Knowledge Process Outsourcing (KPO) is back in the news with estimates ranging from $10-17 Billion/year volume by 2010. I ran the first ever MBA elective on "Global Outsourcing of Knowledge Based Services" in Fall 2005 – and a CAPM seminar in April 2006, with the same title. While well attended, I think KPO classes and seminars were rather early for 2005.
During those early years "outsourcing" was a scary word associated only with layoffs. Globalization and its opportunities was something that was not clearly apparent.
It was nice therefore to read the KPMG report that explains the difference between "BPO" (Business Process Outsourcing ) and Knowledge Process Outsourcing particularly for the financial sector. The report is well written though I would disagree with the rather provocative subheading …."outsourcing the core". You really cannot outsource your core competence but you can certainly re-define what your firm’s core competence is when you can get a knowledge task like equity research done overseas at a low cost. But all in all a great report !
I was rather pleased to read the Aberdeen report , see the CNN summary here. 56% of the over 800 firms surveyed felt that supply chain management was a market strategy differentiator and could make all the difference in customer satisfaction and service apart from delivering sustainability in a firm’s overall operations.
This seems fairly logical given the nature of the supply chain with the upstream concerned with supplying materials to the firm and the downstream distribution channel being the customer fulfillment end should be in-sync to deliver customer satisfaction at optimal costs.
Interestingly,however, that is not how either academe or the consulting world is organized. Supply chain is typically part of operations with a serious heritage of linear programming, queuing theory and so on. Distribution is somehow bunched with logistics and deals with the "Place" in marketing ( of the 4 P’s of marketing). One thread that ties this chain together is IT and it’s recent accessibility in web based software as a service (SaaS) applications. Perhaps the possibilities of the softwares that deal with the upstream supply chain and downstream distribution channel that is making managers realize the huge marketing strategy possibilities of the supply chain.
My winter break travels in India (January 2008) turned out to be great. Visited Delhi,Mumbai(Bombay),Goa and Kolkata (Calcutta)and got the distinct feel that the economy was on the move. Yes ITES ( Information Technology Enabled Services) are important and this sector feeds the notion of India as the global powerhouse of IT services. But what is more incredible is the booming growth of the local market and consumer demand. Consider the phone booth where Devinder helped me set up my local India cell phone account and helped “refill” my phone balance several times.
This phone booth is a temporary shack like structure and is actually owned by a blind relative of Devinder who has been awarded the space as part of India’s efforts to help its disabled. There seemed to be about 10 people constantly on the counter , either making long distance phone calls or adding money to their cell phone accounts. So I asked – what’s your sale per day? “About Rupees 5000 ( about $120 a day),”replied Devinder and I was skeptical because I was pretty certain that the guy had several hundred customers a day. “The customers buy small perhaps Rs. 20 ( 50 cents) of talk time by a cart puller or day laborer” explained Devinder. Incoming calls on India cell phones are free and the poorest are able to get on the mobile phone network by just arranging to receive “blank” calls that they don’t pick up and understand when a pal or business associate is trying to reach out. Such communication turns out to be free- next best is the booming use of SMS via cell phones. SMS’s are cheap and over 1 Billion ( yes billion) were exchanged when people wished each other Happy 2008 over the new year. Â Â
Transactions at the phone booth are both paperless and computer less. You ask for a re-charge and the phone booth attendant has a cell phone agent’s access to the phone company ( there are several companies) and the customer gets a SMS confirming the amount credited. Amazingly the poorest almost illiterate customers seem to be dealing with all this with aplomb and confidence. Â Â
Seeing the continuing boom in India had left me wondering about the “bottom of the pyramid” and what was happening there. Close observation of these BoP folks at the phone booth assured me that the economic growth in India is far more deep rooted and fundamental than I had earlier thought!
Last week my article in the Inside Supply Management of December 2007 appeared in print. This is a short piece on Corporate Social Responsibility and what the supply manager can do to contribute to Corporate Social Responsibility. I talk about three areas first the Global Supply Chain and quality problems (eg. toy recalls), supplier diversity for global suppliers and greening of the supply chain. All three topics are important for the supply manager, going forward and things that would resonate with enlightened CEO’s and company boards. Inside Supply Management is well circulated and is a monthly publication and covers some great and relevant content. The article itself can be downloaded here.
Muhtar Kent is the new CEO at Coke. This blog had commented on the changes at Coke earlier this year and the elevation of Mr. Kent to CEO is indeed a great development. Not only is Muhtar Kent, of Turkish origin, eminently qualified but his elevation signals Coke's diversity comeback . It also makes good business sense. Good business sense because as Fortune reports, Muhtar Kent led the Coke efforts in Eastern Europe after the Berlin Wall and should be able to lead the market expansion in emerging markets of the developing world. These markets have been called the "Bottom of Pyramid"(BoP) and involve most of the world where per capita income is low but human aspirations are high. A person drinks soda as a special treat and serving sizes are low ( about 6 -8 fl. oz. vs. 12 fl.oz. in the US) to keep soda affordable. These markets use bottles not merely because of "green" concerns but because a large unskilled labor pool is able to move bottles at low cost across the distribution chain. Growth for US consumer products will come from these markets and the CEO must understand how these markets actually work.
Pepsi in the meanwhile has India born Indra Nooyi at the helm and the BoP Cola wars should be interesting.
The e-Sourcing Workshop by Jim Kelly (of JVKG ) turned out to be brilliant (check out the photos above).Here was someone who had worked for many years in procurement and was able to bring out the practicalities of technology adoption in the automation of requisition to procure and pay in a variety of industries.
Later, I had a quick discussion with Jim about how B2B research looks at the e-procurement problem. B2B researchers look at buy tasks as a new task or modified re-buy or straight re-buy with major implications for B2B marketers. Similarly, procurement folks, being key members of buying centers have an urgent need to convert products and services to "straight rebuys" that allows the buying process to really reach out globally for suppliers. And naturally, it is far more easier on e-procurement when requirements are standardized.
A great insight from Jim’s talk was, for me, a better understanding of the nature of the organizational e-procurement process. Consider a three year contract that is negotiated using an e-procurement system. The buyer who works on the system would typically move out of her/his role in three years when time comes to put out an RFP for the new contract. Institutional knowledge of the RFP process for the commodity in question is lost and the new buyer has to start all over again.
For quite some time I have been trying to figure out the practical differences between supplier and customer relationship orientations in B2B relationships. In other words, the differences between upstream and downstream relationships that a firm must have.
Firms are becoming more and more alert to having good supplier relationships having realized that they need to have great suppliers who are part of the team. But the focus is always downstream to the market. Consider how easy it is to get your CEO to go meet a customer than go meet a supplier….
Why is this so? Because organizations are market facing and without customers who pay the bills you can’t pay your suppliers !
It is for this reason there is much more IT efforts on the front end of the customer face with Customer Relationship Management (CRM) and Sales Force Automation (SFA) softwares rather than the slower growing Supplier Relationship Management (SRM) modules in ERP systems. The Supply Management department is generally on top of critical supplier relationships because a supply gap can be catastrophic, career wise for the supply or procurement professional. While the same logic applies to the Marketing department, the CEO lends a helping hand because the specter of competition for good customers seem much more real than good suppliers.
Here is to wishing everyone a Happy Thanksgiving! A great bit of good news this morning was that airports were much less chaotic than expected. Better preparation and planning by passengers,airlines and airports seem to be helping. Although the traditional reason of celebrating thanksgiving, i.e. the harvest seems to have been overtaken by the need to thank God for granting us more higher order needs ! Nevertheless some basic stuff is just amazing. Consider oil prices on the 99$ mark and I heard someone on the radio who was grumbling but would spend the extra $10 to get to Grandma’s for Thanksgiving. In fact, better mileage and adjusted for inflation the gas prices seem less bad than they are if you compare with the 1980’s – just don’t compare with last year….
Tomorrow is Black Friday , the start of the Christmas holiday shopping season and the hope for retailers that the ink on their books will turn from red to black. With the mortgage meltdown and gas prices consumers are reportedly cutting back and early indicators are that there is less Starbucks coffee being sold. In addition, parents are trying to figure out which toys to buy and avoid lead problems. Luckily consumers are not slowing down according to this report. Let’s hope that the retail sales continue pick up because consumers need to buy if the supply chain has to move forward. Enjoy your turkey !
Sometimes its just a quick remark that clarifies difficult issues and that happened with me yesterday when a very competent procurement professional mentioned that their company did not do much procurement activities i.e. bidding,negotiation because they preferred to stay with the same supplier. So, there was not much growth in procurement as a career…
This set me thinking because it marks a major shift in management practice because companies are realizing that just as it is more profitable to have good customer relationship management downstream – its probably more effective to have good supplier relationship management upstream the value chain. Just as you need to "fire" or "sack" your bad customers you need to do the same with your bad suppliers but for the good ones you have – good relationship management seems to be paramount.
So procurement managers need to extend skills beyond "negotiation" just as sales managers need to extend skills beyond simply trying to "close" the sale….paradigms have shifted!
I was rather happy to read the Aberdeen report’s summary which highlights that global product design and development leads to reduction in product development time and time to market while allowing the protection of intellectual property through Digital Rights Management.
This blog and my research has been investigating these issues for some time and I am glad that the data is now available. The question is how do you make it work in practice, particularly if you are not a gigantic organization that can afford to open offices worldwide and actually place your person to work with the supplier in another country. That is an interesting question …..
