Monthly Archives: February 2014

Energy and Utility Procurement – Where Do You Stand?

Before ProcureCon released their recent State of Indirect Procurement Benchmark Report, they put out a study on Energy and Utility Procurement that summarized responses from 39 survey participants. While it was by no means an empirical study and the be-all-end-all to energy and
utility sourcing
, it does allow you to compare your own program to some extent and may inspire ideas for program enhancement.

One of the most interesting points of this report was that there doesn’t seem to be a single approach to any aspect of managing energy that respondents agreed upon. Like many other aspects of non-direct sourcing, companies are all over the board. This is likely due to the relatively new involvement of procurement, the sheer complexity of the category and variety of energy requirements on a company-by-company basis.

This is one of the many areas where, due to the varying degrees of regulation in different locales, the different types of energy (production) available, and the different views on the need for green, it helps to get with your peers and get different ideas, best practices, and perspectives — as well as the inside information on what works, and what doesn’t.

Fellow Canadians, your options for events have been limited, but now that ProcureCon has come North, you have one more option. Join the doctor at the inaugural ProcureCon Canada event (and register with code PCA14SI) and share your experiences.

The (Board) Gamer’s Guide to Supply Management Part IX: Small World Part 2

In Part V of our original series2, we introduced you to Small World, a delightful game from Days of Wonder (iOS Version available) that, in the words of Wil Wheaton, combines the military strategy of Risk with the delightful art and fantasy races of Cosmic Encounter. Except its more dynamic than Risk, and more variable than Cosmic Encounter, because while the races and powers are fixed, the combinations are not. [There are 14 races and 20 powers, or 280 different possible pairings. Plus, the pairings are ordered, and if a player does not select the pairing made available to him during his turn, he must spend 1 gold for each pairing, up to 5, that he wants to skip, which not only impacts his ability to accumulate the most victory points and win the game, but improves the selections available to the next player, who may gain one or more victory points by selecting a skipped pairing. So, if you do the math, there are P(20,14) possible power-race combination orderings, which is equal to 3,379,030,566,912,000 possible distinct games when orderings are taken into account!]

So what does this have to do with supply management? As per SI’s original post, Wil could just have easily have said Small World combines the military strategy of Risk with the marketing strategies of an MBA program. Whoever has the most money at the end of the year wins. We earn money by conquering and maintaining market territories. Empty, blue ocean, territories cost two units to conquer. Every competitor or obstacle in a territory costs one more unit to conquer. At the beginning of every game, each player will choose a primary market strategy, like brute advertising force, niche marketing, or price-undercutting, and combine it with a perceived marketing advantage such as a big war chest, coveted partnership, or new manufacturing process that allows production costs to be drastically slashed. The primary market strategy and perceived marketing advantages change every game. And therein lies the connection. Small World is a good introduction to how your supplier’s sales and marketing force is going to try and counter, and undermine, your every effort to procure and manage supply at a fair and sustainable price (as profit is the name of their game, not cost control). Today we are going to dive into the races and powers and solidify that connection.

The races1 in small world can be mapped to the different personality types in an organization that, directly or indirectly, support, or limit, the sales organization. Consider the following:

  • Amazons: A nation of all-female warriors in Greek mythology, these warriors seem to multiply in battle. They’re like the accounts receivables clerks who come out of the woodwork to descend on your deadbeat customers en-masse.
  • Dwarves: The mythical miners from the popular fairy tale, they’re the professional arbitrators who excel in dark rooms and endless negotiations.
  • Elves: The long-lived long-ears from the world of Tolkien who are almost immortal, they’re like the IRS auditors who never die.
  • Ghouls: Like the accounting trolls in Accounting popularized in Dilbert comics, they are the immortal accountants.
  • Giants: Like the feared giants of medieval times, the rich C-Suite, when they are on top, can conquer others with less effort.
  • Halflings: Like the burrowing hobbits, these 3rd party independent consultants pop-up out of nowhere and take over part of the project, and there’s nothing you can do about it.
  • Humans: Like the born-and-bred farmer who is a master of his fields, these account managers excel at up-selling your existing customers.
  • Orcs: Like the toll-extracting orcs of myth, these high-performing salesman excel at getting the big deal, by force if need be.
  • Ratmen: Think lawyers. ‘Nuff said.
  • Skeletons: Like mythical skeletons, these marketers multiply every time they conquer a new territory.
  • Sorcerors: Like real sorcerors, the members of your corporate intelligence team uses espionage and influence to convert insiders to win a deal.
  • Tritons: Like the legendary masters of the sea, these logistics managers rule the sea trade.
  • Trolls: Like the gate-keeping trolls, these on-site consultants — once they are embedded in your culture — are almost impossible to get rid of.
  • Wizards: Just like the wizards could conjure something out of nothing, these analysts can conjure actionable intelligence out of random data bits.

And the powers can be mapped to different skills that can give your race an advantage:

  • Alchemist: In the old days, these magicians turned metal into gold just like your smooth-talking salesman turn feature requests into profitable change orders.
  • Berserk: Just like these warriors sometimes gained sudden bursts of strength before every battle, your evangelists can sometimes beat the competition even when the odds aren’t in your favour.
  • Bivouacking: Just like invading armies would sometimes build encampments to fortify their defenses, your account managers are masters at placing on-site consultants to fortify yours!
  • Commando: Like the marines, your analytics team, with more training than your competition, can beat the market hands down with fewer resources (allowing you to outperform your peers).
  • Diplomat: Your customer relations are so good, no one can encroach upon your customer base! Your smooth-talking sales team should be in public office!
  • Dragon Master: One of your CXOs is a legend in the space, and never loses the one battle he chooses to engage in, just like the mythical warrior who rode the dragon never lost.
  • Flying: Your command of the air, also known as your no-limit travel pass, gives you a larger territory in which to trade.
  • Forest, Hill, Swamp: Just like certain people are suited for certain terrains, your sales team does better in certain verticals than others (and makes a lot more money from a lot less effort).
  • Fortified: Just like conquering armies would sometimes build an almost impenetrable fortress from which they could rule their newly conquered land, you can dedicate your efforts on a marquis account and become so embedded therein that the account becomes almost impossible to steal.
  • Heroic: Just like mythical heroes could’t be conquered, the efforts of your two best sales teams, and their House of Lies, are unparalleled and can’t be challenged.
  • Merchant: Like the great merchants of legend, you make more profit on every sale than the people you are trading with.
  • Mounted: Just like a mounted army was more effective than one on foot, your big data advantage crushes the uninformed competition.
  • Pillaging: Just like the Vikings would loot, when you conquer an account you always find integration and data maintenance efforts that double your profit.
  • Seafaring: Just like the most successful merchants in ancient times always rules the seas, your command of the sea allows you to trade where others can’t.
  • Spirit: Just like spirits never die, your on-site consultants are so knowledgeable in their domain that even when a competitor manages to sell their product, your consultants are still maintained for their expertise and you play on.
  • Stout: Just like the army of anubis never needed rest, neither do your sales team who can swoop from one deal to the next without need for a recharge. They live on caffeine, adrenaline, and victory!
  • Underworld: The domain of the lawyers. ‘Nuff said.
  • Wealthy: Just like the tomb raiders of old, you come into sudden wealth when that one client decides to shift all its consulting to you.

It’s a small world
But it’s the only one we’ve got
  Huey Lewis

1 For this post, we are limiting ourselves to discussion of the 2nd Edition of the original Small World and not Underworld, Realms, or the various expansions such as Cursed and Be Not Afraid!

2 The original series:
Part    I: Ticket to Ride
Part   II: The Settlers of Catan
Part  III: Munchkin
Part  IV: Castle Panic
Part   V: Small World
Part  VI: Zombie Dice, Tsuro, and Get Bit!

… and the new series to date:
Part  VII: Upon a Salty Ocean
Part VIII: Agricola

Ocean Freight Capacity is On the Rise … But the Consequences Are Unclear

South Korean shipyards are busy churning out Maersk’s “Triple-E” class, which at 400 meters in length are the world’s biggest Super Post-Panamax ULCV (ultra-large container vessel) container ships; new Super Post-Panamax ship-to-share cranes that can lift up to 65 tons (or more) are being installed at ports around the world; the Panama Canal Capacity is doubling its capacity in 2015 (and the average vessel calling on the US East Coast is expected to double in capacity from 4,500 TEUs to 9,000 TEUs); and North American Eastern ports are expanding up and down the coast.

This means that the capacity to do more global trade, both across the Atlantic and the Pacific, will soon be here. If trade doesn’t increase as fast as the big ocean carriers are predicting, even though fuel costs are rising, it’s likely that costs will remain stable, or even decrease slightly, despite inflation, as carriers compete to keep their holds full. If trade increases at the predicted rate, it is likely that costs will continue to rise at a steady rate. And if trade increases faster than expected, it will only be a few years until the major ports are again congested and growth potential flat (unless you take advantage of ports like Halifax).

What will come to pass, it’s hard to say, but not being aware of the potential for anything to happen where ocean freight is concerned is a risk. But it’s not the only risk to the viability, and cost, of your supply chain in 2014. It’s just one in dozens. There are a number of other significant risks that your supply chain could be facing in 2014, each with its own cost impact. If you would like some insight into what 13 other risks are, and what you can do about them, download SI’s latest white paper on the Top Ten Transitions To Tackle in 2014 to Tame the Tolls, sponsored by BravoSolution. (Registration Required) The follow up to last year’s Top Ten Things to Do in 2013 to Control Costs, this white paper looks at the state of the market one year later and provides you the foundations you need to attack the forthcoming challenges of 2014 head-on.

You Don’t Need Nuevo Esquema de Empresas Certificadas to Improve Cross-Border Shipping with Mexico

You just have to make sure that that the goods are picked up with a destination in the United States, not near the Mexican border, even if the customs broker tries to insist that the goods have to stop at a location near the border for dreyage or inspection under current regulations. The reason your broker wants the goods to stop at a Mexican border destination like Nuevo Laredo is because you have to pay the IVA (Impuesto al Valor Agregado), Mexico’s Value Added Tax, which he will then get a tax credit for when he ships the goods out of the United States.

Even though the proposed reforms in Nuevo Esquema de Empresas Certificadas, include:

  • flexibility on location,
  • direct clearance by companies,
  • pre-validation of electronic import and export data, and
  • the need to use a Mexican customs broker on the U.S. side of the border to release goods for entry into Mexico is eliminated.

At the end of the day, it doesn’t matter if these rules are in effect now or not or if you have to use a Mexican trucker to move your goods, it matters whether or not you have to use a Mexican broker that insists on shipping your goods to a destination inside the Mexican border to collect IVA and dreyage at your expense. It’s like Mr. Locke pointed out in his piece on Cross-Border Shipping with Mexico last fall: some of the issues … are common in every country and the Mexican trucking industry is changing. A properly run IPO will get on-time delivery to your US customers in the 98% range over long periods of time … and that includes supplier performance, cross border performance and logistics performance in two countries and it will do so quite affordably if you’re smart about how you do things.

While the Nuevo Esquema de Empresas Certificadas, should it come into effect by year end, will make shipping easier, by making sure you’re doing everything right, and not using a double-dipping customs broker, you can improve cross-border shipping, and the associated cost, with Mexico now.

Just Like There Is NO Free Lunch, There is NO Free Shipping!

Paul Downs is right, There is No Free Shipping. (In fact, the Free Shipping Amazon Prime service is so profitable that Amazon is planning to raise their prices and profit off of their best customers even more!)

Even though shipping is no where near as complicated and human intensive and error-ridden as it used to be (provided someone scans the damn code, reads the response, and loads the item into the designated truck), it’s still costly, and will always be because:

  • Every form of transportation requires a vehicle*
    and all vehicles have acquisition and maintenance costs.
  • Every vehicle requires some form of power
    and all forms of power have a cost, even if they are based on renewable resources (as someone has to build and maintain the windmill). So, even if your item can be shipped locally on a hybrid powered by renewable energy, the cost will not go to 0.
  • Every vehicle requires an operator
    even if that operator is the programmer maintaining the system controlling the drone, and operators need to be paid.

This assumes you are shipping a normal, everyday item that is typically ordered from an online merchant and for which packaging and shipping has been optimized.

This doesn’t account for the situation where you are ordering a fragile item, which may need extra, and/or special, packaging, an oversized item, which can’t just be tossed in the mail or picked up in a normal UPS or FedEX delivery, or a very heavy item, like the custom-made conference tables that poor Mr. Downs had to ship across the country at a time where piece-shipping was even more of a pain the backside than it is now. In each of these cases there are extra costs in packaging, handling, pick-up, and delivery (as some items will require LTL freight through a local or national carrier).

In other words, shipping is expensive and anyone giving you free shipping is including it in the price, probably at a padded mark-up. So don’t fret the shipping, fret the total cost of the purchase relative to the value received. Sometimes if you shop around you can get a better product at a lower overall price, shipping included. (Going back to Amazon, it’s amazing how much some of the third party merchants that use Amazon’s Prime Shipping mark up their merchandise to cover the shipping costs. the doctor has seen $40 to $60 small items that ship for a few dollars almost double the MSRP, some of which even ship for free at half the price on other sites, because the online retailers are still making a profit if they can get someone to pay MSRP.)

So when you are buying a commodity or a consumable, whether for personal or business use, always look at the TCO. It’s often the case that a supplier who breaks out shipping is attempting to keep costs low across the board for both parties. That’s the type of supplier you want to deal with.

* Since we are talking about shipping and anything that can be walked down the street by a human is not considered shipping for Procurement and Logistics purposes.