Supply and Demand Chain Executive has recently picked up its coverage of global sourcing topics. Much of this recent coverage has really hit the mark. For example, a recent guest submission by John Brockwell of JP Morgan Chase questions whether global sourcing is really worth it anymore. In my view, this a fair question for US companies in today's environment owing to concerns over product safety and declining -- or lost -- savings from the troubled dollar. Brockwell suggests that there are many reasons to still consider global sources ranging from "access to fresh research, design or specialized intellectual capital" or "plans to sell or service locally."

Even more important than the rationale for global sourcing, he offers up a decision process that executives should ask themselves about whether a specific global sourcing decision makes sense. While much of what he has to say will be news only to those getting started with global sourcing, the advice is valuable indeed. But is Brockwell accurate in his analysis? For the most part, I believe that much of what he has to say could have saved many companies from poor global sourcing decisions had they followed the advice in the article in the first place. Check out the piece for yourself and decide for yourself. It's more than worth a few minutes of your time.

- Jason Busch

This morning, I'd like to welcome back a regular guest columnist to Spend Matters, who is sharing part two of a two-part piece. Brian Sommer is author of the blog Services Safari.

Newsweek's piece "Bottom of the Barrel" is tough to read and disquieting for sourcing executives. The story begins with a description of how non-native workers are recruited to work in Malaysia at hard-drive enclosure maker Local Technic.

[More]

In late January, I posited that the US was beginning to look like it was becoming a low-cost exporter of choice. Of course the only thing we have to thank for this situation is a weak dollar which is otherwise wrecking havoc with the savings models that many US companies used to evaluate global sourcing import opportunities in the not so distant past. It turns out that now I'm not alone in my thinking that the US is emerging as a low-cost exporter. According to a recent Supply and Demand Chain Executive article, Europe is increasingly evaluating US sourcing options.

BrainNet, the consultancy quoted in the article, suggests "the continuing low exchange rate for the dollar is encouraging many to look across the Atlantic. This is especially true of industry sectors that are heavily dependent on exports to the dollar area, such as the automotive industry, the aircraft industry and machine construction." In other words, sourcing from the US is one of the only ways to defray the reduced profits of selling into the US or as BrainNet puts it, "a currency-related fall in revenue could be at least partly offset by shifting more procurement to the dollar area". The article also suggests for European companies that the "dollar crisis also brings benefits for purchasing transactions in Asia, if contracts are based on the U.S. dollar". A solid theory, perhaps, but good luck finding suppliers who aren't raising their prices in US dollars.

- Jason Busch

What Will 2008 Bring in the Metals Markets? Earlier today, Lisa Reisman and Stuart Burns penned a thoughtful and lengthy post over on Metal Miner offering up their predictions for the metals markets in 2008. Among the metals categories they take their crystal ball to, the two examine where steel, stainless, nickel, aluminum, copper and zinc prices might be headed to on a global basis. In the same article, they also tackle the impact of a falling dollar and rising oil prices on global metals sourcing. What are some the assumptions driving the forecasts they present in their post? According to the metals blogging dynamic duo, “In the face of a slowing US economy, a mixed position for the European economies and a still strong Asian market, it is a particularly tough call this year to judge where prices will go. Our call is the US will teeter on recession. Europe though restricted by high ECB interest rates will still enjoy some (if reduced) growth providing the Euro/US Dollar exchange rate does not strangle exports. Asia in general and China in particular are still enjoying robust growth. China may well drop from the double digit growth of the last 5 years to high single digit figures but that is still a very significant driver for the world economy and particularly the world metal markets.”

Reading Stuart and Lisa reminds me about how much domain knowledge really counts in analyzing and covering specific commodities markets. Call me biased -- yes, I am married to one of the authors -- but relative to the price alerts and regurgitated crap that only mildly passes for journalism that the trades put out on metals, there's no substitute for the type of coverage that only true industry experience can bring to the table. Seriously, do we really want to know that the sky is falling and copper is up today, or do we care about why and where it might go tomorrow -- and what to do about it from a sourcing and trading perspective?

- Jason Busch

Fellow Enterprise Irregular Thomas Otter has done a commendable job taking to task my Africa sourcing analysis from late November. He kicks off his rebuttal by noting "that Africa will not take over China and India anytime soon in all areas of sourcing is obvious, but it is not the basket case that Jason makes it out to be." Perhaps I did make a few mistakes in my initial post (e.g., generalizing Africa as a whole), but I stand by the fact that I think Africa should be further down on the list for companies exploring global sourcing options -- at least as a general rule. Still, I would agree with Thomas that there are some areas and industries -- such as automotive in South Africa -- that are worthy of consideration in a targeted fashion. But these are the exception rather than the norm.

Without question, Africa is a continent which is absolutely rich with export opportunity. And my guess is that in a decade or two, we'll look to a number of countries in Africa as much as we currently look to other developing areas of the world as a source of low cost, reliable supply. But a lot has to happen before that point and I would wager that I'll sooner get over to the region for vacation before I do for sourcing or other business reasons (with South Africa as a possible exception). Still, Thomas, I hope that you and others prove me wrong in the meantime.

- Jason Busch

As we look back on the past decade of procurement outsourcing, it's felt more like Waiting for Godot than waiting for savings. Seriously, despite all the hype, investment and potential savings at least some early adopters of outsourcing services have generated, we can all agree that procurement outsourcing has failed to cross the chasm.

This is a subject I've blogged about periodically on Spend Matters over the years, and one that I still can't get my arms around. In fact, when I think about it, it makes me almost angry that so many companies with such inefficient transactional purchasing operations -- let's ignore the strategic bit for a minute -- still continue to keep the execution aspect of procurement operations in-house with onshore employees (or at least employees in high cost states). At the least -- especially if outsourcing is not the right answer -- companies should move at least 80% of their transactional group of buyers to India or another lower cost locale (heck, even Indianapolis might generate enough savings for some).

[More]

We've all heard about procurement outsourcing from the perspective of companies considering it in the West. But what about examining the issue from the angle of those engaged in actually doing it? Unfortunately, that's an too seldom told story. But the good news is that the Hindustan Times recently took it upon itself to examine procurement outsourcing from an on-the-ground perspective in India.

What's fascinating about the article is that it goes past examining what we expect in most procurement outsourcing arrangements -- indirect category outsourcing. It also explores outsourcing in direct materials, providing an example about how Corbus is working with GE Aerospace in the direct materials arena. Of course this requires a different type of talent from IT and call center outsourcing -- and even indirect outsourcing, for that matter. The authors jokingly note that "if the business grows, demand would grow for engineers, certified purchase managers and other agents whose skills are qualitatively different from the smooth-talking, fake-accented post-teen women who started the BPO revolution about a decade ago."

I personally find the concept of direct materials outsourcing fascinating, especially considering few are actually offering such services today (I've gotten on Ariba's case many times in person for not making a more aggressive play on the direct outsourcing side here, since it's such a natural for them given FreeMarket's direct material roots and the significant direct materials expertise they have on the consulting side). In the case of global sourcing, outsourcing direct materials spend -- including sourcing, supplier performance management, and supplier development -- to a local provider makes a ton of sense. After all, you can save money and work with local providers in the process.

Need an example? Consider how "Corbus has a $100 million 10-year contract from General Electric Co (GE) to manage supplies for customers like Boeing for which GE makes aircraft engines. Increasingly, giants source as much supplies as possible from the best and the cheapest wherever they are on the earth—and procurement is a complex puzzle in the game." And given this, doesn't it make sense to work with outsourced partners who are, in fact, closer to the suppliers you're working with than you are?

- Jason Busch

European Leaders Blog recently posted a story examining a NeoIT report that highlights the risk a falling dollar poses in global sourcing deals. Their post suggests that companies "build currency fluctuations and hedging in global service contracts as part of contingency plans aimed at minimising the impact of these ongoing currency changes." In my view, while currency hedging can help smooth near- and medium-term price movements, if the dollar stays low over a period of time -- just as jet fuel has stayed high in the past few years -- hedging can be much less effective, just as Southwest has recently learned.

Perhaps, given the dollar's slide, it's time to permanently reevaluate global sourcing decisions in some areas. Consider that an IT or development resource in Indianapolis might now be cheaper than in Bangalore these days. Food for offshoring thought, I suppose. Perhaps Indiana, Kansas and similar "low cost" states might be the ultimate beneficiary of a continued weak dollar. Hmmm ... this is beginning to sound like a Midwest conspiracy to keep the dollar low!

- Jason Busch

Phil Fersht, a long time expert and pundit in the procurement outsourcing world, recently launched his own blog that covers a range of outsourcing topics. Not one to be shy with opinions, he recently offered up some strong ideas questioning the validity of one ranking study that examined the top "accounts payable outsourcing vendors". According to Phil, a number of providers did not make the list -- who should have -- like "Genpact, ACS, InfosysBPO (Progeon), WNS, VWA, CGI, etc". The problem with lists like these, Phil argues, is that they "can appear credible, but if you actually have some domain knowledge you quickly see that these rankings and selections of vendors make little sense."

Perhaps the greatest thing about the blogosphere in the business world is the ability of bloggers like Phil to call bullshit on so called "expert sources" of information. For the first time, we have the ability to keep others honest. And that, my readers, is our biggest contribution to the world of research and information. Sure, sometimes we might have original ideas (I'd like to think more often than not, in fact). But by policing others and offering candid, unbiased opinions and critiques, we provide a very unique service. And that's more than worth your time!

- Jason Busch

To answer my own question, I'd probably say not much faster than the speed with which Henry Hwong describes an outsourced Oracle Category Spend Manager implementation over his blog, Procureville. For those who don't know Henry -- our sector's newest blogger and a great fellow to boot -- he runs marketing and strategy for Provade, a boutique BPO firm that specializes in outsourcing services spend categories such as legal, professional services, etc.

Provade uses an Oracle platform -- actually a PeopleSoft platform, in most cases, at least from what I've heard -- as the basis of their technology solution, and then they layer on the processes, headcount, etc. on top of it to deliver an outsourced category solution. In his latest blog post, Henry describes a "big bang implementation" of Oracle Category manager at a client who "really wanted to get off their legacy solution as soon as possible." How fast did the implementation go? Here are some statistics from the first week: "$242M active Work Orders in system, 2,929 Timesheets entered, 44 Progress Logs entered, 996 Invoices created, and 103 Requisitions." Not bad Henry, and thanks for sharing and giving us an insightful benchmark for others getting such a system -- whether outsourced or internally managed -- up and running!

- Jason Busch