Category Archives: 101 Damnations

100 Procurement Damnations Down!

Just as 2015 came to a close, our last post chronicled our 100th Procurement Damnation that you, as a Procurement professional, have to deal with on a regular, if not daily, basis. That’s an almost unimaginable number of damnations that torment you as you attempt to do your job and why only the best of the best can be Procurement Professionals!

Since there are so many damnations (that it took us an entire year to chronicle them all) we thought it would be a good idea to summarize the complete list in one post so that you could go back and review any posts in the series that you might have missed during your hectic conference and vacation seasons as this was SI’s biggest and most aggressive series to date, much longer than both the 15-part “Future” of Procurement series and the 33-part “Future” Trends Expose series (that followed) combined and double the length of the maverick‘s 50 Shades of Pay series (assuming it gets completed) which, to date, only has 20 parts up and available for your reading pleasure.

There’s more that could be said, but as we’ve already said so much, without further ado, here are the links to all 100 Procurement Damnations for your reading pleasure.

Introductory Posts

Economic Damnations

Infrastructure Damnations

Environmental Damnations

Geopolitical Damnations

Regulatory Damnations

Societal Damnations

Organizational Damnations

Authoritative Damnations

Provider Damnations

Consumer Damnations

Technological Damnations

Influential Damnations

Bonus Posts!

Geopolitical Damnation 30: The TPP Poison Pill

Sourcing Innovation first brought this up back in late 2013 when it pointed out this great post by Nathan Lee that provided a simple guide to the Trans-Pacific Partnership Trade Agreement “benefits” which is an agreement being negotiated in secret that is lopsided towards the corporation and essentially gives them more rights then individuals, communities, and in some cases, entire governments. Proposals even include giving corporations the right to sue governments if laws put citizens or the environment above corporate rights. The piracy laws are so draconian that you can be criminally charged if copyrighted material ends up on your computer without your knowledge or consent. (For example, if you visit a website that was hacked and malware on that site uses your computer as part of a bittorrent network without your consent and stores part of a copyrighted file, the owner, with the backing of the RIAA or MPA, can have you charged criminally even if you didn’t ever access the file — not the hacker that created the malware and forced copyrighted content onto your computer without your knowledge or consent).

For those of you who do not yet know what this is, it’s a proposed regional and investment treaty between twelve countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam that is being conducted almost entirely in secret despite the far reaching implications that are being discussed and the considerable impact it could have on every citizen of every country participating as it covers a broad range of issues including, but not limited to, agriculture, industrial goods, intellectual property, investments, labour, services, and telecommunications.

As a result, everyone, and every supply chain, has a reason to dread, if not fear, this act. The Electronic Frontier Foundation (EFF) has a good summary of the issues corresponding to intellectual property on their What Is TPP page as the act would rewrite global rules on intellectual property enforcement. The IATP does a good job of overviewing some of the agricultural issues in its article Whose Century is it? where it notes that nearly every country involved has food safety regulations on the chopping block as the TPP proponents are arguing that free-trade and cheap food is the best thing for a country, regardless of economic or health consequences. Every year there is a new salmonella, e-Coli, mad-cow, or similar outbreak of a deadly food-borne infection — do we really want to weaken safety standards? With respect to labour, while some US negotiators are apparently demanding meaningful and enforceable worker protections, many of the other countries are not and, more importantly, most of the developed countries are claiming that increased worker mobility will encourage a disruptive inflow of low-skill workers from developing countries and pushing for less worker mobility in our globally connected world (while the less developed countries want to level the playing field).

Regardless of what gets agreed to, the sheer fact that this trade agreement will override existing law presents every Procurement organization with a minefield just waiting to be activated. Will your supplier still be able to afford its current pricing? Will it even be able to supply you? Will you be able to expect the same quality and safety standards? Will new sources suddenly become available? How will they change the supply-demand balance? Will new tariffs materialize? Will you be forced to abandon your “Buy American” policy? Will you be forced to consider suppliers you don’t want to? All of these questions and dozens of others become valid the minute this act, negotiated in secret where it is pumped full of poison pills, gets signed into law.

If the (wiki)leaks are even remotely reflective of what’s in the act, it might make the controversial, scary Orwellian provisions of the Patriot Act look like a cuddly bunny in comparison!

Environmental Damnation 24: Rare Earth Metals

As defined by Wikipedia, a rare earth metal (REM), or rare earth element (REE), is one of a set of seventeen chemical elements in the periodic table, specifically the fifteen lanthanides, as well as scandium and yttrium (because they tend to occur in the same ore deposits and exhibit chemical properties). While many of these elements are relatively plentiful in the Earth’s crust, they are rare in that, due to their geochemical properties, they are typically dispersed and not concentrated in ore deposits that are (easily) economically exploitable.

They are a damnation because:

  • almost every piece of modern technology depends on at least one of these elements
  • many of these elements are in short supply and supply, based on current mining capacity, is expected to be insufficient as early as 2020 for some of these elements
  • many of them cost more than precious metals
  • on average, 95% (or more) of rare earth metals are now being mined and provided by a single country: China
  • … and China is considering export restrictions that could significantly cripple global production of modern technology if implemented

To illustrate just how important these metals are, consider the common uses:

Metal Selected Uses
Scandium aerospace, metal-halide and mercury vapor lamps, and radioactive tracing agents
Yttrium lasers, superconductors, microwave filters, and spark plugs
Lanthanum flint, hydrogen storage, battery electrodes, camera lenses
Cerium oxidizing agent, polishing powder, catalytic uses
Praseodymium magnets, lasers, carbon arc lighting, didymium glass
Neodymium magnets, lasers, didymium glass, ceramic capacitors
Promethium nuclear batteries and luminous paint
Samarium magnets, lasers, neutron capture, masers
Europium phosphors, lasers, mercury-vapor and fluorescent lamps
Gadolinium magnets, lasers, X-ray tubes, computer memory, neutron capture, MRI contrast agent, magnetostrictive alloys
Terbium phosphors, lasers, fluorescent lamps, magnetostrictive alloys
Dysprosium magnets, lasers, magnetostrictive alloys
Holmium lasers, optical spectrophotometers, magnets
Erbium lasers, vanadium steel, fiber-optics
Thulium X-ray machines, metal-halide lamps, lasers
Ytterbium lasers, decoy flares, stainless steel, nuclear medicine
Lutetium positron emission tomography, lutetium tatalate hosts

And every computing device requires magnetics, memory, and optimal transmission (and this includes your laptops, phones, cameras, cars, etc.). These days almost everything has a microchip with a persistent (flash) memory. So when you consider the five-pronged reality described above, rare earth metals are quickly becoming a thorny Procurement Damnation.

Regulatory Damnation #34: Tariffs

While taxes alone are not damning, as taxes, like death, are one of the only two certainties in life, tariffs, on the other hand, are one of the ongoing nightmares of the Procurement world. Tariffs make the complete personal income tax code of the United States look like a kindergarten book.

For example, the current HTS (Harmonized Tariff Schedule) of the United States is 3,536 pages. And that’s just the US HTS code. The 2007 LIGIE for Mexico is 684 pages, and there have been hundreds of pages of amendments since then.

With 196 countries in the world today, extrapolating, that’s over 200,000 pages of HTS / HS (Harmonized System Code) classifications that an organization needs to be on top off to determine international import and export duty rates. But that’s just the tip of the iceberg. It’s not just keeping track of rates, it’s figuring out the rates that apply. For example, let’s say you want gloves, is it:

    4007.11.70 Leather - full grains   - glove and garment
    4017.12.70 Leather - split grain   - glove and garment
    4107.19.70 Leather - whole hide    - glove and garment 
    4017.91.70 Leather - other         - glove and garment
      ..
    4023.10.40 Apparel - articles      - gloves, mittens and mitts
    4203.29.XX Apparel - cowhide       - gloves
      ..
    6116.10.08 Gloves  - coated        - other
      ..
    6116.92.08 Gloves  - cotton        - other
      ..
    6116.93.08 Gloves  - synthetic     - other
      .. 
    6116.99.35 Gloves  - other textile - other
      ..
    6216.00.08 Gloves  - impregnated   - other
      ..

there are so many (dozens upon dozens of) classification of gloves, that it’s hard to find the right one – and if you pick the wrong one, and especially if you pick the wrong one with a lower tariff rate, then your organization is at risk of significant fines and penalties.

So how do you deal with this? There’s only one way — get a trade market intelligence solution which is kept up to date by people around the globe as classification updates and rate changes come up and easily searchable by the average Procurement professional who is not an expert in H(T)S code structures. There aren’t a lot of options, but SI recently covered one company, Integration Point, that has been building such a solution for almost 10 years. Why do you need a third party? Integration Point, which maintains a global content team, made over 2 Million updates to their global H(T)S code database in 2014 in an attempt to keep up with the never ending string of updates that are regularly released by countries around the globe. (Some countries release updates on a weekly basis. For example, Brazil once updated its HS code 80 times in one year.)

Environmental Damnation #19: Water

Water, water everywhere
and not a drop to drink

There are dozens upon dozens of challenges being thrown at you as a Procurement professional on a daily basis. We’ve said it before and we will say it again. These challenges will cause you nothing but grief and agony as these damnations, collectively, do nothing but divert your attention from critical strategic planning, (should-cost) modelling, and supply assurance.

Fresh Water is quickly becoming the scarcest resource. While nearly 70% of the globe is covered by water, less than 2.5% of it is fresh. Moreover, only 1% of our freshwater is easily accessible, with the rest trapped in glaciers, snowfields, and the earth itself. In essence, as pointed out in a National Geographic article, at most 0.007% of the planet’s water is available to fuel the planet’s 7 Billion people. At least 1 Billion people worldwide lack access to fresh water, and up to 3 Billion face water scarcity issues at least one month of the year. And this situation is only going to get worse — by 2025, over 5 Billion people may be dealing with water scarcity. Not food scarcity — water scarcity. The only thing more important to life than water is air. So the fact that it is expected to be so scarce should be, to be blunt, scaring you sh!tl3ss.

But it’s not just we as individuals that need fresh water to drink (and bathe and, to some extent, clean), and the farms that need it to grow our food, but our organizations need it too. When it comes to modern production, water is needed to clean and cool modern production plants. For example, not only is it impossible to make semiconductors and modern computer microchips in anything other than an ultra-clean facility, but ultra-pure water is required during production. Chips, and the electrical pathways that power them, are built up in layers and need to be washed clean of the solvents and debris from the layer just completed before the next layer can be started. This can only be done with ultra-pure water — which is so pure that it is unsafe to drink (because water is the universal solvent and perfectly pure water would actually leach minerals and vitamins out of your body, instead of adding them as vitamin and mineral water does).

The production of ultra-pure water requires 12 filtration steps beyond reverse osmosis, a process that is often used to turn ocean water into drinkable water. Each of these steps requires as input water of a certain purity. And even reverse osmosis requires water of a certain purity, or the equipment has to be shutdown and cleaned too often, making regular, cost-effective production difficult.

But it’s not just semiconductor and microchip plants that require fresh, clean, water — data centres, which use water cooling, do too. Salt water corrodes the cooling system, and a single leak could short out an entire facility (if it was over the main relay station). Even if your facilities don’t rely on freshwater, chances are that your suppliers’ facilities do. A lack of freshwater in your supply chain can result in unexpected disruptions, and if it is needed for cooling plants that can overheat, even disasters.

And it might not be so bad if this was the extent of the risk. But a lack of freshwater can cripple an entire economy. As per this recent article over on EurActiv.com, the entire German economy is vulnerable to global (fresh) water scarcity.

According to an author of a recent WWF Study (in German), released last August, many German economic sectors are both responsible for and affected by the international water crisis, from the food sector to the auto and fashion industries. (Almost 9,000 litres of water are needed to produce one kilogram of cotton in Pakistan!)

Even Southern Europe is running out of water. Currently, 80% of water is used for agriculture in the region, and in some of these countries, there is not enough groundwater and desalinated seawater is needed to make up the difference.

And the water shortage is further contributing to the climate change that may have caused it. As pointed out in Wikipedia, the resulting aquifer drawdown (and pumping of fossil groundwater from below the surface of the earth) increases the total amount of water within the hydrosphere subject to transpiration and evaporation, which upsets the climatic balance in ways yet to be understood.

And if you’re not preparing for the coming water shortage now, when it hits, it may be too late. You barely have time to get a drink, and now you have to ensure that the entire supply chain will have enough to drink in the coming years. And when you are surrounded by fire, this is not easy to do.

So what should you be doing? If your facility requires large amounts of fresh water, don’t depend on local city infrastructure to deliver it to you. Plan to build your own pumps and filtration systems to draw water from nearby lakes or underground wells. And if the facility is in a region that regularly experiences water storage, consider producing excess capacity and selling to nearby factories to reclaim your investment sooner rather than later.