Nick had some interesting thoughts on supplier communication, which we’ve shared below.

Q.    We hear a lot about challenges US companies face communicating with overseas suppliers. Do you hear the same, and why do you think—especially in today’s digitally-connected world—this is still such a big hurdle?

Yes. It is a topic that cannot be avoided because it really comes down to dealing with the realities of the world. The way people communicate is just not the same everywhere. There are eight or nine common languages spoken, plus countless others that serve as a barrier in more remote areas. Language, though, is just the basic layer.

The process for communicating is also different. Email, fax, phone and Excel are still the preferred technologies of many organizations – spreadsheets are still the most commonly used B2B collaboration and information exchange format, despite decades of advancement of EDI and XML. This leads to latency and process synchronization issues that require time and patience to fix. You have to slowly wean people on to new ways of communicating. Because communications will always revert to the path of least resistance, the easiest way for people to engage – so we have to cater to human nature.

Q.    Would you agree that information sharing—or a lack of it—is just as challenging? Does it go hand-in-hand with the communication issue, or is it a separate problem that needs to be addressed in the supply chain? 

They do go hand-in-hand and both are a challenge. Consider a recent statistic I heard that said a company’s trading partner master data changes every eight seconds on average. How are these changes communicated, from the supplier to the company, and then internally across the company, to the stakeholders who rely on this information to conduct commerce? Then how are the changes synchronized in internal systems, so we are all looking at the same supplier profile consistently?

People will try to get by with whatever tools they have at their disposal, leaving massive productivity and efficiency gains on the table very frequently, because they don’t have adequate information management tools on hand.  Information sharing amongst trading partners still has a long way to go, to be even close to good.

In a recent conversation with a CEO from a big technology company, he complained that he didn’t think he could send a greeting card to all of his suppliers even if he wanted to because they don’t have up-to-date addresses, emails or fax numbers for each of them. If it’s impossible for his team to achieve something that simple, then how can they be expected to orchestrate a product recall, manage spend, enforce product safety, deal with a supply chain emergency, or even just better engage them more profitably day to day? Something needs to change.

Q.    Social networking has certainly won over the mainstream public. But is the supply chain industry really ready to embrace it?  What’s the role of companies like Panjiva and GXS in making this a reality?

 There is no reason to go social in the supply chain just for the sake of it. That said, there are tangible values for social networking and technologies depending on which departments are using it and who they are trying to engage.

Gartner once told us that ‘suppliers aren’t your friends’, and ‘we’re not going to share pictures of our cats with our suppliers’.  And they have a point.  Commerce isn’t social for the sake of social; it’s about structured collaboration and for many its arm’s length.  However, social collaboration tools ARE bleeding into the supply chain.

Buyers are like the mirror image of sales people, and so why don’t we empower them with the same tools we give to sales people, to more effectively manage relationships – after all, procurement in the new economy is ALL about relationships.  Buyer support teams don’t need to get social with supplier finance and supply chain operations departments, but couldn’t we make the tools that they use every day to eradicate issues, deal with discrepancies, recover over-payments and manage performance more collaborative – more BUSINESS social?

Q.    GXS acquired RollStream in March of 2011. Can you tell us about the deal and how it’s helping to solve communications and supplier management issues?

RollStream was a new technology acquisition we completed in April 2011, after a rewarding two year partnership.  This technology is exciting, because it moves GXS beyond systems-to-systems integration, and delivers a new layer of human-to-human integration.

Total supply chain integration is not only about systems any more.  To release the next level of gains in our supply chain, we need to align the people, process and information flow that happen around the transactions.  That’s what RollStream is all about.

RollStream offers totally net new return on investment options for our customers.  By streamlining how we communicate, share information with suppliers, onboard them faster and deal with issues more rapidly, we are seeing huge returns.

Q.    What needs to happen for the different players in the supply chain—buyers, suppliers, technology vendors, etc—to come together and make social communication an everyday part of supply chain management?

At an industry level, this is going to require standards and consistent ways to define what a company is, and numbering systems that we already have (e.g. Duns Numbers, GS1 GLNs etc.).

At a company level it is just a simple realization that the key 8 or 9 departments who manage suppliers are looking at fragmented and siloed information about suppliers.  Yes, there’s a supplier master file, and master data, but master data just got fatter in the last 25 years and this has gotten out of control.   Internal departments need to come together and be on the same page, around a single view (profile) about each and every trading partner, and that view includes every piece of information they may need to know about the company, including risk data, spend data, credentials and quality certifications, relationship history, time sensitive materials etc. This kind of central information profile has the power to become the cornerstone of all supplier communications, and in my opinion that is where we are headed.

Once you have this kind of profile, all the other tools can be built on top of it. Think of it as a digital filing cabinet where information is constantly added and available to anyone with access. I’m excited to be at GXS because we’re helping the supply chain do this and as a result, are taking communication to the next level.

deKieffer & Horgan - Red Flag Suppliers

deKieffer & Horgan will provide Panjiva subscribers with information that will make it easier to steer clear of counterfeiters, diverters, and other companies engaged in illicit activities.  deKieffer & Horgan’s mission is to provide timely, reliable legal advice that will help their clients compete successfully in international business by ensuring adherence to the law and promoting effective interaction with the responsible government agencies.  Over the last 15 years, deKieffer & Horgan has compiled the EDDI database, which contains an astounding amount of information about companies that have engaged in illicit activities — information that will soon be accessible to Panjiva subscribers.

Social Accountability International (SAI) – Certified Suppliers

Social Accountability International (SAI) will provide Panjiva subscribers with information that will make it easier to find socially responsible manufacturers.   SAI is a non-profit organization dedicated to improving workplaces and communities by developing and implementing social responsibility standards and assisting brands, retailers and suppliers in meeting labor and human rights objectives.  Soon, Panjiva subscribers will be able to focus their searches on manufacturers that have been certified as being compliant with the SA8000 standard established by SAI.

Worldwide Responsible Accredited Production (WRAP) – Certified Suppliers

Worldwide Responsible Accredited Production (WRAP) will provide Panjiva subscribers with information that will make it easier to find socially responsible manufacturers.  WRAP is a non-profit organization dedicated to the certification of lawful, humane and ethical manufacturing throughout the world, based on 12 Production Principles focusing on compliance with local laws, workplace regulations, universal workers’ rights, the environment, customs rules and security.  Soon, Panjiva subscribers will be able to focus their searches on manufacturers that have been certified as being WRAP-compliant.

Given all the trouble that Chinese factories are having, are price increases really still a problem?  So far, yes.  Declining demand is leading to factory closures (see previous post), NOT downward pressure on wages.

Our IndustryWeek piece evaluates three strategies for responding to cost increases:

1. Identify the “New China” (i.e., look to new countries)
2. China is the New China (i.e., look at new regions within China)
3. Leverage your suppliers’ networks (i.e., authorize subcontracting)

Would welcome your thoughts, here or over at IndustryWeek.

1) Buy a credit report on your supplier

Credit reports will tell you if your supplier is paying *its* suppliers on time. If it’s not, chances are good that your supplier is in trouble. D&B is a good place to start for this kind of information.

2) Look at your supplier’s export activity

Is your supplier’s export activity dropping precipitously? Definitely a sign that you should be preparing a back-up plan. (Full disclosure — Panjiva sells this kind of data, so obviously I think this is a particularly effective approach.)

3) Ask your supplier contact

Simple enough, but most people overlook this approach. Ask your supplier contact if he or she is worried. Chances are good that your contact will put a positive spin on trouble at the supplier — but you never know what you might learn until you ask.

Figuring out if your suppliers are about to fold is really important… Gives you a bit of time to come up with a back-up plan, and minimize the disruption to your business. Have other ideas on how to figure out if your suppliers are about to fold? I’d love to read about your ideas here — and of course via email (josh@panjiva.com).

Position yourself to have maximum leverage once things settle down

As you and your peers delay orders – and cut order sizes – factories that have been living on the edge will go under. Once things do settle down, everyone will be making urgent requests of those factories that are still standing. (Delayed orders will turn into orders that need to be filled asap!) These factories will not be able to make everyone happy. Make sure you’re a priority at that critical moment. The more orders you place during the lean times – and the bigger your order is at the moment things settle down – the more important you’ll be to your factory when it counts. If you’re spreading your orders over a large number of factories, consider consolidating your orders with a smaller number of factories in the months ahead.

Identify backup factories

If a key factory goes under – or can’t meet your needs when everyone jumps back in with urgent requests – you need a back-up plan. Look within and outside your network for factories that have the same capabilities as your existing factories. For each and every factory that you use, you can and should have a back-up factory in mind.

Bottom line: planning now will save lots of headaches later.

One of our customers basically predicted The Great Squeeze several months ago.  He argued that consumer spending was destined to slow down (clearly, he was right).  That’s bad in and of itself, of course, but — even worse — he predicted that this slowdown in consumer spending would occur just when the cost of inputs was on the rise.  Indeed, we’re hearing this from lots of our customers these days: the cost of manufacturing is going up, particularly if you’re manufacturing in China (as most are).  Why are manufacturing costs going up, even as the global economy cools down?  First, wage rates are going up, particularly in Southern China, as more and more companies choose to manufacture there and the competition for labor goes up.  Second, Chinese authorities are putting in place new regulations — and enforcing old regulations — that increase the cost of doing business in China.  (These regulations are valuable, because they protect workers and the environment.  However, that doesn’t change the fact that they increase the cost of doing business.)  Declining consumer spending and rising cost of goods — this is a recipe for a sharp decline in profitability for those caught in the middle.

Of course, there’s more to the story.  Evan Clark, in Thursday’s Women’s Wear Daily, highlighted the impact that the credit crunch is having on retail.  Indeed, just as companies are facing declining profitability, they are going to have an incredibly difficult time getting the credit they need to pull through.  Lower consumer spending, rising cost of goods, and limited availability of credit — this is The Great Squeeze.

The key to surviving The Great Squeeze is narrowing your focus.  If you are trying to serve a broad set of customers with a broad set of products, you are going to struggle.  You are going to struggle to stay close enough to your customers to know exactly what they’re going to spend money on.  And you are going to struggle to stay on top of your supply chain and keep costs down.  On the other hand, if you focus on a narrow range of customers, you will know better than anyone else what they will spend money on.  And, if you narrow your product range, you can put all of your efforts into keeping costs down on a manageable number of products — either by improving your manufacturing processes, or by finding lower cost suppliers in new regions.

Narrowing your focus is scary, because you’re putting all your eggs in one basket.  However, today, the only alternative to narrowing your focus is conducting business as usual — in other words, surrendering to The Great Squeeze.

Today, not just one — but two great powers are struggling; each facing a crisis of confidence in a key industry.  For China, it’s the manufacturing sector that’s in turmoil.  For America, it’s the financial sector that’s in turmoil.   Though there are of course real differences between these twin crises, it’s the similarities that are most striking.

* In both cases, the troubled sectors had recently experienced rapid growth.
* In both cases, questionable business practices were largely left unregulated.
* In both cases, greed is being blamed, and heads are going to roll.

Interestingly, the remedies being discussed are similar as well: new codes of conduct, increased regulation, stiffer penalties.  While it’s beyond the scope of this blog to discuss how to remedy America’s financial sector, it is clear that the remedies being discussed for China’s manufacturing sector must be supplemented with a push for transparency.  The profit motive is incredibly powerful — historically far more powerful than the most stringent codes of conduct, regulation, and penalties.  The best way to promote safe practices is to make them profitable.  And the best way to make them profitable is to focus, intensely, on providing transparency about who is engaging in safe practices and who is not.  More on this in future posts.