The more I have the opportunity to see how companies are (or aren't) strategically sourcing indirect goods and services, the more I recognize that there are still huge benefits to be captured even in those categories of spend where companies have traditionally developed expert capabilities, whether they be internal or external.

Take energy, for example. Most companies have a dedicated expert who works to ensure that the appropriate hedging strategy is in place. Most of those folks were in for a rough ride the past few years and I know of a few casualties and early retirements that resulted.

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On Tuesday, March 9th, First Index, a supplier-pays marketplace and former direct materials sourcing and supply chain consultancy, closed its doors. First Index had received significant funding from LMS Capital, a UK-based firm, and Bessemer ventures. Earlier today, I called their headquarters (509-363-1997) and listened to a recording saying they had "ceased all operations" (hat-tip: AJ Sweatt). First Index's decline marks the end of a long struggle to build a business model that once saw them hit roughly 100 employees and over $10 million in revenue, but that eventually ended in failure as they spiraled through business models and got caught up in the manufacturing downturn.

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My eye was caught by a recent article in the WSJ that suggests that currency volatility presents companies with an additional type of supply chain risk when they fail to localize their supply chains within the EU. The story cites the case of Mazda, which, despite slashing "procurement and production costs and localizing more manufacturing" like other global automotive OEMs, is still struggling to overcome the hurdle that a strong yen creates in the EU. The main challenge for Mazda is that when compared with competitors such as Nissan, which claims that "87% of its cars sold in Europe will be manufactured there this year … [and which will feel] no impact from the weak euro on operating profit … Mazda has no production in Europe." The euro has steadily declined over the past two months, and the depreciation will further "highlight the weak spots" between those OEMs that have localized procurement and production, and those that have not.

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Earlier today, the news broke that government officials in the US, EU and Japan recently searched the offices of a number of Toyota suppliers that may be involved in cartel-like activities. According to The Wall Street Journal’s summary, “Investigators raided the offices of auto-parts suppliers tightly tied to Toyota Motor Corp. in recent days stemming from a probe in alleged anticompetitive practices.” A spokeswoman from the US Department of Justice (DOJ) quoted in the article further suggests that, “The Antitrust Division is investigating the possibility of anti-competitive cartel conduct of automotive electronic components suppliers … We are coordinating with the European Commission and other foreign competition authorities."

Suppliers said to be at the subject of the investigation include: Yazaki (whose transliterated name sounds ironically similar to “yakuza”, the name given to organized Japanese crime syndicates), Sumitomo Electric Industries Ltd., Furukawa Electric and Denso. But the important question to ask in this case is not “who” but “how” and “why” in the context of Toyota’s overall procurement and supply management strategies.

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You've got to admire Walmart for its procurement chutzpah. Or, (staying with the Yiddish theme for a minute), perhaps Walmart's been more of a chazar in its approach. A colleague introduced me to this phrase, which is loosely translated as "a pig … a guy who wins the lottery and asks the government to pay for the taxi ride to pick up the check is a chazar." Walmart's latest sourcing partnership with Li & Fung to "consolidate some of its existing sourcing business with a new unit of L&F, which [will act] as a middle man between factories in China and around the world and European and US retailers and brands," represents such a request. But where, specifically, does this type of chazar behavior come in?

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I found a recent article by Dave Hannon at Purchasing rather insightful in its examination of some of Oracle's strategy to eke out every ounce of shareholder value possible through its acquisition of Sun. According to Hannon, "On a conference call … Oracle CFO Jeff Epstein outlined the company's strategy for Sun, starting with costs. And Epstein was quick to emphasize that 'the largest cost at Sun is cost of goods sold, the product cost, and so the way to save money is by figuring out a better way to produce products at lower costs.'" Dave goes onto suggest that, based on Oracle's statements, "Two major components of Oracle's cost reduction plans for Sun are SKU rationalization and consolidating its manufacturing operations, both of which will require some high-level sourcing strategy."

Oracle appears poised to focus not only on unit-cost reduction through sourcing and supplier rationalization strategies, but also on working-capital management strategies based on a "build-to-order supply chain and not a build-to-inventory supply chain." The bottom line, according to Charles Phillips -- yes, that Charles of recent NYC-billboard-mistress fame -- is that "Sun's supply chain was very complicated … we are going to make it a lot more efficient." While Oracle's talk is great in this regard, truly getting the operational value out of its Sun acquisition might prove more difficult in practice. For example, moving to a build-to-order supply chain could very well cost Sun orders to other providers (and distributors) who maintain stock for competitive products. Moreover, considering the relatively short full-price lifecycle of the many high-end servers and other gear that Sun provides, it's doubtful that customers will tolerate much of a wait between order and fulfillment, especially in the case of premium gear.

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Today, Spend Matters would like to welcome guest contributor, John R. Sharman, Jr. John has a highly distinguished career in the procurement world both as a practitioner, and as an advisor to senior executives. John recently launched a new consultancy, Sharman Consulting Group, LLC. We look forward to publishing additional contributions from John in the future. If you'd like to get in touch with him directly, please send an email to: jsharman (at) sharmangroup (dot) com

It's been over 10 years since the promise of e-procurement was introduced to business. With this passage of time, most of the hype promised across many business areas has failed to materialize. Senior executives in most businesses have grown weary of hearing about how they would or will save millions of dollars on office supplies and other minutia merely by buying from preferred suppliers over the Internet, using one of many e-procurement applications.

Is this because senior executive don't want to save millions or is it because the savings have failed to materialize despite numerous attempts to realize (and continue to save) those millions? Well, clearly, any senior executive worth his or her salt is always interested in saving money, so disinterest is an unlikely reason.

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Supply Chain Digest recently ran a feature highlighting an academic paper that suggests China should let the RMB appreciate 10% relative to the dollar. The story suggests that "if such a move were to happen, it would effectively increase the price of Chinese imports to the US by 10%, in some cases eliminating the savings attained from offshoring there. However, suppliers in China could reduce prices to offset the currency swing, perhaps aided by government subsidies." Today the RMB (or Yuan, as it's also called) only partially floats on the open market (it's like a buoy that floats up and down with the tide while remaining firmly anchored to the floor of the Chinese Central Authority economic ocean).

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A recent post over on E- Sourcing Forum got me thinking that far too few procurement organizations are willing to insert themselves aggressively into the process of sourcing employee benefits. They would rather leave benefits sourcing to HR, and let it deal with the repercussions: when cost-saving measures are applied to benefits sourcing, the popularly held belief that you can't reduce the cost of benefits without sacrificing quality often results in negative PR, and flack from employees. (BTW, for those who are new to employee benefits, I'm talking about the broader category of health insurance, pharmacy benefits, 401K servicing, and the like -- in other words, the out-of-control HR cost categories than many feel have only one direction to move and can't be addressed by procurement effectively.)

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It's clear that some invisible hand in the economic kitchen added a dose of MSG to the China tradewinds of late, if we can believe the latest trade numbers to come out of the Asian giant. According to the above-linked Reuter's forecast, China is expected to report double-digit growth in Q4. Economists polled for the story suggested that the median % increase would be "+10.9 pct in Q4 vs +8.9 pct in Q3" and "seventeen analysts participated in the survey said the range was from 10.0 pct to 12.0 pct". But what's more interesting for our purposes in procurement is what is driving this growth: the export market. In this regard, "China's exports were particularly strong in December last year, rising 17.7 percent after 13 months of annual decline." From a China-sourcing perspective, these latest numbers hold many potential implications -- and complications.

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