a flat highway. They brought in the equipment and manpower to flatten mountains! If that doesn’t show you how serious they are about trade domination, I don’t know what will.

China is in the midst of implementing its OBOR (One-Belt, One-Road) initiative that will facilitate the creation of a gargantuan network of new highways, rail lines, logistics and industrial zones, pipelines, power plants, sea ports, and even entirely new cities that will stretch from East Asia to Western Europe, span over 60 countries, and impact over half of the world’s GDP, putting an end to US dominance once and for all. (The OBOR initiative also has a sea route, the 21st Century Maritime Silk Road, that goes through the Western Pacific and Indian Ocean, which also connects China to all of Africa (and the Middle East), giving them access to the entirety of 3 of the 6 populated continents and 6/7ths of the world’s population!

China is not only an emerging economy, it is the emerging economy that will soon be powering, directly or indirectly, almost 2/3rds of GDP when the silk road is completed and it has it’s hooks across 3 continents.

And, as we said in our damnation post, China is about to become your upstream as well as your downstream supply chain. You have to abandon your old view of the world, accept this reality, and start preparing for it. It doesn’t have to be the damnation that causes your undoing. It can be your salvation. Your choice.

So how do you prepare for it?

1. Learn Mandarin

Chances are your China partners will speak better English than you will speak Mandarin, but any attempt to seriously learn their language will be seen as a sign of respect and good faith and go a long way in negotiations. And even if you aren’t the negotiator, you will be able to communicate with almost 1 Billion native speakers. (That’s roughly twice as many native English speakers.)

2. Model your source-to-sink Euro-Asiatic supply chain.

Don’t just model the inbound supply chain, model the outbound too – and when you do your network design, strategic sourcing, and logistics models, try to find the best locations for storing inbound and outbound materials and products, for manufacturing to take advantage of a strong network design, and to minimize import/export/FTZ requirements and logistics network length. Long gone are the days when you are sourcing from China to sell in the US. Now you are sourcing from China to sell to the world, China included, so why manufacture in Malaysia to ship back to China. You need to take your supply chain and sourcing optimization to the next level. (Which is something the Six Samurai can help you with from a sourcing perspective.)

3. Treat your Big China Suppliers as Strategic Partners

Even if you are convinced they don’t understand your business model, the American marketplace, and the global consumer and even if you are convinced that their only goal is to rip you off at every turn (because you are paranoid or your golf course buddy found one of the scammers, which there are in every country), they know their local market and their own preferences better than you. And even if China is not a market today, if your company needs growth, chances are it will have to be tomorrow and you will need their guidance, and possibly even their innovation capability. So get ahead of your competition in their books.

Now, more will be required, but this should put you on the right track, er, road. The silk road. Which will again be the centre of global trade.

Cap Gemini IBX – Closing the Loop on Source to Pay

Cap Gemini is a one of the world’s largest multi-national consulting companies headquartered in Paris, France that focusses on management, outsourcing, and technology-based consulting and specializes in strategy, digital transformation, finance, marketing, IT strategy, solutions design, big data / analytics, and supply chain management consulting. Of course, we are primarily interested in the latter and, in particular, any technology underpinnings.

As part of their technology underpinnings, Cap Gemini has three primary offerings. Spend Analysis, powered by Spend Radar; Procurement Intelligence, powered by Microsoft’s Strategy Companion; and the IBX Business Network that implements their Source-to-Pay platform with e-Sourcing, e-Procurement, and supplier (portal) support. This is what we’re going to cover briefly in this post.

The solution is a seamlessly integrated Source to Pay Solution with a global supplier network, where suppliers can self-register, manage their customer interactions through a portal with a single integrated view, and even manage their invoices that originate outside of the IBX platform (which is a unique capability that will be discussed later on). If you consider the classic Sourcing and Procurement lifecycle, first diagramed by the doctor on SI back in the doctor wants to remind you it’s Sourcing and Procurement, a good S2P solution needs a lot of capability, especially if you want to capture low-volume purchases and spot-buys (and, in particular, catalog management needs to underlie the requisition through the approval process). The IBX platform contains, to some degree, almost everything indicated in this diagram (with the exception of true strategic sourcing decision optimization, which we know is currently limited to the six samurai) plus a lot of cool supplier network, catalog management, and spot-buy features, including a few that you will not find in any other (best-of-breed) platform on the planet.

In this post, we’re going to focus on spot-buy and the invoice management dashboard, as they are the most unique offerings in the platform. The new spot-buy functionality allows a requisitioner to create a requisition for anything they need, fill out as much information as possible (including expected pricing), suggest one or more suppliers on the network, and route it to Sourcing for identification of the proper products and/or services. A (senior) buyer in Sourcing will validate the request, choose the appropriate sourcing process (RFX, auction, third-party catalog offering), make a selection, and return it to the buyer for final acceptance and submission, at which time it will be routed to the appropriate approvers. Note that we say Sourcing, not a buyer, as it contains rule-based workflow management that allow it to be routed to the buyer with the proper authority with the smallest workload to minimize processing time.

The new invoice management dashboard, designed for the supplier, allows a supplier to sign in and see on one screen the status of every invoice sent to every customer on, and off, of the IBX network as well as drill in and get as much related information as there is for IBX platform invoices (including, but not limited to, conversations, buyer requested corrections, goods receipts, purchase orders, etc.). The system supports uploads from standard AP and ERP systems for suppliers to get this information in the system. Being able to log into one portal and service all their IBX customers through one login and one interface is great, but being able to manage all of their invoices, which is something that is always top of mind for a supplier, is even better still.

There’s a lot of other cool and powerful features in the IBX system, and they are covered in detail in the recent piece by the doctor and the prophet over on Spend Matters Pro (Part 1 of 2, membership required) which gives one of the most in-depth and balanced reviews of the system that you are going to find anywhere.

One Hundred and Sixty Five Years Ago Today …

The Great Exhibition of the Works of Industry of All Nations, the very first World’s Fair, opened in Hyde Park in London (England).

Organized by Henry Cole and Prince Albert, it was attended by numerous notable world figures of the time and contained exhibits from Britain, its ‘colonies and dependencies’, and 44 ‘foreign states’ in Europe and the Americas. With over 13,000 exhibits, it was a tremendous undertaking for the time and inspired a series of world fairs that followed (which still continue to this day, with the next world fair being Expo 2017, taking place in Astana, Kazakhstan [as sanctioned by the Bureau International des Expositions, which has served as the international sanctioning body for world’s fairs of the universal, international, and specialized variety since 1928]).

A special building, The Crystal Palace, designed by Joseph Paxton and which took the form of a massive glass house 1851 feet long and 454 feet high, was built specifically to house the show. After the exhibition, the building was rebuilt in an enlarged form on Penge Common, and stood until its destruction by fire in 1936. However, its legacy lived on as the site was used as the Crystal Palace motor racing circuit between 1927 and 1974 and inspired the Crystal Palace Garden Parties between 1971 and 1980.

And over six million people attended the fair. One has to remember that in 1851, the population of Great Britain and Ireland combined was only 29M-ish (and Britain itself only 19M-ish) and the world population was only slightly over 1 Billion. This contributed to a profit of £186,000 (£18,370,000 in 2015), and that surplus funded the Victoria and Albert Museum, the Science Museum, and the National History Museum as well as an educational trust for scholarships and industrial research which still provides funds today.

Societal Sustentation 45: (A Lack of) Math Competency

While Procurement needs to be able to deal from a full deck of skills (and SI has compiled a list of 52 unique IQ, EQ, and TQ skills a CPO will need to succeed, which will eventually be explored in future posts over on the Spend Matters CPO site once the outside-in issues, agenda items, and value drivers have been adequately addressed), many of the skills that Procurement requires rely on math. In fact, with so many C-Suites demanding savings, if a Procurement Pro can’t adequately, and accurately, compute a cost savings number that the C-Suite will accept, one will be tossed out the door faster than Jazzy Jeff gets tossed out of the Banks’ manner.

But, especially in the US, strong math skills are not in abundant supply. As per a 2010 SI post on how This is Scary! We Have to Fix This that referenced a MSNBC article on Why American Consumers Can’t Add reported on a recent study that found:

  • Only 2 in 5 Americans can pick out two items on a menu, add them, and calculate a tip,
  • Only 1 in 5 Americans can reliably calculate mortgage interest, and, most importantly
  • Only 13% of Americans were deemed “proficient”. That means
    less than 1 in 7 American adults are “proficient” at math.

So even if the Procurement Leader has strong math skills, it’s likely that not everyone on the team does. And even if the Procurement team has decent math skills, the chances of every organizational buyer having decent math skills is pretty slim. So you need to figure out how to ensure poor math skills don’t affect your performance. What should you do?

1. Make sure you know your team’s math competency.

If you need to, have each team member take a math competency test. You need to know their level of capability, and if you can’t get university transcripts, then you need to figure out their university equivalent math competency.

2. If they are not up to snuff, get them the courses they need – at your expense.

You have smart people. You hired them. They have talent, they just need a bit more math. So allow them to enrol in college or university courses, give them the time to improve their skills, and pay for the courses.

3. Acquire systems that make the math easy.

Give them systems where they can collect all the data, run accurate side by side comparisons and analysis, define formulas, and automate computations. The easier it is for them to create the models, analyze them, and make the right decisions, the better.

4. If possible, acquire systems that guide them.

For example, an optimization-backed sourcing system that asks them about the type of constraint, the split in a split award, and any filters and then creates the equation for them, where they only have to approve, vs. your buyers trying to do complex modelling in a spreadsheet is going to be more accurate and save you more money.

For math competency to improve overall, the importance of a math education has to increase overall. That is going to take some time. In the interim, work with what you got.

Benchmarks are Bad — But Don’t Just Take My Word For It!

A decade ago, Jeffrey Pfeffer, the Thomas D. Dee II Professor of Organizational Behaviour at Stanford University’s Graduate School of Business, wrote a book with Robert Sutton called Hard Facts, Dangerous Half-Truths, and Total Nonsense: Profiting from Evidence-Based Management (Kindle), in which they stated there were three inherent problems with benchmarking. Especially external benchmarking.

1. If your business strategy is simply to copy what others do, then the best you can hope for is to be a perfect imitation.

2. When you benchmark, all you see is the most visible and superficial aspects of the company you are benchmarking.

3. When you try to copy, you forget to ask “should I copy this? is it right for me”?

It’s not who’s spending the least on inventory with JiT (Just-in-Time) supply chains, or who has the lowest labour costs (with warehouses in Georgia and Wyoming), or who has the lowest transportation costs (through mega-volume contracts with a single carrier), etc. It’s not even who has the lowest cost supply chain (although that’s a great start, just look at Apple for inspiration). It’s who has the biggest profit and biggest brand reputation — and that is the organization who manages to extract the most value from every dollar spent.

You don’t get value from a benchmark — the most you can get from a benchmark is an idea of where value may lie. And while this is a great start, especially since, if properly defined, it allows the organization to see where it is doing well against it’s defined metrics and goals, it’s only the start.

Moreover, if the benchmark is ill-defined, it can often hide huge over-spend. The organization could easily be over-spending by 10% or more, operating quite inefficiently compared to it’s potential, or focussing its effort on low return activities — something it will never know unless it continually challenges the benchmark and looks for ways to redefine what the baselines should be. But benchmarks, when they turn green, often lull the organization into a false sense of security. Which is scary. Because …

The reality is that benchmarks are filled with traps and hidden dangers. And if you don’t want to step on a landmine, you should download The Dangers of Benchmarking (registration required) today and identify the six major hidden dangers of benchmarks, four of which are easily eliminated with the right application of a(n optimization-backed) sourcing platform.