Procurement Trend #29: More Outsourcing

Twenty-six trends to go,
twenty-six trends to go,
so many things we need to know,
so onward we will go.

We’re in the midst of discussing in detail each and every trend we debunked in our Future of Procurement series so that you understand not only why the historians are still talking about these trends, but why they are still relevant to many Procurement organizations that are stuck in the past with the historians.

The goal is that, at the end of this thirty part series, you will not only know what you need to do to prevent staying in the past with your organizational “peers”, but what you need to do to not only stay in the present but start marching towards the future, which is coming faster than you think.

So why do so many historians keep pegging it as a future trend? There are a number of reasons, but among the top three today are:

  • Because outsourcing is not just manufacturing anymore, it is design
    as more and more companies outsource bigger and bigger pieces of their product’s lifecycle
  • Because outsourcing is not just tech support anymore,it’s software development
    as more and more companies outsource custom software development, implementation, and integration
  • Because outsourcing is not just back-office functions anymore, but front-office functions as well
    as even functions like Public Relations, Advertising, and Legal are thrown over the wall … all the way to India!

So what does this mean?

Design

Procurement needs to work closely with Engineering and the Supplier and foster an atmosphere of collaboration as close working relationships will be required to insure that the vision of Engineering is reached in the best way possible. With competition so fierce in just about every industry, the design of a product is critical to buyer acceptance and a company’s success, so Procurement needs to put on its SRM (Supplier Relationship Management) hat and make sure there are no bumps in the relationship.

Software Development

Procurement needs to work closely with whatever department is commissioning the work to make sure detailed functional specifications, that include a description of core business processes is produced; that regular quality assurance and acceptance testing takes place; and that regular checkpoints are put into the process and adhered to. Serious issues need to be identified before they prevent product delivery or result in significant cost overruns, which currently happens in the majority of software development projects. Many industries have proven time-and-time again that you can’t just throw a software development project over the wall and expect success. Software project failures have been responsible for many of the biggest supply chain failures in history (and if you do not believe the doctor, go check out Supply Chain Digest’s Top Supply Chain Disasters of All Time), so Supply Management knows all to well the disaster that can happen with an IT project that is not appropriately managed.

Front-Office Functions

Soon, outsourcing of Legal, Public Relations, and Marketing Support will be as common as outsourcing of Finance, Accounting and tactical Procurement functions are today. Procurement needs to work with key stakeholders to define core requirements, goals, frameworks, knowledge capture, and reporting structures to make sure that the third parties represent the business the way it wants to be represented and that everything is captured and communicated. This may not be an easy task, but it is a critical one.

Procurement Trend #30: Continued Margin Pressure

We still have twenty-seven (27) trends to go, so we need to get back to our discussing in detail each and every trend we debunked in our Future of Procurement series so that you understand not only why the historians are still talking about these trends, but why they are still relevant to many Procurement organizations that are stuck in the past with the historians.

The goal is that, at the end of this thirty part series, you will not only know what you need to do to prevent staying in the past with your organizational “peers”, but what you need to do to not only stay in the present but start marching towards the future, which is coming faster than you think.

As per our original series, ever since the beginning of the modern industrial age and the introduction of the first mass production factories, customers have wanted lower prices. And when efficiencies gave customers these lower prices, they wanted the prices to be lowered even more. With end customers putting continued pressure on retailers to lower prices, these retailers are putting continued pressure on manufacturers to lower prices, and these manufacturers are, in turn, putting pressure on raw material providers to lower their prices. Margin pressure has always been with us and it’s not going away any time soon.

So why do so many historians keep pegging it as a future trend? There are a number of reasons, but among the top three today are:

  • Multiple global recessions in a short-time frame
    In the early noughts, mid-noughts, and late noughts in the US; Turkey, Greece, Ireland, Portugal, Spain, and Cyprus in Europe; Palestine and Egypt in the Middle East / North Africa, and so on over the last decade and a half …
  • High rates of joblessness in many first world countries
    including Greece at 26%+, Spain at 25%+, Portugal and Cyprus at 15%+, Italy at 13%+, Ireland and France at 10%+, India at 9%-, Sweden and Egypt at 8%+, Canada at 7%+, and a US U6 Unemployment rate of 12%-!
  • Hyper-competition in hot markets
    because less consumers working means less consumers with money to spend which translates into more companies chasing a smaller market, which, with the return of inflation and increasing interest rates, has less money to spend — net result, hyper-competition just to stay in business!

So what does this mean for you?

Multiple global Depressions in a short-time frame

Markets are still recovering, and even where people have cash to spend there is still apprehension. Plus, until we recognize the inherent warning that as long as we continue to let bankers rule the world, this is just the beginning. So, for the time being, don’t be too ambitious where projects are concerned, be realistic and look for flexibility and the ability to do more JIT if demand escalates (as the last thing you want is to be stuck with millions of dollars of excess inventory).

High Rates of Joblessness in Many First World Countries

This is not only prolonging the depression, but is reducing the number of people who have cash to spend and your organization’s potential market. This means sales prices need to be maintained, if not cut, which means that costs need to be maintained, if not cut as well. And if they can’t be cut, value needs to be added — for free. A significant amount of supply base development may be required.

Hyper-Competition in Competitive Markets

About the only way a new product is going to sell these days is if it is different and provides more value to the consumer than the competitor’s product. This means that Procurement needs to identify suppliers who can add value at little or no incremental cost in product design, manufacturing, or experience. Value added services are just the beginning of what Procurement needs to look for.

Four down and twenty-six to go!

Want Real Progress? Disrupt Your Procurement!

Today, TechCrunch Europe kicks off in London. Designed to highlight up-and-coming technology start-ups, it pits them against each other in a start-up battlefield where the top fifteen, chosen from the hundreds that attend, get to pitch their products live in front of a a panel of expert judges and a live audience of thousands. After demos, pitches and questions, the judges select six to do it again the next day. The top company then takes home £30,000 (about $50,000 US on a good day) to try and take their start-up to the next level.

While the doctor doesn’t know how productive it is for hundreds of start-ups to waste tens of thousands of hours battling it out for a mere £30K, the fundamental idea of disruption could be very beneficial to your Supply Management organization if it truly wants to get to the next level on its Supply Management journey.

It’s time to get real. The reason 92% of organizations are not in the Hackett top 8%, and on their way to strategic business enablement, which is the third level of organizational maturity (as defined in Sourcing Innovation’s white-paper on Taking the First Step on Your Next Level Supply Management Journey), is because they don’t have the right Ts. Talent, Technology, Transition, Tracery (and two more Ts that will only come into play when they have the first 4 Ts down, which will be revealed in the sequel white-paper series).

The organization doesn’t have the right technology in place to help it automate the tactical and focus on the strategic. It hasn’t transitioned to the right process to maximize its efficiency. And its talent doesn’t have the knowledge and skills required to compete at a higher level of achievement. The status quo has to be disrupted for progress to be made.

Of course, since a primary precept of risk reduction is disruption elimination, disruption will be strongly resisted. That’s why you will have to provide the team incentives to support it.

Get permission from the C-suite, and a bit of a budget, and take a lesson from Disrupt and offer incentives to the team members who come up with the best ideas for process improvements, technology upgrades, and knowledge improvement. It doesn’t have to be large cash rewards — it could be public recognition (in an awards ceremony), extra time off, or even a bigger bonus if the effort generates a Return on Investment and extra realized savings at Procurement time. It doesn’t have to be a big cheque up-front. Most Supply Management professionals want to make things better, and if you give them a good incentive, they will go against the grain and disrupt their daily routine in an effort to make it, your Supply Management department, and your organization better.

So get disruptive.

LOLCAT Wants …

Bring Me A ... Rubber Chicken

Do you know why LOLCat, who usually wants a shrubbery, wants a rubber chicken today?

45 years ago today was the first airing of episode 3 of Monty Python’s Flying Circus which, if the doctor is correct, is the first episode to feature a fully suited knight who, in his first scene, walks up to counsel in the courtroom and hits him with the traditional raw chicken. LOLCat is asking for a rubber chicken because, if he asks for a raw chicken, he knows the stupid dog will eat it. (And, of course, once the dumb dog brings LOLCat the rubber chicken, you know what’s going to happen next.)

60 Years Ago Today TI Launched the Mobile Music Revolution

Steve Jobs may have wanted you to think that the iPod launched the Mobile Music Revolution, but it was just a new-and-improved mobile MP3 player which replaced the portable CD player which replaced the portable cassette player which replaced the portable 8-track player which replaced the portable radio.

And guess what made radios portable — the transistor. Before transistors, invented in 1947, revolutionized computing for the masses, these semiconductor devices used to amplify and switch electronic signals and electrical power, revolutionized the portable music industry with the transistor radio that was announced by Texas Instruments 60 years ago today. Before the transistor radio, the average small vacuum tube radio weighed about 20 pounds or so and didn’t fit in a pocket, whereas a small transistor radio weighed less than a pound and fit in a (large) pocket.

And those who were Young at Heart could take music with them wherever they went.