Members of the supply chain management and B2B community are literally bombarded every day by user survey results. The reasons are many and unfortunate, since by our view, surveys have become too excessive. They are driving survey fatigue and more importantly, drowning out the surveys that provide the most insightful information.
Industry analysts and technology providers leverage quantitative and qualitative surveys to gain perspectives on the current challenges and viewpoints across multiple supply chain environments. Industry trade publications and conference producing firms utilize surveys to attract attendance at various conferences or utilize conference attendees as sounding boards. Academics utilize surveys to identify areas for advanced research or academic based thought leadership.
The reasons are many and in this commentary, we will not dwell deeper into motivations.
For you, our readers, it is important to not just dwell on the executive summaries or conclusions of such surveys, but to pay particular attention to the demographics, statistical survey base, and lineage of such surveys. Look for statistical valid sampling, clear statements of the surveyed demographics, and more importantly, look for surveys that are consistently performed in a pre-prescribed basis, since they provide the most insights into shifting patterns of challenges and needs.
We view our role at Supply Chain Matters as not pitching endless summaries of our own research (we do conduct and produce such research), but more importantly to point out to readers various surveys that are grounded in discipline and believe warrant your attention.
We were recently alerted to a 2013 ISM Survey of Procurement Executives (complimentary report requiring reader registration) sponsored jointly by the Institute of Supply Management (ISM) and supply management technology provider, BravoSolutions. This report captured our interest because of both its demographics and its implied conclusions regarding the current priorities from procurement executives from mostly mid-market firms. The survey itself yielded over 500 responses, which is fairly good by today’s standards. The demographics included the majority of respondents, 64 percent, from non-manufacturing industries such as agriculture, energy, mining, professional services, transportation, retail and other services segments. Firm size was weighted toward 45 percent with revenues under $500 million and 56 percent with annual direct spend in the range of under $50 million to $249 million. Thus, this survey can serve as a representation of current challenges and viewpoints among mid-market service providers, an area we normally do not come across.
In terms of our key takeaways from this survey, we noted that improving cost reduction and savings was by far (60 percent of respondents) the top business priority in 2013 for these mid-market procurement executives. Yet, these same respondents indicate they have only been able to deliver 10 percent or less in savings during 2013. The remaining top five priorities were rated as:
2. Revenue growth and profit improvements
3. Risk management
4. Procurement transformation
5. Supplier performance and sustainability management
By our view, while we were pleased to see that risk management has finally reached a top-three weighting of priority. Half of the respondents’ firms were prepared to mitigate what were described as reasonable levels of supply, supplier or operational risk.
Far lower in 2013 priorities, according to this survey were areas such as employee retention and training, improving regulatory compliance, improving the strategic nature of customer priorities and technology implementation. Merely 19 percent indicated that supplier collaboration and innovation was a stated priority. The latter noted lowered rated priorities can clearly be considered important enablers to the top three priorities. These lower-ranked priorities are another symptom of the need for broader influence skills for procurement.
This author had the opportunity to speak with Mickey North Rizza, Vice President of Strategic Services at BravoSolutions about the implications and messages embedded within this survey. Readers may recall that Mickey was a very able and insightful supply management industry analyst at AMR Research and Gartner, before joining Bravo. We hope to feature Mickey in a future guest posting on Supply Chain Matters.
Mickey pointed to the continuing challenges of business process alignment among procurement teams, including more direct links to a firm’s sales and operations planning (S&OP) process, actively working towards broader cross-functional business alignments in joint initiatives along with a renewed emphasis on change management. Deeper partnerships and dialogue with IT regarding goal prioritization and technology’s enablement of these business goals, including options in today’s cloud-based computing applications certainly plays an important part.
There is a considerable amount of detail included in this ISM survey and we encourage our strategic sourcing and procurement readers to take the time to scan each of the highlighted areas. We especially call attention to a Table noted on page 16 of the report that describes the following: “To have world class suppliers we need our suppliers to ….”
In the important challenge of overall procurement transformation, respondents of the latest ISM survey report that while good progress has been made, many challenges remains. While mid-market firms often operate in lean environments and often do not have deep investment budgets, they can benefit from the learnings and insights from other transformation successes across industries including manufacturing-centric. Today, more than ever, the barriers to driving successful organizational change management and more affordable options in the ability to leverage advanced technology towards deeper procurement intelligence and insights have come down. Reach out and learn.
Our European readers are acutely aware that the ongoing severe recession affecting the Eurozone has taken a severe toll on manufacturers and retailers. At the same time, time tested principles of market specialization, global outreach, and a highly skilled workforce can often provide a basis for a firm to outlast a recession in one’s home market.
In late 2010, in the midst of the previous global recession, Supply Chain Matters featured a commentary highlighting specialty small and mid-sized manufacturers in Germany, termed the Mittelstand companies. These German companies featured conservative, non-flashy management and came to understand that growth comes from a focus on market niches, sometimes in traditional industrial areas where bigger companies choose not to compete. They viewed the world as one global marketplace for specialty products or materials. Our 2010 commentary highlighted three lessons for growth and surviving a geographic recession:
- Building recognized product innovation, even when that innovation is within traditional industries.
- Understanding that niche markets can be huge when projected on a global scale.
- That small and medium sized manufacturing focused businesses can be an engine of sales and employment growth, providing they have an unwavering focus on operations excellence and continuous improvement in every process.
In 2013, Europe is enduring close to two years of severe economic contraction, yet the above lessons remain as guideposts for surviving the recession. Further evidence has come forth in a series of articles on European industry published by The Financial Times. One particular article, Skilled workers give Italy an edge, (paid subscription or sign-up for free metered view) should capture interest because it reinforces similar principles.
The article highlights Italian manufacturers Guala Closures, a global leader in the manufacture of premium bottle tops, IMA, a global producer of automatic machines for the packaging of pharmaceuticals, cosmetics and other products, Luxxotica, global eyewear manufacturer, and Sogefi, a producer of specialized automotive components. While Italy endures nearly a decade of economic stagnation, these manufacturers are holding their own. As an example, Guala has grown fourfold in the past ten years, selling to more than 100 countries, with a presence of 24 worldwide manufacturing facilities. IMA which garners revenues in excess of €743 million, boasts that 93 percent of those revenues are derived outside of Italy. It sales network includes 70 countries with 23 global manufacturing centers. Sogenfi supplies Audi with a super lightweight spring made of composite materials.
FT points out that each of these companies stress innovative products in niche markets coupled with premium manufacturing skills and lean operations. Sound familiar?
While there are obviously other factors necessary for enduring a severe economic downturn in the host geographic region, including access to affordable credit, time proven principles of product innovation, an unwavering focus on manufacturing excellence coupled with a highly skilled workforce have endured to provide our community continuous evidence of their importance.
Any small and mid-sized business can be challenged with online commerce, especially when a product goes viral in popularity among social media circles. When the online commerce system encounters snafus, the results can be potentially disastrous.
Supply Chain Matters read an article hosted on Yahoo regarding this summer’s wildly popular swimsuit that actually sold-out before the official start of the summer swimsuit season. This swimsuit, a galaxy print bikini was termed the “fatkini” by various media sources and was designed in a joint collaboration between popular plus-sized blogger Gabi Gregg and retailer Swimsuits for All. The online campaign was a rousing success until unanticipated demand exhausted all available inventory. Unfortunately, due to a described “computer glitch”, the underlying online fulfillment system did not react in-time to the zero inventory condition and continued to book customer orders.
Gregg was forced to communicate to her blog followers the occurrence of this glitch along with the actual status of orders, noting that one style had sold-out while another was still in stock. She also had to communicate the disappointing news that backlog orders could not be fulfilled this summer season because of the lead time and production practices of producers who tend to only produce swimsuits in seasonal cycles of capacity. As noted in the article, consumers would have nothing of the explanation and voiced their disappointments in further online circles. Online provider Swimsuits for All was also dragged into the fray having to issue statements apologizing for the fulfillment glitch. The article further intimates that Gregg does not have immediate plans to design more bathing suits with the online provider.
Once again, the takeaway for teams supporting online commerce is the critical importance of integrating real-time information flows among the online and back-end supply chain inventory and procurement systems. Teams representing online marketing and back-end fulfillment need to closely collaborate and test for system stress points. This is always important but doubly so when dealing with seasonal products that can only be offered in specific time periods. Customers expect timely status of their orders, particularly when inventory has been exhausted.
A sell-out of any product is evidence of customer delight, but that perception can turn rather quickly when the online system has a very public glitch.
A report published on the front page in the Companies section of yesterday’s edition of The Financial Times (paid subscription required or free metered view) indicates that there is a link between the current alarming rise in cybercrime and the adoption of outsourcing. The article concludes that according to corporate security officials, outsourcing companies that provide low-cost IT focused services are becoming the “weakest link” in the battle against rising cybercrime.
The article cites sloppy security practices and lax controls for handling of sensitive data. Noted is that the consumer protection bureau of the U.S. Federal Trade Commission “has brought around 40 data security cases against businesses and at least six involved a failure to properly oversee a service provider.” The article cites a recent survey conducted by the Ponemon Insititute that found that there was a continued lack of agreement as to who’s responsibility it was to maintain good security. A partner of consulting firm PwC indicates that that while outsourcing contracts generally contain clauses requiring service providers to notify clients if data is compromised, monitoring of security standards has not taken hold.
Prediction Ten of our Annual 2013 Supply Chain Matters Predictions for Global Supply Chains pointed out that cloud computing and managed services options would continue to gain traction, provided that vendors and service providers resolve current lingering customer concerns. Those concerns are often noted as data and information security. Up to now, cloud computing options directed at point applications may have caused procurement, supply chain and IT teams to overlook such provisions but with the current alarming rise in cyber security and data breach threats, these issues are becoming much more troublesome.
In its article, FT points out that the weakest link in the security chain may be an outsourced business process or cloud based application. This threat is becoming very real and teams are well advised to insure that data and information security provisions related to outsourced processes meet rigorous standards. Vendors and service providers of outsourced and cloud service offerings are further advised to insure that security of data and information meets the most rigorous standards, especially with reliance on a third party IT infrastructure provider.
As a reminder, readers can download the full version of our Predictions research report with our compliments by accessing our Research Center and providing some basic registration information.
This has been a week that business media has featured two high profiled supplier related snafu’s, or at least, that has been the business media slant. Each is yet another important reinforcement for a more constructive and collaborative relationship with a key supplier.
This is the second of two separate Supply Chain Matters commentaries related to these high profile snafus. Commentary One related to chic sportswear retailer Lululemon Athetica. We now turn attention to smartphone manufacturer HTC.
Earlier this week, this Taiwan based smartphone designer and manufacturer indicated that it was pushing back the rollout of its newest and most important flagship smartphone, the HTC One. The company’s sales of smartphones declined 41 percent in its latest quarter and this new model is strategically important toward regaining prior market share. This announcement was further significant because rival Samsung, with much fanfare, had just unveiled its new Galaxy S model smartphone to the market. As readers are aware, this market segment is highly competitive where a new product becomes ever more critical to sustain innovation and consumer buying interest. That is why an Apple or Samsung product launch literally moves equity markets. Availability in the market is doubly important. HTC initially unveiled the HTC One to the market in February, indicating consumers could get one in late March.
According to business and social media reports, HTC executives attributed the delay in planned March sales to shortages of components including casings and camera parts. An HTC executive is quoted in a Wall Street Journal report as acknowledging that the company “has changed its order forecasts drastically and frequently following last year’s unexpected slump in shipments.” This executive addedthat “HTC has had difficulty in securing camera components as it is no longer a tier-one customer.” The WSJ further notes that CEO Peter Chou informed senior executives that he would step down if this new smartphone model does not succeed in the market. As our readers are well aware, that statement alone would intimate that a lot of management roles are at-stake with an unsuccessful product launch not to mention lots of tendencies for “saving-face”.
Is it any surprise that the hottest consumer electronics segment supply chains is experiencing component supply problems? Not really. The sheer volume numbers and overall pace of Apple and Samsung have produced many commentaries related to various select component shortages these past months. Apple admitted it was supply constrained in its latest quarter.
Smartphone supply chains have plenty of supply commitments and demanding customers. Thus, inconsistent and constantly changing forecasts of product demand are not going to place a customer on the most favored listing, especially if other customers exercise synchronized planning and execution of supply needs. Large contract buys also place bigger players in higher service and supply categories. Any small of medium sized manufacturer is acutely aware of this condition.
The HTC One has had other issues. The WSJ reports issues with employee turnover as rivals poach engineers from the company. For the first time, HTC suspended its year-end bonus for employees supposedly to fund added marketing programs. The queuing of various telecom operators and major retailers to support a March product launch, only to inform these same partners during the execution window that the product is delayed by a month, has not helped on that end as well.
HTC has experienced a 50 percent decline in market share for its products and desperately needs to have a winning product. Instead of pointing the finger at component suppliers, the company would be better served by admitting that there have been some product launch issues and that it is diligently working with both suppliers and channel partners to insure adequate supply of new product.
To dis your key suppliers, especially when you hold some of the blame, is a no-win situation. Positive supplier relationships are built on openness, candor and team collaboration behind the scenes. Even if your company does not hold the highest priority with a supplier, consistency in planning and candidness as to fulfillment needs are certainly more constructive.
Winning in the marketplace is a team sport that involves positive supplier and partner relationships.
From time to time, Supply Chain Matters will call attention to reports or articles which we feel should definitely be included in your reading list, especially when it concerns small to mid-sized supplier businesses. This commentary references an article worthy of both a good read and reflection on how component suppliers can demonstrate industry diversification in supply chain support strategies.
Today’s edition of The Wall Street Journal features the article: Meet the Smartphone Arms Dealers. (paid subscription or free metered view) This article describes the efforts of two Japan based suppliers, Murata and TDK, both of which have managed to successfully leverage continuous product innovation and industry targeted support toward business excellence. While Japan’s major electronics OEM’s have fallen on difficult business times, these two suppliers are performing very well. In terms of overall business and financial performance, the WSJ reports that both of these suppliers posted profits for the first nine months of their fiscal year’s, fueled by healthy demand for products.
Murata is one of the largest providers of ceramic capacitors and wireless communications modules. TDK is a leading global supplier of electronic inductors. The WSJ points out that both suppliers have been able to maintain dominance in the electronic circuits’ area by keeping R&D and leading-edge production in-house. Each further designs and builds the manufacturing equipment used at their factories, maintaining a manufacturing process edge. A Murata senior executive is quoted as indicating that one always needs to be one or two steps ahead of the competition.
In the 80’s and 90’s when Japanese electronics OEM’s dominated the global market, the customers of Murata and TDK were domestic. According to the WSJ, today Japanese customers amount to little more than 20 percent. Both suppliers have reached out to supply components to major smartphone and electronic tablet OEM’s including the lucrative supply chains of both Apple and Samsung. Both suppliers are working on longer-term efforts towards expanding their diversified industry presence. TDK is focusing on components utilized in electric and hybrid automobiles along with energy distribution systems for buildings. With a trend for more and more electronic circuits used within cars and trucks, Murata is building a presence in that industry.
Upon reading this article, we thought of the past history of U.S. automotive supply chains in terms of Tier 1 and other component suppliers. At one time, the big three OEM’s owned their own Tier 1 component suppliers, and later under severe financial stress, were forced to spin them off as independent companies owned by various outside investors. During the severe recession of 2008-2009, when the market tanked, the ripple effect impacted U.S. automotive suppliers quite heavily. Some diversified in supplying adjacent industries or non U.S. OEM brands such as Toyota or Honda. Others were unfortunately forced to be acquired, some by non-U.S. interests also seeking product innovation or market diversification. That was the initial entry of China based suppliers into U.S. automotive supply chains. Some smaller suppliers unfortunately perished, running out of options.
In 2008-2009 we were publishing commentaries highlighting successful product innovation and diversification strategies as a means to share learning. We therefore remain much attuned toward highlighting successful efforts of component suppliers in practicing sound business and diversification in supply chain support strategies.
Understand and learn from others.