16.5 Purchasing Game Changers

Also known as 3-D printing, additive manufacturing (AM)The process of making objects from 3D model data—typically one layer at a time. is bringing science fiction to real life. If you've seen the TV series Star Trek, you know the replicator—a device that responds to voice command to make something on the spot. Instead of voice command, a 3-D printer uses a digital design to make specialized parts.1 Consider Jay Leno's spare-parts dilemma. As an avid auto collector, Leno's biggest challenge is to find no-longer-manufactured spare parts to keep his 200-car collection in driving condition. Mr. Leno revels, "The days of going to a junkyard and trying to find an auto part that says Packard or Franklin on it are over. We can make almost anything we need right here in the shop ourselves." Mr. Leno explains how he uses a NextEngine 3-D scanner and a Stratasys 3-D printer to produce a one-of-a-kind replacement part:

Where can you expect to see additive manufacturing (AM)?

1. New Product Development. AM has made its most impressive debut in speeding the prototyping process. At Ford, 3-D printing has reduced product prototyping cycles from three months to as little as a week.3 Rapid prototyping enables you to experiment with more options—a key step toward more innovative, higher-quality products.

2. Spare Parts. The Jay Leno example illustrates the possibilities for spare-parts management. Ponder the implications for Caterpillar's spare parts supply chain. Caterpillar could dramatically reduce the costs of supporting equipment used in some of the most remote and hostile environments on earth. But, Cat's distinctive service capability—a key selling point that buffers Cat's margins—could be rendered obsolete. AM's cost/availability equation will change spares acquisition models.

3. Make versus Buy. AM can enable your suppliers to customize products—just for you. By contrast, AM may make manufacturing so easy that you can do it yourself. AM literally allows you to exchange information (digital designs) for inventory. Simply download and print! For many small-volume buys, the make/buy equation will change.

AM will change your company's supply network—and your buyer/supplier relationships. The question is, "How?"

Today, data is so easy to collect (e.g., clicks, barcodes, RFID, sensors, and loyalty cards) and inexpensive to store that Big Data is enabling a new source of relationship intimacy and competitive advantage. Big data and predictive analytics are changing the rules in two ways.

• Customer Profiles. When you login to your favorite shopping website, you expect the site to know who you are and what you like to buy. You may even expect the website to give you some suggestions. Simply put, big data enables suppliers to profile your shopping behavior. Suppliers can offer you a customized shopping experience, showing you different products and offering you different service levels. You probably view these capabilities positively. However, big data also enables suppliers to charge you more or less than another customer—something you might not think is so cool.4

• Hidden Connections. Big data helps you connect the dots. For instance, IBM produced a series of commercials extolling this as a virtue. Consider the following script.

  My specialty is pastries not predictions. Knowing what to make and when, could help cut down on thousands of unsold pastries per month. Using analytics we discovered when it's drizzling outside, people eat more cake. And when the temperature rises, Panini sales go up. Finding these hidden connections helped our European bakeries increase profitability by 20%.

  Using big data to "find hidden connections" can help you improve resource allocation, customer satisfaction, and profitability. But, connections and causation are different. Will you have the emotional fortitude to make and stick to decisions based on the analytics—even if/when you don't fully comprehend why? Big data "challenges our most basic understanding of how to make decisions and comprehend reality."5 You will need to find the appropriate balance between seeking analytics-based first-mover advantage and striving for causation-driven understanding.

Big data is changing how we view each other and the world around us. This reality raises a variety of questions. For instance, if a supplier mines its databases to accurately predict and ship what you want before you place the order, what are the competitive implications—for you, your supplier, and your suppliers' rivals? How will buyer/supplier relationships change? At what point might you—and other customers—rebel and say, "That is too intimate?"

By changing the materials you use to make cool products, modern materials science is redefining both what you can make and how you will make it. For instance, carbon nanotube technology (CNT) is making its way into commercial application. It has been over a decade since the first bike frame (weighing a scant 2.1 pounds) was made using CNT. Stanford engineers recently built the first CNT computer, showing that CNT may be a viable successor to the silicon transistor. CNT promises smaller, more energy efficient processers—a key to perpetuating Moore's law and continued growth in affordable computing power. Stanford Professor H. S. Phillip Wong predicts, "CNTs could take us at least an order of magnitude in performance beyond where you can project silicon could take us."6

Beyond CNT, graphene has been identified as a potential "miracle" or "wonder" material. Graphene is honeycomb structure of graphite only a single atom thick that possesses very unique physical characteristics. Graphene is 200 times stronger than steel, far more flexible and stretchable than silicon, and exceptional at conducting both heat and electricity. Graphene also absorbs and emits light very efficiently. What could you do with graphene? Consider some of the early applications.

• Head now markets a graphene-infused tennis racket.

• Apple is working on a graphene-based heat dissipator for mobile devices.

• Lockheed Martin is developing graphene membranes to filter salt from seawater.

Graphene's characteristics have led companies to apply for patents in anti-rust coatings, batteries, computer chips, DNA-sequencing devices, flexible touch screens, and tires. Graphene's most likely near-term impact will be in high-speed electronics and flexible circuitry.7 Eventually graphene could revolutionize transportation by making electric vehicles—including solar-powered planes and semis—economically viable. Such innovations would change the total landed cost equation that defines competitive markets and molds economic development.

Not all technology advances are being used to create value. The IT that enables modern supply practice also makes us all vulnerable! Consider the following threats.

1. Cyber Mischief. Hackers' mischief ranges from annoying to criminal. As more digital information is stored in the cloud, it can be hacked and improperly used. Just ask Jennifer Lawrence or Kate Upton, celebrities who were exposed in a massive nude photo leak.8

2. Cyber Theft. Identity theft is a huge concern in our digital economy. Massive data breaches are becoming increasingly common—and as Target discovered in a December 2013 cyber attack—very expensive. Target's stock price was hammered after it reported that almost 40 million account holders were put at risk. Comparable same store sales declined by 2.5% for the fourth quarter. Target said the breach cost $148 million.

3. Cyber Warfare. You've seen the thrillers in the theater. You know the plot line. A hacker breaks through a company's or a government's Internet security to extract secret information or take control of operations. The fact is that such threats are real. Security agencies worldwide are developing cyber weapons to disrupt economic activity. One scenario involves shutting down power supplies at specific targets. Imagine the chaos—commercial and personal—if a hacker turned off the power across the European Union.

The bottom line: We are entering new, unexplored territory. Our business systems and national infrastructures face risks we have never seen before. To what extent should you redesign your company's supply chain to take advantage of modern technology if a cyber attack could take it offline—literally or simply in the minds of consumers? After all, a recent USA Today headline read, "24% of Americans stopped buying online because of breaches."9 Cyber security isn't just another risk.

What characteristic distinguishes between a team composed of great players and a great team? Answer: Chemistry! To build chemistry, you need trust. Stated another way: Well-designed contracts can help you assure compliance. However, contracts seldom promote the high-levels of commitment you need to co-create value with supply partners. Verifiable trust does!

Yet, despite years of research that documents trust's vital role in improving buyer/supplier relationships and performance, few managers know how to build trust. Worse, even fewer companies are willing to invest in trust as an enabler of distinctive value co-creation.10 You need to learn how—and when—to build trust with key supply partners.

Way back in 1996, Harold Sirkin, a BCG consultant, announced, “As the economy changes, as competition becomes more global, it’s no longer company vs. company but supply chain versus supply chain.” Today, Sirkin’s warning is becoming a reality. Consider the auto industry for instance. Toyota and its supply team compete against GM and its supply team for dominance in markets around the world. The competition is fierce, but Toyota’s supply team works more cohesively than GM’s team to build affordable high-quality and innovative cars. That’s one reason why Toyota sells more cars at a higher profit margin than GM and has become the world’s most valuable car brand.11 The question is, “What do you need to do to build a truly cohesive supply team?” Consider the following practices.

• Supplier Conferences. Most Fortune 500 companies host annual supplier conferencesSupplier conferences bring suppliers together to hype new products, introduce new initiatives, and celebrate outstanding supplier performance. These events are used to create cohesion across the supply base. to hype new products, introduce new initiatives (e.g., quality programs), and celebrate outstanding supplier performance. Harley Davidson makes a spectacle of its conferences. Harley, for instance, invites supplier reps to ride Harleys on a special test track. Why, you ask? Answer: Because a Harley isn't just a motorcycle. Harley wants suppliers to take ownership in creating and perpetuating the Harley myth. Rockwell Collins seeks a different type of supplier involvement. Rockwell identifies best practices among its supply base and invites top-performing suppliers to teach their peers. The goal: Recognize outstanding practice and drive faster learning across the entire supply base.12

• Supplier CouncilsSupplier councils act as a sounding board to improve the acquisition and supply-base management process. Councils improve cohesion across the supply base and promote rapid adoption of best practices.. Rockwell Collins also relies on a supplier advisory council to help it work more closely with key partners. The supplier council meets quarterly and acts as a sounding board to improve the acquisition and supply-base management processes. The council engages the supply base to answer the question, "Does each new idea or practice make sense from the suppliers' perspective?" Bad ideas are discarded early—before ticking off key suppliers. By contrast, best practices, are quickly implemented across the supply base. Council approval, after all, promotes rapid buy-in.13

• Collaborative Training. John Deere takes collaborative learning a step further. Deere works with local colleges to design courses and seminars on all things supply chain related (see Table 16.1). Deere then invites supplier personnel to join the Deere team in every class or seminar that Deere offers its own employees. Certified suppliers are encouraged to invite their own suppliers to participate in Deere-sponsored education programs. Deere knows that its future success depends on how fast the entire supply chain team can build new skills.

  Table 16-1

  Training Courses Offered at Deere & Company

  Advanced Product Quality Planning	Failure Mode & Effects Analysis
  Application of ABC Data	Finance for the Non-Financial Manager
  Benchmarking	Introduction to ISO/QS 9000
  Business Report Writing	Inventory Management
  Cash Flow Analysis	ISO/QS-9000 System Documentation
  Cell Manufacturing	Mistake Proofing
  Compensation Strategies for CI	Process Mapping
  Conflict Resolution	Project Management
  Continuous Process Improvement	Root Cause Analysis
  Continuous Quality Improvement	Setup Reduction
  Cost/Price Analysis	Teaching Techniques
  Customer Service I & II	Team Effectiveness I & II
  Cycle Time Reduction	Team Problem Solving
  Design of Experiments	Time Management
  Communication for Collaboration	Win-Win Negotiations
  Developing High Performance Teams	Working in a Changing Environment

What should you take away from this discussion? If you want to win tomorrow's competitive battles, you need to cultivate learning as a thread that ties your supply chain team together. The reality, unfortunately, is that few companies have adopted Toyota's disciplined approach to building chemistry and investing in supply chain wide learning.

A supply chain talent crisis is looming. The world's workforce is aging. Institutional wisdom (aka, tribal knowledge) is being lost. Worse, there aren't enough young people in the right places with the right skills to take the place of the retiring baby boomers. In the U.S., for instance, two supply professionals are retiring for every new college grad trained to take their place. The demographic challenge is even greater in countries like Korea and Japan.15

Companies are fighting over the best young talent—offering top prospects jobs as many as two years before graduation. Companies are also striving to create a more millennial friendly environment (see Table 16.2). Retaining the best talent, however, won't eliminate the problem. You will need to help your company be more creative with part-time positions, training, and flexible working arrangements—including flextime and telecommuting. You will also need to encourage delayed retirement.

Naturally, sustainability should be at the top of your scanning list. Environmental regulations change constantly—and vary dramatically from one country to the next. Consider just two examples.

• Carbon Footprint. Europe leads the world in carbon regulations. For example, the European Commission adopted rules to limit average vehicle emissions sold in 2020 to 95 grams of CO2 per kilometer travelled—down almost 30% from 2015's binding limit of 130g CO2/km.16 Even tighter limits are expected for 2025 and 2030. What does this mean for car companies? Answer: By the mid 2020s, to meet emissions standards, hybrid or electric vehicles will need to be mainstream.

• Organic Farming. What is the right way to raise chickens, pigs, and other farm animals? In 2016, the U.S. Department of Agriculture unveiled new rules governing organic livestock and poultry farmers. For example, to use the "organic" label, farmers need to provide two square feet per bird—in doors and outside. Other practices, including debeaking poultry are now banned. Betsy Babcock, founder of organic egg producer Handsome Brook Farm, is pleased that new rules have finally been proposed, but feels that the rules fall woefully short. Her company requires egg suppliers to give hens over 100 square feet of outdoor space per bird. 17

You also need to keep your eyes on the rising tide of protectionismProtectionism refers to practices designed to reserve domestic commerce for domestic companies—i.e., to limit competition from global rivals.. For over half a century—i.e., since World War II—countries have lowered tariffs to encourage global commerce. The result: Global trade and living standards have gone up. Consider the following.

1. A Dollar a Day. Global trade is easing extreme poverty. Xavier Sala-i-Martin, Columbia University economist, noted that since 1970, the "percent of people living on a dollar a day or less—a traditional poverty measure—has fallen by 80%. . . . This is the greatest antipoverty achievement in world history."20

2. Discretionary Income. Global trade and the resulting economic and political stability are leading to the rise of a global middle class. Kishore Mahbubani observed, "In 1990, one billion human beings earned enough income to consider making discretionary purchases beyond mere necessity; by 2010, the figure had more than doubled."21

As living standards rose, most people began to take trade liberalization for granted. However, since the Great Recession and global financial crisis of 2008, you may have noticed an uptick in protectionist rhetoric. You may be wondering, "What does this mean for you?" Andy Grove, Intel's former CEO warned, "As the pressures of globalization increase, the urge to do counterproductive things gets more ferocious." Simply put, if the trade pendulum does swing toward protectionism, you will need to redesign your global network and source from new suppliers.