The impact of the Internet on sourcing cannot be overstated.

Complex Request for Proposal (RFP) and Request for Quote (RFQ) processes that months to complete only 15 years ago have compressed to a matter of days. Today, supplier discovery, engagement, vetting, and management begin – with few exceptions – online. Search engines, supplier Web sites, online directories, association sites, online marketplaces and other Web-based resources all add up to a collection of tools that give small and medium sized manufacturers (SMMs) the power to create, manage and grow supply chains and alternatives that equal those of much larger companies.

The primary differentiating factors that define higher functioning (and more profitable) manufacturers often are directly related to the quality of their stable of suppliers, as well as the spend and demand management of the chains in which they contribute. Properly managing global supply and demand chains require constant diligence and scrutiny; not only must procurement professionals and engineers manage existing suppliers – they must ensure that contingency suppliers are available when needed to minimize supply disruptions.

Many SMMs that supply product have adopted these sourcing methods to find suitable, dependable plastics processors and suppliers to outsource to when faced with limited capacity, demanding schedules or processes outside their core competence.

Regardless of a company’s sourcing needs or roles, a strategy is crucial since the process of assessment, engagement and replenishment is continuous. A sound sourcing strategy must:

• Define the personas of the ideal supplier(s) for each project – including (but not limited to) process/product competence, pricing requirements, geographic limits, schedule/demand conformance, total cost of ownership, certifications, industry
  compliance/experience, and acceptable deviations from defined requirements.
• Specify lists/data for maintaining primary and contingency suppliers for each process, including performance, costs and quality. These lists/data should also regularly monitor suppliers’ fiscal health, technical proficiency and stability to anticipate and avoid supply chain disruption.
• Anticipate scenarios that could require the rapid reorganization of supply chain structures – civil/economic disruptions in source countries, poor/unacceptable supplier performance, and natural disasters – and define contingency plans to maintain supply channels.
• Assemble acceptable sources for building up-to-date lists of known sources for current or anticipated products.

What do you see as required points for a valuable sourcing strategy? Anything you'd add or question?

The opportunities that the rising costs to manufacture in China offer manufacturers in mature markets like Europe and the U.S. are real. The low valuation of the dollar, eliminated VAT rebates, and rising labor and fuel costs all are motivating enterprises to look at other countries - many closer to their base - to supply their products.

We'll say it again - this is a perfect time to engage former customers or new prospects to sell the attractiveness and adorability of your business as a viable alternative to China sources. As they explore new options to manage these rising costs, they're more likely to listen to options they wouldn't have thought about 2 years ago.

But it looks like things are getting even more "perfecter."

This past week, a story by David Barboza in the New York Times announced "China Tells Businesses to Unionize." The ramifications for businesses currently embedded in China may be even more dramatic than the rising costs of the past year and a half.

The gist of the article is that the Chinese government is strongly pressuring corporations in China - both foreign owned and domestic - to allow the state-approved unions in their businesses. Some of the largest companies like Wal-Mart and others have until September 30th to accept the union. Mr. Barboza writes:

Lawyers and analysts say that demands of the All China Federation of Trade Unions, the only union the Communist Party allows, could sharply alter business practices of foreign companies in China, including giving lower-level workers the power to bargain over anything from pay raises to whether a Chinese headquarters should be moved elsewhere in the country.
+ "This will dramatically change the landscape here," said Andreas Lauffs, a lawyer at Baker & McKenzie's Shanghai office who is an authority on China's labor laws. "At the very least, company management must now consult, and in many cases bargain, with employees and unions on a wide range of matters, whereas in the past they enjoyed almost unlimited autonomy."+
+ The union push is coming at a time when global corporations are already facing rising labor and commodity costs in China, which is struggling to contain inflation.+

Of course, there are definately direct costs to be concerned with as the union moves into an organization:

Forming unions could be costly, lawyers and labor experts say, because a union could fight for higher wages and benefits and because companies are required to pay 2 percent payroll dues. The dues could amount to millions of dollars in additional costs for big companies. Yum Brands, for instance, has about 160,000 employees in China.
Manufacturers are already coping with soaring labor costs, which have jumped by 30 to 40 percent in some coastal manufacturing zones over the last four years. Also, a new contract labor law and stricter enforcement of older labor rules means some companies can no longer avoid paying overtime costs, which can be substantial because many factories insist that some employees work six days a week.

And in case you think this only impacts the big boys:

Union officials say they are focusing on global companies, but Chinese companies make up the bulk of the manufacturing work force and they are also expected to face audits and pressure to unionize.

But the concern - from Fortune 500 corporations to SMB manufacturers with a Chinese manufacturing presence - should be over the intangibles that come with collective bargaining and a strong union: work stoppages, and leveraging for better pay, benefits and conditions. In other words, it's not the bill on the table, but what comes for desert.

"Some foreign companies in China haven't behaved well in dealing with their workers' interests and rights," Wang Ying, an official at the All China Federation of Trade Unions in Beijing, said in a telephone interview this week. "As the economy and society develops, China needs to improve workers' legal rights and interests, which is a demand of a civilized society."

China's resolve should not be questioned here. Its aggressive approach to reducing pollution and redirecting resources prior to the Olympics should offer all the proof you need. And the natural progression to a modern society has to include an emerging, powerful middle class that wields influence and power. Look at the U.S. 100 years ago for more proof of that.

The costs of progress are always significant. China and its people are beginning to discover its potential and invest to make it reality. But the insertion of the union into Chinese manufacturing will absolutely increase costs and the need to improve margins much more quickly.

Clavardon (www.clavardon.com) is an online tool that allows you to invite others to co-browse any Web site with you and chat live with everyone in the process. As you surf a site, others can see what you're looking at, what you're pointing at and any text or item you want to highlight.

According to Clavardon, the utility was created to help e-commerce businesses and sales staffs to demo their sites to prospects. It certainly does that.

But SMB manufacturers can use it to their advantage as well. For example:

• Review your own Web site with offsite resources to develop or refine.
• Review and collaborate on any item - drawings, plans, or projects - that you've uploaded to the Web beforehand.
• Review documentation and information with customers or prospects.

Clavardon is free for up to 100 sessions per month, and requires no setup or registration.

One downside that I noticed is that the chat window is pretty large, which limits the size of the window that displays the site being shared.

But for the convenience and usability, this is a hard utility to beat - especially for the cost.

Hat Tip: Robin Good

I had lunch with Chris Norek today. Among other things, we discussed the West Coast dockworkers contract disputes that have been hanging around for months.



Chris turned me onto a Wall Street Journal article (West Coast Port Pact Arrives Ahead of Rush that today announced a tentative agreement that may forestall another shutdown like the one back in 2002 that basically shutdown the U.S. west coast ports.

Assuming each side ratifies the deal, shippers will "have some assurance that there will be no major stumbling blocks for the Christmas season," said Chris Norek, a senior partner at Chain Connectors, Inc., a supply-chain consulting firm. "Shippers can now breathe a sigh of relief."

The agreement came after weeks of intense negotiation that took on an added sense of urgency after the old contract expired on July 1. In recent weeks, dockworkers began to flex their muscle by slowing down operations at the ports of Los Angeles, Long Beach and Oakland, resulting in what port operators said were significant productivity drops at the three ports.

As Chris correctly pointed out, this agreement comes in the nick of time for buyers.

Ironically, U.S. suppliers might have actually gained from another shutdown. Coupled with the falling dollar, rising taxes and costs to manufacture in China, and astronomic fuel and transport costs, a shutdown might have added to the overall impression that "insourcing" locally offers not only lower costs to buyers in the Americas and Europe, but may also provide them with logistical stability within a pan-pacific supply chain.

That the plunging U.S. dollar, rising labor costs and atmospheric fuel and energy costs have combined to erode China's cost advantage isn't news. (See here and here).

But the cover of the most recent Business Week asks "Can the U.S. Bring Jobs Back from China?" and its answers are startling, if not surprising to manufacturers with a modicum of memory.

This would seem to be a good time for an American manufacturing renaissance. The economics of global trade are starting to tilt back in favor of the U.S. to a degree unseen in a generation. Since 2002 the dollar has plunged by 30% against major world currencies and is falling against the yuan. Wages in China are rising 10% to 15% a year. And spiking oil prices are driving up shipping rates. The cost of sending a 40-foot container from Shanghai to San Diego has soared by 150%, to $5,500, since 2000. If oil hits $200 a barrel, that could reach $10,000, projects Toronto financial-services firm CIBC World Markets.

But while the tilting of fortunes is real, author Pete Engardio does a great job of tempering any enthusiasm with a pragmatic understanding that seizing work back - on a grand scale, at least - is gonna be hard.

... the map of global commerce can't be redrawn overnight. American factories and supplier networks in many industries have withered in the era of globalization, so it will take lots of time and capital before the U.S. can become a big player again. The bulk of goods made in China-clothing, toys, small appliances, and the like-probably won't be coming back, because they require abundant cheap labor. If anything, their manufacture will go to other low-wage nations in Asia or Latin America. And in industries from machinery to motorbikes, China's productivity gains nearly offset rising wages and fuel prices.

Of course, there are numerous opportunities for SMBs to regain some work or for the U.S. to build infrastructure around nascent industries and products. And Engardio provides some compelling examples:

Examples of production shifts abound. Chinese steel exports to America are down 20% in the past year, notes CIBC, while U.S. steel output has jumped 10% despite the slowdown in construction. Big electronics manufacturers are expanding assembly of high-end telecommunications, computer, and medical equipment in Mexico and some parts of the U.S. for greater proximity to corporate buyers. Tesla Motors, which has just begun production of its $109,000, electric-powered sports car, transferred assembly of battery packs from Thailand to a plant next to its San Carlos (Calif.) headquarters. Thailand's low factory wages were more than offset by the costs of shipping thousand-pound battery packs across the Pacific. "We were seeing tens of millions of dollars of value sitting on the water for months," says Darryl Siry, Tesla's vice-president for marketing. "It was one of those things that became obvious all of a sudden, and you said, Why are we doing this?'"

But the realities suggest that the meaningful, industry-wide shifts are years away, and it'll take more than associations and Web sites to meet the challenges.

What would be required, for instance, for the U.S. to re-emerge as a player in batteries? It is an industry, after all, on the cusp of radical technological change that could spur development of future eco-friendly vehicles, cell phones, and home appliances. Boston-Power's (Christina) Lampe-Onnerud has suggestions, but America may not be ready for them. Washington could lend up to $50 million in seed capital to promising startups, for example, and state governments could build industrial parks with low-cost facilities and services that rival those found in China. "If we got state and federal support," she says, "we would team up with others in a heartbeat and grow an industry."

In the meantime, real opportunities exist for SMBs to take advantage. Use the converging issues - the falling dollar, rising Chinese labor costs, the uncertainty of shutdowns during the Olympics, VAT rebate adjustments, and skyrocketing fuel & shipping costs - as good reasons to engage old customers and new prospects on the benefits of manufacturing locally in a mature economic market. Many buyers are feeling the squeeze and are willing to listen.

Waiting for your governments to react - ahem - might not be the best strategy at the moment.

Once again, Rick over at All Roads Lead To China offers up sound advice for buyers with suppliers and supply nodes in China.

Last year, ARLTC warned of the impending dilemma buyers and sourcing pros faced from the elimination of the VAT rebates, warning them to get their shipments out before gridlock hit the ports. (The photo below shows the gridlock in Shanghai last June, as suppliers rushed to ship product before the VAT reabates were discontinued in July.)

Over at MFG.com, coverage was also extensive around the VAT reductions and their impact.

Unfortunately, many failed to listen to Rick's warnings from on the ground in China. And now he's back, playing Paul Revere with a message that's critical for buyers in the near term, and excellent intelligence for suppliers in the U.S. and other markets:

When I began reporting a couple months ago that the Olympic Shutdown was coming, some were skeptical ... but (you should) understand that the risks of this are growing, that the impacts will reach into many supply chains, and there are ways to mitigat(e)/manage the risk.

Folks, time is short to act on these issues, and a word to the wise is sufficient.

Rick lists 3 characteristics of suppliers in China that make them susceptible to shutdown (in order of importance):

1. Heavy air polluters
2. Require high amounts of energy
3. Require high amounts of water

Rick also identifies 3 potential scenarios that could affect buyers that rely on Chinese sources:

1. Suppliers will be shutdown and therefore a part/ process cannot be delivered on time
2. Suppliers will not be able to deliver the goods on time due to restrictions on trucks
3. Even if you get the parts and are able to avoid being shutdown ... you may find it difficult to ship your goods yourself. Ports may be restricted for security, trucks may be off the road, (or) crane operators may be watching the national team

True to form, Rick offers sound suggestions on ways to mitigate the pending risks. He advises:

• If you need 4-6 weeks to produce (parts or deliverables) you really only have 1-2 weeks left to push out orders or build up stock... so act now
• Understand which of your suppliers are at the highest risk and speaking to them about developing some measure of safety stock within their/your warehouse
• Get your sales and logistics departments together and make sure they are in sync over the capabilities of shipping department vs. customer delivery (requirements)

Rick points out that there's about 2 months until the Beijing Olympics begin, but he believes only about 4 weeks before the first shutdowns commence. That doesn't leave much time for buyers to react and plan, but forewarned is forearmed.

Finding information about supply chain management isn't a big deal these days. And although finding information about how to function within or around any supply chain is a little more difficult, it's a whole lot better than it used to be.

But finding the right supply chain info at the time you need it is still a daunting task. I mean, every business by its own nature brings unique requirements to a supply chain party. Add to that regional/global, industry, technical and specific customer requirements, and answers become more complex and hard to find.

There are universities that have taken the initiative to develop supply chain programs and networks in conjunction with government and industry. These resources can help greatly with establishing processes and efficiencies for your business, and redefining its place in supply chains.

• The MIT Global SCALE Network - You may have heard of MIT's Center for Transportation and Logistics - it's one of the most prestigious think tanks for supply chain in the world. MIT's recently established SCALE (Supply Chain and Logistics Excellence) Network is part of the CTL and it intends to connect companies, academia and governments from around the world to "pool their expertise and collaborate on projects that will create supply chain and logistics innovations with global applications." The network currently has partnerships in the U.S., Europe and South America. They are in the process of launching partners in Asia and Africa. Think of the network as "crowdsourcing" for the supply chain.
• Georgia Tech's Supply Chain and Logistics Institute - The SCLI has been around for over 60 years. It has developed an impressive global network of industry and academic partners serving several supply chain verticals - overall strategies, manufacturing logistics, warehousing & distribution, and more.

These institutions offer strong resources for small and medium sized manufacturing businesses that are either firmly entrenched within a supply chain or are on a high growth rate and motivated to break into others.