Yesterday, I had the chance to sit in on a breakout session that focused on the source-to-pay lifecycle within the SAP product suite. The primary agenda of the presentation was to lay out a vision for the future of SAP's E-Sourcing application. In this post, I'll plan to share the details and offer up a bit of analysis (with more to follow in later posts). So without further adieu, let's dig in. To begin, the next major E-Sourcing release cycle will come in Q3 2009 when SAP re-engineers the E-Sourcing application by providing tighter process integration with SAP ERP and Enterprise SOA. From an architectural standpoint, this release will include linkages into MDM as well as purchase requisitioning and RFX -- and the ability to more closely tie awards and purchase orders as well as linking master agreements to operational contracts. Functionally, this release will deliver significantly enhanced usability (the Frictionless UI traded elegance/ease of use for configurability), support for complex pricing structures and dutch auctions. It will also offer integrated sourcing processes to drive better collaborative scoring of responses with an RFX and cost breakdown capabilities to support complex pricing.

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Over on All Roads, Richard Brubaker has the scoop that the Chinese government is considering seriously curtailing factory production between July 17th and September 20th of this year. This is not an April Fools joke (like my post about quitting this blog yesterday). According to Richard, the Chinese government is mandating certain businesses "to cease all manufacturing efforts near the large cities of Beijing, Tianjin, and even Shanghai due to serious pollution problems they are facing. Shut down will occur between July 17th though September 20, 2008 ... Now, before everyone freaks out, this is still very much speculation and I have been unable to confirm the scope of the shut down." Richard notes that his contacts in Beijing suggested that there are two manufacturing areas likely to be most impacted: "coal and raw material exploitation industries are expected to see shut downs (again, not sure of scope) [and] high energy users and heavy polluters". Stay tuned as this story develops. I'll keep Spend Matters readers in the loop as I learn more about what is going on. A final note: these rumored shutdowns are far more severe and widespread than what everyone expected from the factory closures due to the 2008 Summer Olympics in Beijing.

- Jason Busch

Whenever someone cries foul that they can't compete on a level playing field and are therefore owed an unfair advantage relative to the their global competition, it's usually a sign that they've either underinvested in global sourcing capabilities themselves or have such a bloated cost structure -- or artificially high margins -- that any true free market would put them out of business. Such is the case of Legatt & Platt as well as numerous other companies involved in the metals (finished and semi-finished products, primarily) business according to a recent post on Spend Matters affiliate blog Metal Miner. Unfortunately, however, thanks to the rhetoric from anti-free trade candidates -- or the "fair-trade" candidates, as they call themselves -- protectionist views are on the rise in the US. As these views become more mainstream and as the US turns inward, these complaints will only increase -- and US manufacturers will be at a significant disadvantage relative to their global peers.

Think about the logical extension of the current state of anti-dumping complaints. Perhaps in the non-manufacturing world, maybe we'll one-day see Accenture or Deloitte file anti-dumping claims against Infosys and Tata for taking number crunching and SI work offshore at "below market prices" (even though they're doing it too). It might sound crazy today, but believe me, we're headed in that direction. In my view, the willingness of the courts to hear anti-dumping cases amounts to a new type of potential unknown tariff and supply risk against anyone potentially engaged in global sourcing where domestic alternatives exist. Now that's a scary thought -- and it's one to think about when you go to the polls in November.

- Jason Busch

Many of you have already seen excerpts from a recent Booz Allen / American Chamber of Commerce Shanghai that looks at what types of organizations are getting the most out of their procurement and operations efforts in China. They key to success, a summary of the study notes is that "companies that pursue China as both a growth market and a market for lower-cost labor and sources, and integrate these operationally, enjoy significantly higher profits than companies pursuing just one of those objectives." Specifically, those "that employ dual sourcing and sales strategies report an average profitability rate two-thirds higher than those focused on just one of those objectives (29.6 percent compared with 17.8 percent)."

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It seems the first of the year is the time when every pundit gets up on his soapbox and attempts to wax eloquent on what might happen in the coming twelve months. One of the better series of macro-predictions I've read for the overall procurement and supply chain market is featured in a guest article over on Supply and Demand Chain Executive. Penned by the head of JP Morgan Chases' Global Trade Services group, Bernie Hart, the article suggests that "there are a number potential issues looming that could disrupt global supply chains, sourcing strategies and the flow of working capital" in 2008. Perhaps his most useful and somewhat unorthodox prediction is that global sourcing will shift from Asia to the Americas, at least in the US.

According to Hart, "The falling U.S. dollar, limited free trade agreements, high energy costs and rising production costs in Asia will all contribute to companies reevaluating extended supply chains and moving sources closer to their home markets ... While opportunities still exist in Asia, Mexico will become an increasingly popular source for manufactured goods as companies compete on time-to-market strategies, seek financial advantages found in Mexico's multiple free trade agreements and capitalize on Mexico's investment incentives, streamlined customs processes and abundant English-speaking workforce.” Goodbye MSG and lead paint, hello tortillas and armed escorts around Mexico City? I guess only time will tell. But without question, I believe the weakness of the dollar will continue to have an even greater impact on 2008 global sourcing strategies. Seriously, it looks like US manufacturers shifting spend South of the Border will be the ones on the front lines of finally paying the price for the massive budget deficits run-up by the Reagan and Bush administrations.

- Jason Busch

As if high commodity prices in base metals, food and energy not to mention capacity constrained supply markets were not enough to drive fear into most sourcing managers in the region, the overall Euro-Zone economy is looking to be in increasingly tough shape, according to a Purchasers’ Index survey that was quoted in the Wall Street Journal Earlier earlier this fall. The story notes that "a sharp deterioration of the index in the survey of European purchasing managers suggests the rising euro and spreading credit crunch are casting a shadow over the euro zone's economy." A European economist at a major bank is quoted as saying that, "If the [purchasing-manager] readings are confirmed by other data over the coming months, the ECB may stay sidelined for a long period, even if financial markets return to normal."

For European companies who are actively engaged in global sourcing, there's one partial solution to these challenges. And that's to phone up the newest low cost country, the United States of America, and identify new sources of supply. Given the strength of the Euro, goods from the US are now 15-25% cheaper than they were even a couple of years back. Maybe it's not a panacea to European sourcing challenges, but the decline of the dollar and the opening up of capacity thanks to a US industrial slowdown is further proof that companies playing the low cost country sourcing game must be prepared to move fast to take advantage of savings opportunities.

- Jason Busch

In listening to the words of executives from both Emptoris and Ariba over the past year, I've picked up on different subtleties of strategy and direction. I probably should have put together the pieces earlier, but I finally realized this week how differently the two companies think about the procurement world (outside of one area I'll get to in a minute). In fact, despite the competitive rhetoric you'll no doubt hear from both parties, I'd wager that their strategies could very well take them in different directions. Yes, there will be serious competition along the way -- especially in the sourcing and sourcing solutions / services arena -- but one vendor appears headed down a path to cozy up to the CFO while the other is taking a much more operational approach to thinking about its future clientèle.

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This morning, I'd like to welcome Aptium Global's Lisa Reisman back to Spend Matters (by posting, she is giving me a break from my crazy travel schedule these past few weeks). In full disclosure, I have an economic interest in her firm, considering that she's my wife.

Hey, what about Mexico?

For all of the recent press surrounding China, it started to make us wonder why we don't hear anything about Mexico these days. And so I picked up the phone to call one of the best sourcing guys I know, German Dominguez, who led Goodyear's Mexican sourcing efforts and is currently a Consultant on Mexico Sourcing matters, and asked him what he is seeing in terms of US sourcing activities. For Part 1 of the interview, please click here.

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This morning, I'd like to welcome Aptium Global's Lisa Reisman back to Spend Matters (by posting, she is giving me a break from my crazy travel schedule these past few weeks). In full disclosure, I have an economic interest in her firm, considering that she's my wife. Oh yeah ... and if you ever have an issue with something controversial on this blog, blame her, as she put me up to it.

Hey, what about Mexico?

For all of the recent press surrounding China, it started to make us wonder why we don't hear anything about Mexico these days. And so I picked up the phone to call one of the best sourcing guys I know, German Dominguez, who led Goodyear's Mexican sourcing efforts and is currently a Consultant on Mexico Sourcing matters, and asked him what he is seeing in terms of US sourcing activities.

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Earlier in the week, I came across this Wall Street Journal article (registration and subscription required) noting that Boeing will miss delivery dates for the 787 thanks to supply related issues. According to the article, "although the delay is likely to be an embarrassment to Boeing, it comes as little surprise to many in the aerospace industry. Since summer, the entire industry has been beset by a shortage in titanium and aluminum fasteners used to hold airplanes together. Boeing's problems were exacerbated because suppliers were also having to master new manufacturing techniques associated with building much of the fuselage from carbon-fiber composites rather than aluminum." The article goes on to note that "suppliers who are working on major assemblies for subsequent airplanes have had trouble getting some of the parts they need to complete them, making it necessary for Boeing to rework the schedule ... According to people familiar with the program, suppliers at factories in Italy, Japan and the U.S. continue to experience chronic parts shortages that have slowed the completion of the first six flight-test airplanes."

But Boeing is not sitting idle on the supplier development front. According to the news, they confirmed sending "hundreds of engineers to help smaller third-tier suppliers in places such as Israel meet the demand for components such as vertical frames that the larger suppliers need to complete their sections of the plane's fuselage." As I look at the launch issues surrounding the 787, I can't help but think that investments in performance monitoring and PLM collaboration technology could have provided earlier warning of these issues. Considering that Boeing is held up as the poster-child for supplier collaboration in manufacturing, I wonder what -- if anything -- might have prevented these supply shortages from happening. In any event, Boeing's delay is proof that even the most well thought-out supply strategies can sometimes come up short.

- Jason Busch