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Procurement Reform bill becomes law and Memorial Day

Today is Memorial Day  and it is significant that President Obama and Congress strove to get the Procurement Reform Act ( officially  the Weapon Systems Acquisition Reform Act of 2009 ) passed before Memorial Day.

The defense industry and supply chain is remarkably "production" oriented. The focus is passively on what the Government  wants rather than proactively understanding the changing needs of  combat in different theaters. To quote:

 “By and large the government gets what it wants, when it wants it, for the price it’s wiling to     pay,” said Alan Chvotkin, executive vice president and counsel at the Professional Services  Council, who spoke this week at a panel discussion about the federal acquisition workforce. However, he said the procurement system still has room for improvements.

At the same discussion, Steven Schooner, an associate law professor and co-director of the Government Procurement Law Program at George Washington University, pointed out the Obama administration views contractors as lining their pockets at the taxpayers’ expense. Schooner said the president, Congress and the news media can’t treat contractors as pariahs because the government can’t operate without contractors’ support."

The intense public scrutiny of defense contracting results in contractors being treated as pariahs,as Schooner says. Consequently, mindless and irrelevant projects take a life of their own while combat troops have changing needs on the ground.Choosing and changing projects quickly is a top requirement in today's globalized world.

Let us hope, that efficiency and communication in the supply chain, right to the brave soldier whether in Afghanistan or South Korea,improves with the Procurement Reform Bill.

The Stimulus and Procurement Reform

Ever since the stimulus package was announced I have been asking friends in the supply chain community as to whether the stimulus package will create new jobs in supply chain and procurement. Logically if you are sourcing stuff, you need managers to both buy (supply chain) and sell (B2B).There were two opinions on this - one was that you can always get contractors to do more if you have a rate contract already set-up. The other opinion was that many local governments will ask for fresh bids . In fact, asking for fresh bids  could really cut down supplier quotes by as much as 45% , given the slow economy. This could in turn free up money for additional projects.

Yesterday, President Obama talked about bi-partisan  procurement reform primarily for the Department of Defense. Any reform means more work for supply chain and procurement management professionals and more jobs for for both B2B marketers and supply managers. Good news as far as this blog is concerned !

The Stimulus Package, Recovery and Diffusion of Innovations

Innovation is about change, change in a product, in a service or process. However, no matter how appropriate the innovation is it takes an understanding of innovation diffusion to get the target market to adopt it.

The stimulus package is an innovation to deal with the recession and hopefully most pieces will work. The "diffusion" of each initiative will take time.And every time you get stuck in traffic because of lanes closed due to repair think positive ! Maybe it's the stimulus package making its way to your town or commute....

Local Governments should consider  putting  up signs at construction locations that are funded by the stimulus - so that drivers feel more upbeat as they get through traffic congestion.

Some visible and physical signs will also start reducing the fear that people feel in a recession.

What types of B2B and Supply Chain jobs will the stimulus package create ?

I have been trying to figure out the kind of opportunities that might come up from the stimulus package - particularly in the B2B  and Supply Chain  areas. I think there will be plenty of opportunities in these areas if you start looking at what the stimulus is planning to do. For example, in the procurement space as towns and communities start re-building infrastructure purchasing skills should be in demand. Now the question is whether ongoing contracts will be expanded i.e. existing contractors will be given more work and they would hire or there might be more new contractors entering the infrastructure. A friend in the purchasing community thinks that new bids will have to be prepared, in record time, but there may not be new supply management jobs in the public sector, although some additional hands may be needed to develop and execute the contracting of all this work. If you are a professional looking for work  in these areas checking with the local Government- may be a good idea.

Then there is the construction supply chain ( I was recently reviewing this literature for an academic paper review ) and herein lies an opportunity for all those sub-contractors out there. They should really start gearing up their B2B marketing with both towns and well established contractors so that they are ready to execute projects. There are a whole lot of displaced professionals (IT , finance)  who have taken up temporary work like painting etc. and this is the time to put your name out there and start lining up your work force.

The stimulus funds would probably be spent at the town level and there is some talk of a deadline of spending the money say within one year and this calls for a  speedy effective local project selection ( which school to renovate  ? - probably a separate blog on this ), contractor and subcontractor selection and off course the direct workers on these projects.  Probably discussion will move to execution aspects of the stimulus as we move forward.....

Steven Chu will be Energy Secretary

In naming Steven Chu as Energy Secretary Obama has highlighted the importance that the new administration will attach to science and a scientific temper to the whole energy question. Steven Chu is a Nobel Prize winning Physicist and has both a biology and physics background. While his nobel prize was "for development of methods to cool and trap atoms with laser light" he is currently studying biological systems at the molecular level. 

Steven Chu is incidentally of Chinese ethnicity, and that should send a strong signal to big energy consuming countries like China,India and the rest of the world how important energy conservation and sustainability is for the globe,going forward. My guess is that energy issues will become a much higher priority with governments across the world with Nobel Laureate Steven Chu as Energy Secretary in the US.

Tata Nano and now Tata Jaguar and Land Rover

Tata had announced the $2500 Nano Car (left with Chairman Ratan Tata)  to much applause. There are no dearth of buyers at this price point in Asia,Eastern Europe, Africa and Latin America . But have you ever heard of a company operating at both ends of the market ? In fact, the Tata's have created the entire possibility of a $2500 car and now they are buying the Jaguar and Land Rover. The Nano is for the "Bottom of the Pyramid" while the Jaguar starting at $50,000 ( or 100 times the Nano) is for the super-rich. Are they capable of operating at both ends of the the market? Yes, I think so having worked with Tatas' as customers for several years. They are  great employers  with a  history  of  caring for employees,customers,suppliers and stakeholders far ahead of their location (India) and  times. Luckily, the Jaguar and Land Rover Union does not have to worry about jobs as this report suggests. Also, if Ford can focus on its core brands and turn things around, the auto industry will see better times.

Michigan Auto Industry is changing

Somehow Michigan fascinates me for its auto industry and what it has given to the study of management,innovation and the wrong way to manage buyer seller relationships. When I heard on the radio about the leading rate of job losses and foreclosures in Michigan, I felt bad for the folks in Michigan. But this may be changing......

The news report that "suppliers learn collaboration and innovation" gave me hope. However, it is not the suppliers who need to learn collaboration but the auto industry who need to. In fact this blog has commented on the difference between US and Japanese auto and the long but vain scholarly research that has brought this out to an unresponsive auto sector.

But now, suppliers are no longer willing to cut prices to oblivion but are diversifying their customer portfolio and are not totally depending on the Auto industry but trying out opportunities in office furniture,food and appliance where a reverse auction type of mentality has started changing several years ago. Now the auto industry is changing, rationalizing the supply base and becoming more collaborative and driving innovation with its suppliers. I was particularly impressed with the take of Amerikam CEO Stephanie Leonardos on how long and painful this realization has been for Michigan Auto. But read the last few paragraphs of the interview here.

You don't repeat reverse auctions!

Reverse auctions are controversial. Suppliers bid their lowest rates on-line and prices keep going down and the buyer's organization is happy. Inefficiencies in the supply chain reduce, transparency increases and suppliers are on their toes. Sounds not very collaborative and that's what I had though so far till I went yesterday to the CAPM Seminar "Sourcing the Pfizer Way".

The seminar was held at the Global R&D center of  Pfizer,Groton  and was kindly organized by Mary Kachinsky of Pfizer and participants learned a great deal  about sourcing particularly  in a knowledge intensive environment where all your internal clients are highly qualified  scientists and physicians involved in drug discovery.

I had missed Sam Dowell's great presentation at NECON 2007 where I had presented as well. The "aha" moment came for me, when I realized (after a question) that you don't repeat reverse auctions. You do them initially to rationalize your supply base and also when you are checking out overseas suppliers for price. You invite bidders after a thorough pre-screening and always invite several suppliers in multi-country reverse auctions so that there is enough "same country" competition. And most important, you do not necessarily go with the lowest bidder and make that very clear, upfront. But once you decide suppliers you try to make the relationship work ...

KPO is back in the news

Knowledge Process Outsourcing (KPO) is back in the news with estimates ranging from $10-17 Billion/year volume by 2010. I ran the first ever  MBA elective on "Global Outsourcing of Knowledge Based Services" in Fall 2005 - and a  CAPM seminar in April 2006, with the same title. While well attended, I think KPO  classes and seminars were rather early for 2005.  

During those early years "outsourcing" was a scary word associated only with  layoffs. Globalization and its opportunities was something that was not clearly apparent.

It was nice therefore to read the KPMG report  that explains the difference between "BPO" (Business Process Outsourcing ) and Knowledge Process Outsourcing particularly for the financial sector. The report is well written though I would disagree with the rather provocative subheading ...."outsourcing the core". You really cannot outsource your core competence  but you can certainly re-define what your firm's core competence is when you can get a knowledge task like equity research done overseas at a low cost. But all in all a great report !

How Relationship Marketing is Changing Procurement Management

Sometimes its just a quick remark that clarifies difficult issues and that happened with me yesterday when a very competent procurement professional mentioned that their company did not do much procurement activities i.e. bidding,negotiation because they preferred to stay with the same supplier. So, there was not much growth in procurement as a career...

This set me thinking because it marks a major shift in management practice because companies are realizing that just as it is more profitable to have good customer relationship management downstream - its probably more effective to have good supplier relationship management upstream the value chain. Just as you need to "fire" or "sack" your bad customers you need to do the same with your bad suppliers but for the good ones you have - good relationship management seems to be paramount.

So procurement managers need to extend skills beyond "negotiation" just as sales managers need to extend skills beyond simply trying to "close" the sale....paradigms have shifted!