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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 Recession and Buyer-Seller (B2B) Relationships

Marketing and Supply Chain went through a paradigm shift in 1987 when Dwyer,Schurr and Oh published their article Developing Buyer-Seller Relationships. Since then many scholars have used the marriage analogy to understand long term B2B relationships, business markets (SRM)and even consumer markets (CRM ) . Every link of the supply chain is a B2B relationship and it needs to be stable like a solid marriage, so that the next link in the value chain gets reliable product or service.

NBC reports that divorce is down 49% in DC due to the recession as it is simply not affordable by both parties !Similarly I guess B2B relations tend to continue in a recession as it is too expensive and risky to look for new partners both on the buy side and sell side of the business.

On a lighter vein B2B marketers and Supply Chain Managers need to smile with the country song it's cheaper to keep her.

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.....

Towards global B-to-B trust and transparency in 2009

2008 has been a watershed year in many ways and everyone is talking about 2009 with hopes of better times.

There is one theme that should become important in 2009 given the learning from the Mortgage Crisis, Auto bailout and resulting  union supplier competitor unity and the Madoff scandal. And that is more trust and transparency that would have to be re-built from the ground up.

We should see more online transactions and use of the Internet both by businesses and also consumers as with the recent zoom in Amazon sales. When transactions are digital and open to scrutiny by those concerned on a real time basis- there is a real shot for everyone concerned- to chime in with comments and concerns- in time. So as more systems go online there will be more integration both for the sake of reducing costs and improving efficiency but also bringing real time trust and transparency in dealings.

Wishing readers a Very Happy and Prosperous 2009 !

Auto Industry Bailout next week ?

This blog discussed over two years ago how the US Auto industry has been ignoring the very research they funded and supported for decades.  These studies had clearly identified better supplier relations,more innovation and customer focus  as priority areas. Just handing out money is probably not going to change things  with the auto industry  leadership at Detroit. When they have successfully ignored consultants,researchers and professors for decades, it seems very unlikely that mere exhortations with bailout money will work.  In fact, unless there are decisive management changes, it is very unlikely that entrenched managers would change their ways.

Estimates of job losses in the upstream supply chain and the downstream distribution (dealer) channel are so immense that some solution must be found. When managers and company leaders neither manage nor lead-  they can bring ruin to their entire value chain partners and associated  stakeholders. In the auto industry that number could be as high as three million jobs lost. Clearly,  just too much is at stake.

700 or 2% of US car dealers may close- but could there still be light for US Auto?

With all the turmoil in financial markets the troubled US auto industry seems to be on the verge of total collapse.  700 dealers might close because customers can't get finance as Ford and GM stock touched a57 year low.

All may not be lost for US auto as the GM-Chrysler deal might promote receiving some federal funding to re-tool. On the distribution side with the closing distributorships I was cheered to read some comments here . According to these comments most if not all these 700 dealers will be US Auto dealers and not import dealers. These auto dealers are ones with large product lines,little differentiation among offerings and too much territory squeeze much like McDonald franchises who might wake up to find another McDonald just across the road and much more competition.

If this is indeed true for US auto distributors then there might be streamlining of the distribution channels and remaining dealers might become more healthy when the credit situation improves.

I tried comparing the "locate" the dealer feature for "Chevy" on the GM website and the locate a dealer for Toyota.Toyota offers one dealer when you search by ZIP code after which you have to dig deeper for more dealers.On the other hand, GM starts with 3 dealers on the first page and offers 3-4 pages of dealers. Too much choice for lesser numbers of cars sold and probably too many dealers.

Seems similar to the US auto upstream supplier policy of having many component suppliers who have a hard time turning a decent profit. Here downstream distributors seem to also have too much "internal" competition to turn in good profits. The situation is off course much more difficult in tough economic times.

Banking is a mess, B2B trust and Karl Marx smiles at "mother of all bailouts"

The "nationalization" of institutions like Freddie, Fannie, AIG and so on and so on reminds me of what we thought we had left behind, socialism, the socialistic pattern and communism. Marx would be smiling and his more moderate followers like "Fabian Socialists"  would be laughing more loudly. Nationalization protects the consumer somewhat but creates public sector monsters. But I digress...

B2B scholars, including myself, have been studying  trust the glue that holds business together for a while  (Read Morgan and Hunt's interview here). We all were studying industrial firms supplying nuts bolts and other verifiable stuff that went into a value chain. Then came along the Internet and the study of trust went on to "e-Trust" and so on.

Banking,Insurance, Finance  value chains were frankly not on the B2B scholarly radar. The fact that home values were being pumped up (by appraisers threatened by real estate brokers) , home owner incomes were not being verified ( by bankers - I am  not clear what the incentive/threat was ), and mortgages were instantly sold (at a discount as a fancy" instrument") and then resold again and again with no "value add" seem so obvious in hindsight. The truth came to me very sharply when someone on a TV talk show said that today bankers won't lend money to each other because they can't trust each other... this brings us to the mother of all bail outs aka nationalization and a smiling Karl Marx with a "V" sign.... more as things play out ..

Booming choices in CRM,SCM,ERP- executing "benefit of the benefit"

When I walked through the exhibitor booths at the ISM conference, I was struck by the rather large number of software vendors who were trying to explain how their software would "solve" the problems of procurement,bidding,contract,supplier relationship and add "visibility" to the supply chain. Many of these solutions could speak to your legacy systems and most of them were web based and did not involve buying software and all the challenges that are involved in getting a system started. This was a sudden but clear change from earlier exhibitions I have been attending where "mega" ERP companies would be intimidating visitors by the daunting task and budgets involved in actually getting these systems to work and realizing the benefits that the system promised.

And now I saw that there is one more CRM system launched. This one is from Sage Software and is aimed at the small and medium enterprise and does many ERP functions as well.

The question is : where does all this lead the manager of a large enterprise or the owner of a small one in these tight economic times ? Adoption of these systems should be much easier than the early ERP systems but a clear and compelling articulation, for every customer that adopts these systems, would help the customer in quickly capturing the cost savings or revenue growth that these systems promise. Does this happen during the sales cycle for the system? It probably does  in the presentation slides of the software sales teams - but the challenge for the buyer is to capture the "benefit of the benefit" during the sales and buy process of the software and try to articulate  it to the  functional goals of the "owner" department. The luxury of the disconnect between why you acquire a system and what you can do with it might be somewhat reduced this way.

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 ...