A blog about creating value in your organization through supply chain excellence
by Jim Tompkins, CEO & President, Tompkins International, supply chain consulting

European Operations Are Moving East, but How Far?

I’d like to welcome Susan Evans as a first-timer on my blog. Susan is Managing Director, Tompkins International, EMEA. With more than 20 years of experience in transportation, logistics technology and global supply chain issues, Susan leads companies to achieve supply chain excellence. Her first-hand expertise in Europe and Africa stems from living and working in these regions for the past 14 years.


-Jim

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Today, I’d like to provide you with the basics of the pros and cons of nearshoring, with a focus on Eastern Europe. And I hope to help you make informed decisions about outsourcing – whether you’re looking for your business processes to remain nearby or to send them to distant countries.


To begin, let’s talk about cost savings – which, as you know, is a major factor in any outsourcing decision.


In an effort to reduce operating costs, many European companies are moving some business processes east. But not all processes are moving as far as Asia or going offshore; some are relocating to the neighborhoods of Central and Eastern Europe. A few key reasons for this include lower labor costs combined with the advantage of being in close time zones, easily accessible locations for project meetings, and closer cultural compatibility.


Sourcing, production, IT and support are examples of business processes that are being considered for outsourcing, and some of these are staying “near” to the home country. When this occurs, the outsourcing in close proximity to home is termed “nearshoring.”


Nearshoring, often referred as “nearshore outsourcing,” is a derivative of the business term “offshore outsourcing.”


We are hearing a lot of interest in this topic from our European clients, due to the advantages of nearshoring. As I touched on earlier, one possible advantage is lower travel costs to support projects. Nearshoring also helps reduce the number of visa requirements or issues, which is a key consideration, taking into account the necessity of a significant number of business trips when outsourcing.


Another benefit to European companies is that European Union (EU) legislation provides complete protection of intellectual property rights. This is a critical component when sensitive proprietary information needs to cross as a result of the nearshore engagement, and with a nearby location, legislation will remain the same.


However, not all processes are best for nearshore, and some continue to be most cost effective with offshore outsourcing. As stated in Jim’s previous blogs and highlighted in his book Bold Leadership, before considering outsourcing, one must identify core and non-core processes and, of these, which would be a good candidate for outsourcing.


At the same time, whether outsourcing offshore or nearshore, consider service to your customer and all financial components – not only labor, but also transportation and facility costs. You can see more details in Gene Tyndall’s report – Managing the Total Costs of Global Supply Chains. A financial view of a global supply chain focusing on Total Delivered Costs provides the data needed to make sound outsourcing decisions.


Learn more about nearshoring in this success story about T-Systems of Deutsch Telekom (PDF).


Also, check out this link to the page “Outsourcing Logistics and Other Competencies,” which can help guide you to the best decisions about outsourcing.


And if your organization is making decisions now about nearsourcing or outsourcing, what questions might you have? What has have your experiences been?


– Susan

 

Photo Credit: USACE Europe District

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Thousands of Miles Apart, but Not so Different: It’s a Small Supply Chain World After All

I am just winding up a wild, seven-day trip to Europe. In the last week, I have been in five different hotels, 10 different towns, and have experienced some fantastic food and several bottles of great red wine.

 

Let’s see — One keynote speech (check), 11 client meetings with European companies and 14 client meetings with global companies (check and double-check), and a very successful European staff leadership meeting (check!).

 

I wanted to share the thrust of many of my discussions and interactions that I have had while on my trip:

 

Priority 1: Supply chain challenges result from volatility in the marketplace. How do we approach this?

 

Increased emphasis on the importance of contingency planning

 

More formal commitment to supplier collaboration

 

Increased prioritization of supplier risk assessment

 

Increased focus on SIOP

 

Increased emphasis on speed, agility and flexibility

 

Priority 2: Globalization has an impact on organizational structure, processes and the future of business. How do we meet this challenge?

 

Increased priority of eliminating regional boundaries

 

Enhanced awareness and supply chain involvement in M&A

 

Increased focus on optimizing global product flows and distribution network planning

 

Increased awareness of growing China markets

 

Greater emphasis on Total Delivered Cost of purchased goods

 

Priority 3: There is an increase in inventory turns and the need to capture free cash flow. How should we approach this?

 

Improved business analysis and specification of inventory requirements

 

Improved demand planning

 

Greater emphasis on the application of inventory analysis tools

 

Enhanced focus on the elimination of obsolete inventory

 

Enhanced focus on product and vendor rationalization

 

Priority 4: There is a strong drive to reduce transportation costs. How can this best be accomplished?

 

Increased focus on mode selection

 

More methodical freight bidding processes

 

Application of more sophisticated TMS

 

Greater emphasis on Freight Audit and Payment

 

Higher priority for unbundling freight on inbound purchases

 

The most interesting part of this list is that it is not much different from the list that would result from seven days of meetings in the U.S. And in fact, it also has a lot in common with the list that would result from a week-long visit in our Asian operations. So, one big observation and two conclusions:

 

Observation: While I have just explained the similarities of the "Plan-Buy-Move-Store-Sell" of the supply chain, by omission, I have not addressed the real difference in the "Make" component of the supply chain between Europe, the United States and China.

 

Conclusion 1: Europe and the United States are separated by a wide body of water, but very close in the challenges/opportunities being faced in the marketplace today.

 

Conclusion 2: China is different from Europe and the United States, but many of the supply chain challenges being addressed in Europe and the United States are not all that different from the China challenges/opportunities.

 

So, although it is not yet completely one world, it is a small supply chain world after all. Have you been to Europe on business lately, and if so, what are your observations about global supply chain, logistics and other business functions?

 

Go!Go!Go!

 

More Resources

 

Download the white paper: Evolution to World-class Inventory Management

 

New report reveals China as one of the few growth areas for US business around the world.

 

Article from Logistics Insight Asia: What is the supply chain outlook for 2010 in Asia?

 

Photo credit: Laszlo Photo

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The Great Comeback, Part 6: Environmental Assessment: Government Involvement

In this installment of my series of posts on the Great Comeback, I’m going to outline the worldwide government actions and plans that you need to consider when planning for your organization’s post-recession strategy.

 

Already I have outlined a five-part process for the Great Comeback, or returning to increased market share, growth and prosperity when the Great Recession ends. This post explains more about the environmental assessment part of that process and specifically, how government involvement can affect your business.

 

There has been much presented on the specifics of the approaches taken by the major industrialized nations of the world, so a discussion here of the dollars allocated does not add much value. What is of value, however, is to understand the underlying philosophy of economic stimulus in the different countries.

 

The United States, several countries in Europe, China and many other countries have all created a stimulus spending plan and have a strong desire to stabilize the banking system.

 

The three main economic stimulus weapons these governments will use are:

 

* Interest rate cuts

* Tax cuts

* Direct government spending

 

The quickest and most certain stimulus weapon is direct government spending. The vast majority of the government stimulus in the United States and China is direct government spending; whereas in Europe, the majority is in tax cuts.

 

Let’s break down each country or region specifically, and also consider the impact of the G-20 Summit and its financial strategies:

 

United States – The United States government has characterized its efforts to reverse the economy’s downturn as a three-legged stool:

 

◦ Economic stimulus

◦ Minimize home foreclosures

◦ Bring stability to the banking system

 

Real U.S. government spending will grow between 2.5 percent and 3 percent in 2009 and into 2010. The impact of this spending will be a growth in 2009 GDP of 0.6 percent to 0.9 percent, and in 2010, a GDP of 1% to 2%.

 

This U.S. government spending points to a budget deficit in 2009 and 2010 of over $1 trillion. This budget deficit presents a real threat of inflation which must too be considered when developing the Comeback Plan.

 

In the United States the dual objectives are to preserve and create jobs (transportation, infrastructure and health care) and to pursue the agenda of "Change" of the new administration (financial industry recovery, energy/green initiatives, tax burdens, trade regulations and labor).

 

The United States Treasury has put in place plans that are assuring both investors and banks of its commitment to resolve the banking crisis. Good progress is apparent here, which further enhances the claim that the worst of the Great Recession is behind us, and we are beginning the recovery. Just yesterday (mid-April), Treasury Secretary Timothy Geithner provided the assessment that "the vast majority" of the banks could be considered well-capitalized.

 

However, we need to look at the U.S. housing market when examining the end of the Great Recession. The home foreclosure challenge is, unto itself a United States problem, except it has a significant impact on the third topic of banking system stability. The banking stability issue is truly a global problem and is being addressed by the G-20 (Group of 20 Industrialized Nations, which I will touch on below).

 

China – Global organizations intent on finding growth despite the Great Recession will do well to review their China strategy when they develop their Comeback Plan.

 

In China it is helpful to understand that the Chinese term for "stimulus" implies "rejuvenation plan." China, more than any other country, views the Great Recession as a great opportunity to enhance their industrial competitiveness.

 

China stimulus is going directly into the economy in the form of upgrading energy sources and technology, reducing pollution, upgrading China’s rail network, providing for rural development, providing investment incentives for innovation and expansion of R&D, and spurring export promotion and competitiveness.

 

Europe – The goals of European countries are more to protect small to medium sized companies from the impacts of the recession while increasing spending on energy efficiency, infrastructure and innovations.

 

The G-20 Financial Strategy – On the topic of bringing stability to the global banking system and resolving the financial sector problems, although not in total harmony, the April, 2009 G-20 Summit does show some promise on:

 

– A unified front on dealing with the toxic bank assets.

– Regulating hedge funds and other financial institutions.

– Being committed to getting banks to lend again and therefore to restore growth.

 

Government Spending and Your Great Comeback Plan

 

The greatest direct government spending over the next year will be in China, then the United States and then the countries of Europe. The large amount of China’s direct government spending in 2009 will result in real China GDP growth in 2009 of 6-7% 7-8%.

 

The implications of these government involvements with recession recovery may have a very important impact on your organization’s Great Comeback. It is paramount that you understand these impacts and build them into your Comeback Plan.

 

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A Revealing Week in Central Europe

It was a wild and enlightening five days in Europe – from the shop floor to the board room. I was there visiting our office in Germany, and we focused on 16 organizations in all, digging in and exploring their opportunities and challenges.

 

LSPs, manufacturers and distribution companies: It encompassed a wide cross section of companies from cosmetics, to washing machines, diesel engines to automobiles. I see the major challenges in Central Europe now to be the global economy and slow sales (of course), reducing working capital, supplier relations, cost reduction, supply chain optimization, merger and acquisition integration, etc. Amazingly, with only four exceptions, the meetings across Central Europe were identical to the meetings I have in North America.

 

However, I found four interesting exceptions that reflect basic differences in our view of business and the fact that we have something to learn from these differences:

 

1) Benchmarking and Best Practices

I noticed a European lack of sophistication on Benchmarking and Best Practices (B&BP) thinking. Very little participation in B&BP was found, and what was found was driven by financial benchmarks as opposed to operational B&BP. Also surprising was the lack of connection of using benchmarking as a guide to identify appropriate best practices to be implemented. Central Europe has a clear focus on continuous improvement, but a very cloudy focus on breakthrough transformations.

2) Change Management

The second variation that I noted between North America and Central Europe was the topic of change management. Overall, the European view of change management is much more evolutionary then revolutionary. The European view is to evolve from a very good operation to one that is even better – not through a stepwise transformation but rather through the evolution of continuous improvement.

3) Quality

The third difference relates to the enhanced importance in Central Europe on quality. Manufacturing quality vs. low cost country (LCCs) sourcing was a very active topic of discussion. In North America, this discussion is much less frequent since sourcing from LCCs is a given as opposed to the quality debate continuing. Two big observations here: first, North America has a more developed process for manufacturing outsourcing; second, Central Europe really does a great job on high quality manufacturing. So, Europe fully accepts LCC sourcing for underwear and athletic shoes, but for precision tools and equipment, they prefer the quality of "Made in Germany."

4) Real-time Control

Lastly, a difference that I expected to find and did was the prevalence of worldwide ERP systems, but I did not fully expect the inappropriate use of these ERP systems to drive real-time process control in manufacturing and distribution. Without a real-time process layer of middleware between the ERP and the equipment controllers, I saw several systems that had too much equipment and not enough immediate control and flexibility. In North America, we prefer to have more thought and less steel. And certainly, this provides us with flexibility not available in Central Europe with their harder automation.

 

It’s also interesting to categorize these four differences into two groups. The first group combines differences 1 and 2 and says that North America needs to enhance their thinking on continuous improvement and Central Europe should do the same on breakthrough transformations. The second group combines differences 3 and 4 and says that North America needs to return to an enhanced focus on quality, whereas Central Europe needs to enhance their middleware capabilities.

 

So, I had a great week of sharing various ways of thinking on supply chain and manufacturing. It is clear that with 90% of the issues being identical, the marketplace is global. Although there are some small differences, for the most part business in Central Europe is very much like business in North America. It will be interesting to see how both evolve in the next decade.

 

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