Monthly Archives: November 2013

The Somali Pirate Song

Yesterday, we indicated that, with the current state of affairs, the limited Somali economy, and few options for many Somali men of working age, that Somali piracy is likely to remain strong for quite some time. Today we present one view of what you might hear if the Somali pirates were asked to put their story to song. SI thinks it might go something like this:


The Somali Pirate Song

I used to be a fisherman, and I made a living fine
I had a little cutter boat, and trawled the tuna fine
Government fell and though we tried, our borders were soon lost
The trawlers came and took our fish and we were at a loss

I looked for every kind of job, the answer always no
“Hire you now?”, they’d always laugh, “its the war, you know?”
The government, they can’t get the country under thumb
And I don’t want to get shot next time I take a run

And since no one gives a damn about this Mycenaean
I’m gonna be a PIRATE on the Ocean Indi-ian

And it’s a heave-ho, hi-ho, comin’ down the coast
Stealin’ oil and iPhones and all the modern gold
It’s a ho-hey, hi-hey merchants bar yer doors
When you see the power boat fleets
  on Africa’s eastern shores!

Well, you’d think the local shippers would know that I’m at large
But just the other day I found an unprotected barge
I snuck up right behind it and I caught them unawares
I boarded their ship, ransomed it, and then I stole all their wares

A port outside of Cairo ends a mighty canal
Captains leave with so much fear that their crews have no morale
Cause they know that Pirate Big Mouth’s waitin’ at the pass
I’ll take the bridge and knock them cold and sail off with their gas

And it’s a heave-ho, hi-ho, comin’ down the coast
Stealin’ oil and iPhones and all the modern gold
It’s a ho-hey, hi-hey merchants bar yer doors
When you see the power boat fleets
  on Africa’s eastern shores!

The merchant navy chased me, they were always at my throat
They monitored the shoreline with their little cutter boats
But cutbacks were a’comin’, and the sailors lost their jobs
So now they sail with me, they’re the modern Salty Dogs

An AKM, a skull-and-bones and pleasant company
I never pay salary tax and screw the TFG (Screw ’em)
Sailin’ down to Cape Town, the terror of the seas
If you wanna reach the FTZ, you gotta get by me

Cause it’s a heave-ho, hi-ho, comin’ down the coast
Stealin’ oil and iPhones and all the modern gold
It’s a ho-hey, hi-hey merchants bar yer doors
When you see the power boat fleets
  on Africa’s eastern shores!

Well, Pirate life’s appealing but you just don’t find it here,
I hear in Bangladesh there’s a band of buccaneers
They roam the Bay of Bengal from Yangon to Colombo
And you’re gonna lose your cargo if you have to pass their gunboats!

Well, winter is a’comin’ with cruise ships on the way
My pirate days are over once they take over the bay
I’ll be back in spring-time, but now I have to go
I hear there’s lots of plunderin’ off the coast of Mexico!

Cause it’s a heave-ho, hi-ho, comin’ down the coast
Stealin’ oil and iPhones and all the modern gold
It’s a ho-hey, hi-hey merchants bar yer doors
When you see the power boat fleets
  on Africa’s eastern shores!

With apologies to The Arrogant Warms from this Last Nova Scotian Pirate.

Will The Day of The Last Somali Pirate Come?

Doubtful.

Even though some somali pirates have been retiring, as nicely summarized in this recent article on Somali Piracy in The Economist, piracy is just too damn lucrative. Especially given the other employment options available to the pirates.

As per the Economist article, the average ransom for a ship between 2005 and 2012 was $2.7 Million. Each pirate involved in the hijacking received between $30,000 and $75,000, with a bonus of up to $10,000 for the first man to board a ship and for each man who had their own weapon. Think about that. On average, one hijacking earned a man more than he would earn from a full time job in the US (where the average man earns approximately $45,000 a year). Now it is true that pirates are charged considerably more for loaned goods and services than they are worth and often have to pay $20 for $10 of mobile-phone airtime, but even at 100% mark-ups, pirates are still earning a hundred times more from a single hijacking than they would earn otherwise in a country where the average income is in the dollar-per-day range.

And it’s not just pirates, and the financiers that organize the missions, that make a killing. Cooks (who feed the crews), pimps, lawyers, merchants (who can provide banknote checkers to detect counterfeit), militia (who control ports and can provide details of cargo and patrol somewhere else on the day of the attack), and even government officials (who can look the other way when ransoms are illegally being flown into a country) also make off quite well. Piracy is a thriving business sector in Somalia, adding 50 M to 100 M annually to an economy that legitimately produces less than 1 Billion in GDP. With no employment opportunities that are nearly as lucrative and no sector with the possibility to create the same level of wealth in the country as piracy, it should be pretty obvious that piracy is not going away any time soon.

Especially since many men don’t have any other choice. Many pirates used to be fisherman, an age-old family trade passed downed from their fathers and grandfathers, and they were happy with that life. They learned to cast nets, pull them up, sort the fish, and go to the market to sell the fish for a modest, but acceptable, price at a very young age. But then, as explained in this article on Terror on the Seas, in the early 90’s, civil war broke out, the government collapsed, and maintaining order became impossible. The borders, and the territorial waters, went unprotected and foreign fishing trawlers emptied the waters unchallenged. The once tuna-rich waters were now as fish-free as a dead pond and the fishermen had to do something (or starve). They tried to form their own coast guard, but how much can a few fisherman with the odd dinky do to protect a 2,000 mile coastline against large international vessels. They tried, but up against improbable odds, got desperate, and aggressive – eventually storming a vessel and demanding money for its release. The ransom was paid, and they realized they had found a new livelihood which was not contained to fishing vessels. After all, who has more money, a small fishing company or a large international oil company?

What else are the pirates supposed to do? They can’t fish, there’s only so much farmland available in a country that is mostly desert and semi-desert, and it’s not exactly an outsourced manufacturing or service center. As one pirate said in a 2008 Newsweek article, “… when evil is the only solution, you do evil. That is why we are doing piracy. I know it is evil, but it is a solution.” Until they have another viable option, another solution, piracy is going to remain strong.

While You’re Celebrating Your Thanksgiving in the U.S.

Think about what you can do to make the rest of the world, including the 870 Million people in the world who are chronically under-nourished, thankful as well.

As Procurement Pros, you have a lot of control over the global food supply whether you realize it or not. Money does talk, and with enough pressure, the supply chain will walk to your marching orders. And if those orders are appropriate, maybe we can prevent half of the food being produced going to waste.

According to The Food and Agriculture Organization (FAO) of the United Nations, roughly 1/3rd of the food produced in the world for human consumption every year, approximately 1.3 Billion Tons, gets lost or wasted — due to losses during harvesting, storage, transport, and processing. This loss is almost four times what would be needed to feed all of the chronically under-nourished people in the world, and part of the reason food reserves are at an all time low.

And to make matters worse, the growth, and partial harvesting, storage, transport and / or processing produces 3.3 Billion tons of CO2 emissions and wastes precious water and energy resources. So, not only are people starving when there should be enough food, but we’re wasting limited fresh water and energy in the production of the food that is being wasted.

In developing countries, 40% of this loss is occurring at post-harvest and processing levels due to financial, managerial, and technical constraints in harvesting techniques as well as storage and cooling facilities. Additional infrastructure investments would solve the financial and technical issues, and getting smart people on the ground would solve the managerial issues. If a large grocery chain decided to invest on the ground, and reduce loss from an average of 35% to 10%, it would effectively increase production by almost 40% and lower the cost per unit by almost 30%. (Production levels go from 65% to 90%. 40% of 90% is 36%. 30% of 90% is 27%.) This is not a hard problem to solve. And it wouldn’t take too long before the grocery chain saw ROI.

In developed countries, more than than 40% of losses happen at retail and consumer levels. Faster transport, better storage, and better inventory planning could have a big impact at the retail level. The only thing a Procurement Pro can’t really control is consumer waste.

So think about what changes you can make in your organization to minimize food waste and encourage investments on the ground in the regions, and on the farms, you depend on. And when costs go down, your organization will have something to be thankful for too!

Can Six Drucker Questions Simplify a Complex Supply Chain? Part II

A recent post on the HBR Blog Network on Six Drucker Questions that Simplify a Complex Age poses us with a interesting inquiry — can they simplify a complex supply chain? After all, these are questions out of Drucker’s writing handpicked by Rick Wartzman (Executive Director of the Drucker Institute at Claremont Graduate University), not out of Drucker’s mouth (as Drucker died 8 years ago), and given the recent turmoil in the economy, Drucker might choose different questions to lead us back to the road to recovery (and he might not).

Getting straight to the point, as an existential discussion on what Drucker may or may not ask today doesn’t help us much in the real-world of real-time supply chains, we will skip the philosophical debate and jump right into a discussion of the last three questions, continuing in the same vein as yesterday’s post.

  1. What Are Our Ideas to Try to Do New Things, Develop New Products, Design New Ways of Reaching the Market?
      SI agrees that this would be near the top of Drucker’s list as innovation is becoming more imperative for an organization to survive every year. It’s often the difference between success and bankruptcy, even for a Fortune 500, as today’s fickle consumer can often change the course of a global corporation in just a few years.
      This question is especially imperative for Supply Management that needs to get involved as early as possible in the NPD cycle to not only help identify lower cost suppliers or materials, but the most lucrative markets that will enable to organization to take advantage of economies of scale. Furthermore, supply management technology is considerably ahead of where it was a decade ago, even though most Supply Management organizations are still running on the same ERP they were running on a decade ago, and Supply Management needs to ask not only how it can catch up, but get ahead of the curve and become best-in-class sooner rather than later. Even the most laggard of the Global 3000 can become best in class in as little as five years with the right vision, plan, and change management methodology — but without the right vision, plan and change management methodology, that same organization is likely to be even further behind in five years (if it is still solvent).
  2. Who In This Organization Depends on Us for What Information?
      SI agrees that Drucker would definitely ask this question in a detailed assessment of corporate performance, but SI believes it would be in the context of who in the organization should depend on us for what information. Everyone has a role to play, but in your average organization, not everyone is playing the right role, or even understands what the roles should be!
      For example, Finance typically depends on Procurement for visibility into cash commitments, but does not depend on Procurement for Working Capital Management (WCM) guidance. Finance should be depending on Procurement for WCM guidance as only Procurement has the visibility into the supplier’s cost, financial viability, and expected cost of capital given their financial stability and local market conditions. Thus, if cashflow is limited and AP can’t take advantage of all of the early payment discounts / dynamic discounts at its disposal, only Procurement is in the position to truly determine which discounts are best for the organization in the long-term. For example, sometimes it’s better to take a lower discount if it means paying a supplier that would otherwise have to borrow at 20% per annum, as this could allow the supplier to reduce its operational costs and pass those savings back to the supplier through lower prices at contract renewal time. In comparison, paying a supplier with a cost of capital of 6% per annum early is not going to help that supplier much, which means that the one-time discount is all the value the organization gets.
  3. What Would Happen If This Specific Task Were Not Done At All?
      SI agrees that this is another inquiry Drucker would ask when doing an operational review, but doubts that it would be top of the list. SI believes that the first question would be along the lines of what would happen if we did not supply this product or service, from a market perspective and from an organizational perspective, and then when that understanding is gained, and a commitment to the product or service is confirmed, the individual tasks that are currently involved in the production and/or delivery would be questioned.
      Of course, from a Supply Management perspective, the first question is pretty easy. Either other units would absorb the minimal necessary functions, and probably do them poorly, or the company would return to the age of end-to-end siloed production where it did everything from mining the raw material to delivering the final product to the store shelves.
      The question posed by Rick is the critical question and needs to be asked of each project and task undertaken by Supply Management. If the answer is “not much”, the task or project is not value-add and probably should be dropped in favor of a task that is (more) value-add. For example, let’s take a buyer who notices that an evergreen contract for widgets, which has been in effect for five years, is coming due, which states the organization gets a 10% wholesale discount off of list price. Let’s also say that the average price increase has been about 3% per year, even though market indexes have only been going up about 2%. At a first glance, there might be a savings opportunity of 5% through re-negotiation or re-sourcing, but let’s also say that demand for the widgets has fallen 50% over the past five years, and that the total annual spend is only 2 Million of the 500 Million of Spend Under Management (SUM). Let’s also say that the organization only has the resources to tackle about 30% of the spend categories each year. In this case, if the buyer were to ignore this 0.02% savings opportunity on SUM and instead focus on sprockets, which has tripled in demand since the last contract was cut and which represents a 20 Million category where current prices are estimated to be at 3% above best price, she might be able to obtain a 0.12% savings on SUM instead. In other words, if the task of sourcing the widgets was not done at all, the organization would be better off (by a factor of 6)! Successful Supply Management always focusses on the most strategic opportunity first!

In summary, SI believes that these questions can help a Supply Manager tame the complexity of today’s Supply Chain by focussing on what matters and ignoring what doesn’t. They’re not a cure-all by any means, but insight never hurts!

Can Six Drucker Questions Simplify a Complex Supply Chain? Part I

A recent post on the HBR Blog Network on Six Drucker Questions that Simplify a Complex Age poses us with a interesting inquiry — can they simplify a complex supply chain? After all, these are questions out of Drucker’s writing handpicked by Rick Wartzman (Executive Director of the Drucker Institute at Claremont Graduate University), not out of Drucker’s mouth (as Drucker died 8 years ago), and given the recent turmoil in the economy, Drucker might choose different questions to lead us back to the road to recovery (and he might not).

Getting straight to the point, as an existential discussion on what Drucker may or may not ask today doesn’t help us much in the real-world of real-time supply chains, we will skip the philosophical debate and jump right into a discussion of the first three questions.

  1. What Does the Customer Value?
      SI agrees that regardless of what has happened since his death, Drucker would still be asking this question — and it would probably be the first question out of his mouth in any business discussion. The tighter times get, the more the customer focusses on what they really need where necessity is concerned and what they really want where discretionary spending, which is limited in difficult economic times, is concerned. If the pie is small, an organization’s only chance of getting a piece of it is to be better at giving the customer what they want than the competition.
      This is a very important question for Supply Management as the Supply Chain should be designed to produce what the customer values, and only what the customer values — extra activity is non-value add and only adds cost to the chain (that Supply Management should focus on removing as soon as possible as that’s easy, instant, cost savings).
  2. What is our Business, and What should it Be?
      SI agrees that Drucker would still be asking this question, an in particular, the latter half of this question. If a customer values X and Y, and the organization is producing X when it could produce Y more competitively, and gain a larger market share, then it should probably switch to producing Y.
      This is another very important question for Supply Management as many Supply Management organizations are still focussed on cost savings when they should be focussed on value generation. Cost can only be taken out once. Value can be generated year after year after year by identifying products and features customers will pay more for and functions that will help the other organizational units do their jobs more (cost) effectively and increase the value those organizational units bring to the table.
  3. What is the Task?
      SI agrees that this is an important question, and would probably be asked by Drucker, but is not sure that this should be in the top 6 questions as SI does not think this question is a starting point.
      More specifically, SI thinks the first question should be What is the Goal?. The task, which is fuzzy in knowledge work, is better understood once the goal is well defined. Moreover, this is not covered by the last question. The last question simply helps the business identify what it should be doing (such as making sprockets and not widgets), not what it should be achieving (such as becoming the market leader in standard sprocket class AZ or the market leader in custom manufactured sprockets for the automotive industry). That’s where the goal comes in.
    In supply management, the task might be to source sprocket springs, but that’s not a clear task until a goal is identified, which could be reduce acquisition costs by 10%, which should be achievable based on current steel prices and supply demand dynamics or select a new strategic supplier who will jointly implement the a new spring production process designed to reduce steel requirements and environmental impacts, which will, in the long run, decrease costs by 25%. Once the goal is defined, the task is better understood and can be mapped out with a workflow and project plan.

Come back tomorrow when we will address the last three questions.