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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.

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 ...

Mature Global design Strategies improve profits

I was rather happy to read the Aberdeen report's summary which highlights that global product design and development leads to reduction in product development time and time to market while allowing the protection of intellectual property through Digital Rights Management.

This blog and my research has been investigating these issues for some time and I am glad that the data is now available. The question is how do you make it work in practice, particularly if you are not a gigantic organization that can afford to open offices worldwide and actually place your person to work with the supplier in another country. That is an interesting question .....

Herb Kelleher and aligning supply chains with business strategy

"We are THE-low fare airline" said Herb Kelleher to succinctly capture the strategy of South West Airlines. The Heath Brothers call this "Commander's Intent" in their new book "Made to stick." Once you have the commander's intent simply defined , everyone else in the organization and stake holders expect and do things that match up with the strategic intent. The Heath brothers go on to explain (pg 29, quoting from Carville and Begala) that suppose a market research executive came in with customer feedback and suggestion that chicken Caesar salad would really make the Houston-Vegas passengers happy. Herb Kelleher would simply measure whether this helped or did not help the strategic mission of "We are THE-low fare airline." Obviously the streamlined, literally low cost South West peanut supply chain  would win every time over chicken Caesar salad. And whoa! you'd ignore customer feedback..... and stay with peanuts! Customers will keep coming back.....

Having just read the above I had to agree with the Manufacturing Insights-IDC's recent research that mis-alignment of supply chain with corporative objectives is a big problem in industry. Increased quality and customer satisfaction is the top priority of supply chain executives and not low cost alone. No one wants to recall Colgate. 

The supply chain digest is provoking its readers to respond to the "low cost" priority and it is precisely this low cost orientation that has left executives in the upstream supply chain i.e. the supply managers and the downstream distribution channel i.e. sales managers responsible for distribution out of the center-stage in the company. As soon as these value chain mangers start figuring out that they add value and don't simply reduce cost these managers  and their companies will do better.

Boeing 787 Dreamliner launched

On Sunday Boeing 787 - Dreamliner was launched amidst much fanfare by 15,000 primarily Boeing employees. Couple of things make the launch remarkable. First is 677 orders (at $200 million each)before being assembled ,excluding an order of 20 Qantas planes,placed over the weekend, as the Sydney Morning Herald,happily clarifies. Second, according to Reuters, 50% of the primary structure by weight is based on composite carbon material including titanium and aluminum. Instead of panels bolted together, the composite material barrels are fused together saving thousands of sheet metal bolts and fastners. But most importantly, being 20% lighter the fuel efficiency will be higher as will be the lesser pollution. Moreover, the air pressure and moisture will be more comfortable in the cabin leading to lesser aches and pains for long distance air travellers. As a Boeing marketing executive pointed out on TV, their expectation is that consumers will prefer the 787 and will force the airlines to adopt it. However, the delivery period for new orders is 8 years at this time.

Passenger aircraft are infrastructure products like power plants. Getting individual customers  to demand an expensive business infrastructure product is every business marketer's dream.Boeing has clearly won this round competing against the giant Airbus 380. One Boeing marketing person put it very well on TV saying that both can fly Kansas to Shanghai,non-stop. On the 787 you will be dining with 200 other passengers while on the Airbus 380 you'll be dining with 600 others. Don't you get the feeling that the Airbus might just "feel" more crowded?

So what is the big deal with "Sterling Service Contracts" ?

Well for one,  the new Sterling Service Contracts , gets linked to many of the categories that I blog about! And that is a lot of categories...

Some of the things that Sterling Service Contracts will do includes, and I quote from Sterling's press release:

START QUOTE:

• Storefront capabilities that provide customers and partners with a personalized and branded buying experience increasing loyalty.
• Intelligent order orchestration that determines the most efficient and least costly location to fulfill an order.
• A 7000+ member logistics network that reduces the cost of inbound and outbound shipments through optimization, automation, and collaboration with carriers.
• Network-centric WMS that reduces inventory levels at each stocking location by managing inventory across all locations as a single inventory pool.
• Supply Chain Visibility capabilities that balance supply and demand by collecting, summarizing and displaying inbound supply information in a usable, understandable and actionable format.

END QUOTE

Sterling is probably not the only supplier offering this bundle though Forrester Research does think that the product is a step closer to the "perfect order". What's "perfect" about the concept and so fascinating is that it brings alive a lot of organizational theory that was developed for years and years before IT and the Internet made all this a reality.

Procurement Strategies in the Global Economy

Coming up on Wednesday 17th January 2007 is the Greater New Haven Chamber of Commerce Business Expo 2007 organized by the New Haven Manufacturers Association and the Greater New Haven Chamber of Commerce. The very first panel discussion at 10.30 am is on "Procurement Strategies in the Global Economy" which is sponsored by the Connecticut Business and Industry Association (CBIA) and the Connecticut Association of Purchasing Management(CAPM).

I am on this panel with the topic " 5 quick tips on adding value to your global supply chain,"  alongwith members of the CAPM. At last count 35 people had registered for the session and I am putting finishing touches on my "5 quick tips". For this predominantly manufacturing audience I am going to emphasize the huge global opportunities there are for the entrepreneurial American manufacturing firm. As I mentioned earlier in this blog, for example India is buying commercial aircraft at the highest ever rate in the world. All these aircraft engines need overhaul in due course and US aircraft engine makers would be really pleased to see local repairers who are partners of known smaller US firms but are available in India to provide service. In other words my "first tip"  is  to encourage manufacturers to be "South " focused. "South" in my supply chain view is the customer at every downstream link of the supply chain and distribution channel. South also is Mexico ,Brazil and other low cost- in-US locations like Kentucky.

My next "tip" is to look " north" in the upstream supply chain - geographically to Canada and at every link upstream on  your particular supply chain. My third and fourth tip is "East" and West". These are  the geographies of new suppliers and markets ( East with China, India, Middle East and Africa) and the new West being former Soviet countries, new NATO members who are so keen to globalize. At a metaphorical level "East and West"  are looking at industries that are different but that can give huge ideas. For example as Eric Von Hippel says in his lead user research - the auto industry got the idea of ABS brakes from aerospace folks who had the urgent need to stop planes quickly and with no uncertainty on runways.

My fifth "tip" is to enhance your personal network. Just as I mentioned in an earlier blog, college kids today have 300 contacts on their Facebook. Each of those contacts would reply to a query pretty fast..... no matter where they are on the globe. There is no reason that an entrepreneur in the Greater New Haven Area cannot systematically maintain contact with at least those they already know.

In summary my "5 quick tips to add value to your global supply chain" is to look "South,North,East, West and Around" your own present supply chain!

If you are in the area do check out the Business Expo at 25 Science Park at Yale University, New Haven on Wednesday 17th January.

Aircraft Maintenance,Repair and Overhaul (MRO)

The Indian domestic airline scene is seeing frenetic growth. Privatization of airlines  and a surging middle class keep multiple airlines busy. Consider that an airlines was offering seats to Patna (Eastern India) from Delhi at half the second class air-conditioned rail fare. Unimaginable even blasphemous just twelve months ago!

Boldly, airlines are offering booking services both online and through unconventional distribution channels like gas stations. Even more boldly, in an attempt to attract first time air travelers with low prices Deccan Airlines offers no food or beverage. This way turn around time is improved and the aircraft are  in the air rather rather than taking time to load food and remove dishes. All this means that hundreds of aircrafts ( the largest recent civilian plane buyers are Indian aviation companies) need to be maintained,repaired and overhauled in the next few years.

Going by the Indian auto industry every Ram,Shyam and Hari ( equivalent of Tom, Dick and Harry) will get into the MRO act because Indian Aviation companies would like to squeeze out every safe mile from every aircraft being bought now.

This article highlights the enormous growth in the MRO industry in Asia. This growth represents huge opportunity for Tier 1 US -MRO companies to open joint ventures and tie up with capable Indian partners. Engine suppliers like Pratt and Whitney and GE would perhaps feel more comfortable seeing a reliable US Tier 1 MRO party operating with good local partners in India. The question is will the US-MRO industry particularly at the quality but Tier 1 or Tier 2 level be able to capitalize on this upcoming opportunity?

Maintenance Outsourcing in Aerospace Industry

Come to think of it most folks take the car to the garage and let the mechanic handle it. In fact, as the auto parts aftermarket folk will tell you - the key influencer in the replacement market brand choice is the garage mechanic. The same seems to apply to the airlines business. Qantas the Australian carrier is planning to outsource its maintenance work to reduce cost and enable better scale of operations. It makes you wonder at the foresight of GE and it's leaders who were getting into the aircraft engine servicing business in the nineties. Jack Welch has some fascinating stories about how GE was trying to consolidate the aerospace maintenance service business in the 1990's. This discussion appears in the book "Straight from the Gut"  one of my readings these days.

Now Airbus outsources

If Boeing gets parts of the work done overseas can Airbus be far behind? Well no, The St. Petersburg Times reports from Frankfurt that Airbus CEO Gustav Humbert plans to keep 30% of the "core competence" in-house while 70% of the work will be done by providers in Russia,China and India. In fact, outsourcing work has fueled the growth of Boeing with 10B$ orders from Japan where 7B of developmental work was actually financed by the Japanese Government. The Airbus Super Jumbo A380 is booked out till 2010. What is core and what is not core in this industry is strictly according to the "eyes of the beholder." The beholder in this case is the market. If the market thinks that Boeing or Airbus has a particular strength then these companies are likely to do that job in-house. Interestingly, all jobs in this industry are high tech,high skill and need high engineering smarts whether they are done in Europe,USA,China,Russia or India. Food for thought for Engineering Profs across the globe. What should you be teaching the college kids in Engineering School?