The Strategic Sourceror

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Where are the Low Cost Countries?
Tuesday, June 3, 2008
We receive a lot of inbound calls asking for low cost country sourcing help. The requests have one similarity this year. Everyone wants out of China. The calls go as follows: We have been manufacturing our product in China for 5+ years and costs are rising. We want to investigate other low cost countries that may be more competitive. Sometimes the calls focus on reduced risk - we don't want to have all of our eggs in one basket and we don't have the resources to investigate other potential countries ourselves.

Rising labor costs, falling dollar, earthquakes, intellectual property violations, Olympic Games commerce disruptions etc. are making companies re-evaluate the China risk / reward scenario. Companies want to know where to go to remain competitive and to reduce single country sourcing risk. It is easy to identify potential candidates - Vietnam, South Korea, Taiwan, Malaysia, Eastern Europe, Africa, South America ....... Which countries are right for you?

The low cost country selection process starts with the product that you are trying to produce. Are the raw materials available? Can you find a reliable supplier with the capability to meet your specifications? Are certifications needed? Are there export / import restrictions? There are many more issues that need to be investigated just to short list a supplier before beginning sample production. Many companies are looking at the in country market for their product as one way to mitigate some of the risk.

It is helpful to have in country experts that can help you to navigate the local legal, political, cultural and logistic landscape. At Source One, we have built a global network of in country partners that can ease the difficulties associated with supplier identification and qualification. After review of your requirements, we can help identify the best low cost countries to target for alternate sources of supply. With the rapid shifts in global markets, you don't have to do all of the heavy lifting.

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posted by Steve Belli @ 11:07 AM   0 comments
Wanted, Supply Chain Executives
Friday, May 16, 2008
How to qualify to become a supply chain management executive? The Wall Street Journal’s CareerJournal gives some tips; Michael Higgs of purchasing.com offers some perspective; and researchers offer some data.

Mark Zafra, a Director of Supply Chain Management for Agilent Technologies profiled in CareerJournal’s “How I Got There” series, advices would-be supply chain professionals to prepare for success by picking up solid negotiation, logistics, financial analysis, and people skills; practical experience working with shipping and receiving employees and with all levels of an organization; and a BA in business or an MBA.

But Higgs, having been asked to define the skill set an employer might look for in a global sourcing specialist, offers a sensible approach that would work for pretty much any employer.

“You have to ask yourself what skill set(s) you value the most,” Higgs writes, “and then ask, are the rest of the skill sets trainable? There are only two skills that I see that are really hard to train, so the candidate should possess them upon hire: leadership…and tenacity…. People with these two skills and with the right mentorship have a really high probability to grow into a really valuable employee.”

So what does the research show? Last year, academics from City University and Cass Business School in London and the Anderson School of Management of the University of California, Los Angeles, published “What Employers Demand from Applicants for MBA-Level Supply-Chain Jobs.” The study analyzed 704 online advertisements for supply chain management jobs for MBA graduates. The analysis indicated that employers require these general skills (in decreasing order):

  • communication
  • leadership
  • project management
  • team
  • general analytical

and knowledge in these supply chain topics (also in decreasing order):

  • sourcing and supplier management
  • inventory and forecasting
  • information and electronic mediated environments
  • marketing and channel retructuring
  • transportation and logistics
  • metrics and performance
  • service and after sales support

And how are well are MBA programs succeeding in supplying the education that businesses are demanding? Check out the study.

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posted by William Dorn @ 10:10 AM   0 comments
How to Get the Most From Your Hourly Workers
Tuesday, March 11, 2008
It's a thankless task, for employers and especially, for employees who try to coexist under an hourly wage pay structure. But there are ways to get the most out of your hourly staff and a lot of it has to do with bringing good jobs into the hourly pay infrastructure at your company.

Says who? Says a new study by an industry think tank that sheds new light on methods companies use to successfully motivate hourly wage workers.

The study, conducted by researchers at the University of Kentucky and Boston College, and labelled The "CitiSales Study," by lead researcher Jennifer Swanberg, is touted by study providers as one of the first major studies to focus on employee engagement among lower-wage hourly workers. Its main benefit, from this viewpoint, is that it finds six workplace dimensions that may be essential components to employee engagement and customer satisfaction in the retail industry.In particular, the CitiSales report found that supervisor effectiveness as the most powerful driver of employee engagement and customer satisfaction, along with five other workplace dimensions: opportunities for career development; climate of teamwork; job fit and adequate resources to get the job done; schedule satisfaction; and schedule flexibility.

“Particularly interesting is that five of the six workplace dimensions predict the sixth dimension, supervisor effectiveness, which in turn drives employee engagement and customer satisfaction,” noted Swanberg, executive director of the UK Institute for Workplace Innovation. “We hope that companies use these findings to promote excellence for their employees, customers and business.”

The study also defines workplace flexibility for hourly workers in retail jobs. Flexible work practices for hourly workers at “CitiSales” primarily include strategies that give employees control over their schedule and provide accommodation/job security around work-life conflicts. Overall three-quarters of employees reported some control over their work schedule. Seventy-six percent of employees report having some to a lot of input into their weekly schedule, and 76 percent report that their schedule preferences are considered almost always or always. Over 90 percent of senior managers report that offering workplace flexibility to hourly workers makes good business sense. Findings also demonstrate that access to flexibility was predictive of both employee engagement and customer satisfaction.

The “CitiSales” company which was the subject of the study operates more than 6,000 stores throughout the United States. The "CitiSales Study" used a multi-method data collection strategy including employee surveys and interviews with 41 senior “CitiSales” managers. A total of 6,085 employees, both in hourly and salary positions, within 388 stores in the three geographical regions of the United States completed the survey. The findings released today focus on information gathered from 3,903 workers in hourly, front-line jobs.

"This study shows that investment in hourly workers is good for business and good for employees,” said Helen Neuborne, senior program officer of the Ford Foundation. “It provides practical recommendations to help employers build quality job opportunities for their hourly employees while simultaneously increasing the company’s bottom line.”

I'm not sure I'd go that far. But any way to close the gap between hour workers and corporate managers is a good thing. Of course, maybe a raise for your best hourly workers is a better idea.

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posted by Strategic Sourceror @ 7:46 AM   0 comments
Company Pension Plans: Get Creative or Get Out
Wednesday, February 20, 2008
There is little doubt that company pension plans are going the way of the horse-and-buggy or the duck-billed platypus. In recent years, companies have only been to happy to shift the retirement planning responsibilities to its workforce, mostly in the form of defined contribution plans like 401k's.

But with 77 million baby boomers nearing retirement, the corporate pension plans that still exist will be increasingly subjected to analysis and change. Specifically, the decline in defined benefit plans and the rise in defined contribution plans – combined with increasing longevity – is creating growing risk among employees regarding their retirement benefits.
That's the conclusion of a major study on corporate retirement benefits trends from the Conference Board.

Says the report: "The changing definition of retirement raises controversial questions, especially from a societal point of view. "What is the responsibility of the corporation to provide a safe and secure retirement for its employees? The evolving social contract between employees and employers has resulted in many issues that plan sponsors, policymakers and academics need to resolve. We are asking employees – who should be seen as consumers, not investors – to take on significant risks that they haven’t a clue on how to manage."

The Board report says that company decision makers face a dilemma over retirement benefits, and risk losing good employees if they fail to take action. Legislation, including the Pension Protection Act of 2006, liberalized requirements for defined contribution plans. The Conference Board says that any experts disagree over whether the new rules for defined benefit plans will help stabilize the system or encourage more companies to curtail their plans. Executives told report researchers that as more companies discontinue their defined benefit plans, they’ll need to change their overall retirement programs so they work more effectively for employees.

The risk, the report adds, is twofold. The first concern: employees will outlive their retirement income and will experience a significant decline in their standard of living as they move from the accumulation phase. This is entirely possible, as many people are underestimating their life expectancy and overestimating how much money they can draw from savings. Employees are facing new responsibilities for managing retirement assets, distribution options and the payout period, and many are unable to manage the process effectively.

The other danger is that employees are investing more than they should in equities, due in part to the limited options for their defined contribution monies, inflation and market volatility. Even though many employers are using target fund dates, some experts believe that these funds – which have been endorsed by the Department of Labor and the Employee Benefits Security Administration for default investment options – are generally too risky for the average employee.

The report also notes that today's workforce is the healthiest and most energetic ever. And they want to hang around for a while. When surveyed, 7 out of 10 people in the report that they want to continue working in retirement, according to Anna Rappaport, senior fellow on pensions and retirement for The Conference Board, and an author of the report. Given these new parameters, new definitions and innovative employment options must be created for this phase of life.
Rappaport calls it the "third age," which is the period between full- time work and total retirement. "Policymakers, employers and individuals need to rethink how retirement fits into the way people live their lives," says Rappaport.

One option, Rappaport adds, is phased retirement, when an employee moves from full-time to part-time employment before retiring. She points out that phased retirement has gotten a great deal of traction, with 48 percent of current retirees transitioning into retirement through part-time work, but mostly on their own. More people are expected to incorporate this work style in the future. In a poll taken during a recent Conference Board webcast, 59 of 69 respondents said they are likely to have a phased retirement program within three years.

Another option to make retirement more secure is to create solutions that provide lifetime income, such as inexpensive and flexible annuities. Offering employees in-plan opportunities to purchase income annuities with their defined contribution assets can also provide lifetime income. Programs that allow a rollover into IRAs with institutional annuity rate purchases are another way to accomplish this.

While annuities are not chosen by most individuals, the report highlights the importance of lifetime income. Questions remain, however, about what policy options should be considered and whether there should be legal requirements for the employee or the employer to purchase a lifetime income benefit. Right now, "it’s unrealistic to require a mandated annuity beyond Social Security," notes the report.

"Automatic enrollment should be included in new retirement plan designs so that defined contribution plans can work without active employee participation," says Toddi Gutner, co-author of the report.

Participation rates jump from 53 percent to 81 percent with automatic enrollment. "Employers need to change their plans so they work better for employees who don’t take action. It is imperative that employees embrace the financial education that companies offer so they can learn how to fully use their benefits. But perhaps just as important is to determine how much savings is enough and to save that amount."

Employees, aging and retirement planning are problems that won't be going away soon for corporate America. As the Conference Board points out, corporate responsibility for employees and their retirement savings is high - and the stakes for the companies themselves even higher.

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posted by William Dorn @ 11:54 AM   0 comments
Should Shareholders Have More Say Over Executive Pay?
Tuesday, February 19, 2008
It's not exactly a great time for CEO's and other boardroom types to be squawking over executive pay - especially over the prickly topic of who decides how much cash & compensation corporate managers should take home with them.

But even in a tough economic climate where shareholders are understandably skittish about corporate spending and company profits, senior executives don't want any so-called outsiders having too much of a say in their take-home pay.
That's the takeaway from a new survey by BDO Seidman, LLP, a New York- based accounting and consulting organizations, which says that an underwhelming thirty-one percent of chief financial officers at leading U.S. technology businesses indicate that their company allows shareholders to vote on their executive compensation plans, compared to more than two-thirds (69%) that do not. Perhaps hypocritically, the same survey says that shareholders should have "some say" about who gets what on the executive pay front.

To that end, a solid majority (61%) of the CFOs personally feel shareholders should have a say on executive compensation plans, compared to over one-third (39%) who do not.

CFO's are also in a sour mood about regulatory changes from Congress that many say has inhibited corporate financial performance. Over, two-thirds (67%) of the CFOs say their company’s compensation plans have been impacted by regulatory changes focused on improved disclosure but another solid majority (65%) of these financial leaders believe that Section 404 of Sarbanes-Oxley has led to improved processes. About the same number say the price of complying with government business regulations should abate in 2008.

"At a time when regulatory organizations are pushing for more executive compensation disclosure, it is reassuring that CFOs at technology businesses are supportive of shareholders having a greater voice in approving executive compensation levels," notes Andy Gibson, a partner in the technology practice at BDO Seidman. "In addition, relatively few CFOs indicated that executive compensation disclosure changes, such as 409A and FAS 123R, are having significant impact upon their company’s abilities to attract and retain talent."

"Although technology companies were hesitant to adopt Section 404 of Sarbanes-Oxley, the majority have realized improved processes due to their compliance efforts and do not believe 404 has adversely impacted their level of risk-taking," says Hank Galligan, a partner in BDO Seidman’s technology practice. "The CFOs at these technology companies are also very optimistic that 404 costs will stabilize this year."

Here's a run-down of the findings from the study:

Executive Compensation Disclosure. Two-thirds (67%) of CFOs at technology businesses indicate that their company’s compensation plans have been impacted by legislative and regulatory changes, such as 409A and FAS 123R, focused on improved disclosure. Of those impacted, over one-quarter (27%) described the impact as high, thirty- seven percent described the impact as moderate and thirty-six percent said low.

Little Impact on Recruitment. Despite the impact on compensation plans, the vast majority (81%) of the companies indicate these disclosure changes have had little impact on their ability to attract and retain talent. When asked which financial tool is most effective in recruiting, retaining and motivating executives in the technology industry, forty-two percent cited restricted stock and thirty-eight percent cited stock option grants. Grants of profit interest (11%) and stock appreciation rights (9%) were also cited by a number of the CFOs.

Reporting Challenges. When asked which financial reporting requirement poses the greatest challenge, in terms of compliance, a large percentage of CFOs identified both Section 404 (49%) and FIN 48 (36%). Only 12% cited 409A and three percent said it was other requirements.

Section 404 Benefits. Although there has been much criticism of the difficulties involved in complying with Section 404 of Sarbanes- Oxley, almost two-thirds (65%) of the CFOs of tech businesses feel that 404 has led to improved processes, compared to just over a third (35%) who feel 404 has curtailed innovation at their businesses.

Risk? While thirty-nine percent of these financial executives believe Section 404 has curtailed corporate risk-taking at their companies, a majority (59%) feel risk taking has not been impacted.

Costs Stabilizing. A majority (53%) of the CFOs believe their 404 compliance costs will stabilize this year, compared to twenty-two percent who anticipate costs to climb and twenty-four percent that expect a decline.

Inhouse, Outsource or Co-source. Over half (54%) of technology companies manage their Section 404 compliance functions in-house versus only eleven percent that outsource the function to an external provider. Just over one-third (35%) of the CFOs indicated they manage their 404 compliance through a co-sourcing relationship (a combination of in-house and outsourcing) with an external provider.

-----------------------

Hey, it's no secret that CFO's are card-carrying members of the glass- half-empty crowd. But wanting shareholders to have more say in executive pay but nixing any up-or-down veto power over pay, and then complaining about regulatory requirements that most say actually work...
-- well, let's just say it's weirdly entertaining to watch corporate financial executives talk out of both sides of their mouths.

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posted by William Dorn @ 2:06 PM   0 comments
Are technology companies getting a raw deal over a new international accounting rule?
Tuesday, February 5, 2008
Plenty of tech company CFO's seem to think so. In a survey released this week by
BDO Seidman, LLP, an accounting and consulting group, about half - 49% - of all chief financial officers at U.S. technology businesses surveyed feel they are at a competitive disadvantage to their foreign counterparts.

The problem? A new accounting rule that allows foreign competitors to report their financial results under International Financial Reporting Standards (IFRS), without reconciling the figures to U.S. Generally Accepted Accounting Principles (GAAP). If that seems to be a bit wonkish for you, it all comes down to U.S. versus international accounting rules.

And U.S. tech company financial types prefer the U.S. accounting method - by a long shot. When asked which financial reporting standards provide better revenue recognition rules for technology businesses, by a ratio of over three-to-one, sixty-nine percent of CFOs cited U.S. GAAP compared to only a fifth - 21% - for IFRS. Given the opportunity, over a third of these CFOs would switch to IFRS in order to level the playing field with their international competitors.

All complaining aside, the all-important tech sector looks pretty rosy for 2008, if you ask a CFO. I find that strange, given the recessionary sentiment we face from the media and many Wall Street analysts every day. But the BDO Seidman survey says different: roughly three quarters - 73% - of CFOs at leading U.S. technology businesses expect to post increased sales revenue in 2008 over 2007, while fifteen percent are forecasting flat sales and only six percent believe they will experience a sales decline in the coming year. Of those predicting an increase, CFOs are forecasting ten percent growth in 2008 as compared to 2007, while CFOs in technology companies based in Silicon Valley predict fifteen percent growth in sales revenue, the survey reports.

It's not like the survey was conducted last autumn, or even around the holidays, when the economic outlook wasn't so bleak. The survey was taken in mid-January, 2008, right smack in the middle of the recessionary headwinds. BDO Seidman says they included 100 tech company CFO's from tech companies which had revenues ranging from more than $100 million to $15 billion.

Cue the obligatory survey leader quote . . . . “We created the survey to provide a highly-accurate barometer for measuring the opinions of financial executives at the premier technology firms in the U.S. This inaugural survey reveals broad-based optimism among these CFOs for revenue growth and continued merger and acquisition activity in 2008,” says Jay Howell, a Partner in BDO Seidman’s Technology Practice. “However, the survey also revealed concerns among the CFOs about a new accounting rule they believe places U.S. technology businesses at a competitive disadvantage to their foreign counterparts. The new rule, while well intentioned, has unintended consequences for U.S. technology businesses in the area of revenue recognition.”

Some other significant results from the study . . .

Growth Drivers. Over a third of the CFOs cited consumer demand for innovative personal technology as the greatest driver of growth in the industry in 2008, closely followed by a third who indicated that international expansion would be the main driver. Seventeen percent cited increasing IT budgets as the greatest driver of growth in the industry.

Challenges. The ability to recruit and retain talent - 38% - is seen as the greatest challenge for the coming year, with risk management - 23% - finishing second, followed by access to capital at 15%, financial reporting and corporate governance issues at 14%, and foreign competition at 9%. Businesses based in Silicon Valley, Calif., a technology stronghold, strongly believe that recruiting and retaining talent - 55% - will be the greatest challenge for the coming year as well, but they were only one third as likely as companies not based in Silicon Valley to see risk management as the greatest challenge for the coming year (only 9% vs. 27% outside the Silicon Valley).

Limited Pursuit of Capital. Only twenty-seven percent of the CFOs expect their businesses to seek additional capital in the coming year. In fact, most Silicon Valley CFOs - 86%- do not anticipate seeking additional capital in the coming year.

Overall, a good look by BDO Seidman at the financial state of the technology union here in the
U.S. Aside from potentially unfair accounting rules, maybe 2008 won't be such a bad year for tech companies after all.

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posted by William Dorn @ 10:15 AM   0 comments
Business Owners: Don't Expect Much on Monday Morning
Friday, February 1, 2008
I hope you didn't schedule any big business meetings on Monday. A new study shows that on the day after Super Bowl Sunday, the only move many employees make is to to the telephone to call in sick.

According to a study entitled The "Super Bowl Fever Sidelines Employees on Monday Morning" sponsored by the Workforce Institute in conjunction with Harris Interactive, over 1.5 million U.S. workers will call in sick on Monday, no matter what the Patriots or Giants do.

Tardiness is an issue, too. The survey shows that another three percent of respondents, or an estimated 4.4 million employees, may arrive late to work the Monday after the Super Bowl. This number is in-line with the three percent of respondents who admit to, in the past, having arrived late to work the Monday after the Super Bowl.

Interestingly enough, three percent also say that they have previously called in sick to work the Monday after the Super Bowl, indicating that the number of employees who actually do call in sick may be significantly higher than the number who say they might.

The younger the employee, the more likely the "I've got a flu" phone call to work. Super Bowl-related absences could be particularly striking for organizations with a high population of Gen X and Gen Y employees, as the majority of the employed adults who say they may call in sick the day after the Super Bowl are males and females between the ages of 18-34 years (4 percent and 3 percent, respectively).

Unscheduled absences, including those that organizations will experience after the Super Bowl, cost U.S. employers billions of dollars each year in lost productivity, impact production and customer service, and create employee satisfaction problems. Until recently, few organizations were conscience of this hidden cost or were simply not focused on controlling it.

"Today, best practice organizations are using automated solutions to manage and apply attendance policies fairly and consistently throughout their organizations," says Joyce Maroney, director of the Workforce Institute at Kronos Incorporated, which helped sponsor the study. "Managers benefit from the timely information, which enables them to quickly adjust to unscheduled absences without impacting production or employee satisfaction. Employees are empowered with self-service tools, which provide access to vacation and personal leave time balance information, encouraging them to plan appropriately for time away from work. This supports a healthy work/ life balance and reduces unscheduled absences."

That may be true, whatever it is she meant. But until Congress just says "screw it" and make Super Bowl Monday a national holiday, the most successful companies on the day after the big game are the ones that make aspirin, pillows, coffee, and those little black masks you see people use to fall asleep on airplanes.

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posted by William Dorn @ 4:03 PM   0 comments
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