… like a toilet. And absolutely full of (bull)sh!t.
Now, some readers will feel this topic is inappropriate for Sourcing Innovation. However, regardless of your personal view on the subject, it is a valid one given the continuing legalization of Marijuana around the world, and, more importantly, the fact it has medical uses. If you are personally against it, you can avoid the industry. But a healthcare provider cannot, especially once a licensed medical doctor has prescribed the drug.
As a result, today we welcome a guest post from Brian Seipel a Procurement Consultant at Source One Management Services focused on helping corporations understand their spend profile and develop actionable strategies for cost reduction and supplier relationship management. Brian has a lot of real-world project experience in supply chain distribution, and brings some unique insight on the topic.
(Dear reader: I need you to know how hard it was to resist writing a pot-infused pun into my headline.)
There are a lot of headaches attached to supply chain and distribution, faced by distributors and their clients alike. I can list a few, not that I likely need to – most readers will be familiar with them:
- Regulations are, bluntly, a pain in the ass. This one doesn’t need much of an explanation. From city to city, state to state, country to country, there are a lot of rules to follow, and a lot of frustration for anyone who doesn’t dot the right “I’s” or cross the right “T’s.” If compliance is key, then regulators must have some pretty heavy doors.
- Supply chains are often pretty inflexible. Any hiccups along the way can be devastating and, while good planning can ease the pain, nothing is sure fire. Want an easy example? For those in the north, think back to the last bad winter you faced. Any seafaring shippers can point to the last hurricane that graced their shipping lanes. Probably enough said.
- Costs are rising. Fuel for trucks and wages for their drivers have frequently been a concern. Adding some strategic creativity to your supply chain can help stretch dollars, but the rubber can’t meet the road without expensive fuel to get it there. And a driver, of course, to keep it there.
- Forecasting can be tricky, and demand can outstrip supply. Predicting demand (and predicting the uncertainty in that prediction) are crucial to gaining efficiencies in your supply chain. It can also be very difficult, leaving many to base decisions on assumptions and gut checks. One known factor at play here is the fact that demand far outstrips supply. There’s a shortage of truck drivers out there, and that isn’t good for anyone trying to move shipments.
Again, I likely didn’t need to remind any of you of these and many other challenges your supply chain faces. One thing you blessedly don’t need to worry about, however, is committing a felony just for shipping product.
In the Age of Legalized Pot, Distribution will be … Tricky
Sorry to bury the lead, there. However, I think it was important to do so. Given all those issues above that we all face, at least we can keep in mind that “someone out there has it a lot worse.”
You think regulations on your end are bad? States can barely get their own minds made up about the legal status of Marijuana, and that’s not even considering the fact that the stuff is still illegal on a federal level, regardless of what the states decide. That brings the regulatory landscape to a whole new level. On that note, what do you think the legal ambiguity means to an already fragile supply chain? Distributors of marijuana face a level of uncertainty not seen elsewhere.
If America has a truck driver shortage, imagine adding felony charges, stiff fines, and jail time into the equations – you can’t fault the labor pool for being cautious to enter this new arena. And even if you solve these supply chain risks in the here and now, predicting the demand of a product that is legal today but potentially a crime again tomorrow would make the best soothsayer’s head spin.
Still, this is an emerging market that has caught everyone’s attention. As Procurement pros with an eye on industry news and trends, this growing industry is, at a minimum, an interesting one to keep an eye on. So let’s dig a little further.
Weed Distribution: A Brief Review
To take a closer look, let’s travel to California’s sunny coastlines. It’s weird to think of the marijuana growers and dispensaries dotting the golden state as mon-and-pop outfits. “Not my parents,” right? Still, the term applies. Most don’t have the resources nor inclination to own most of the vertical elements of marijuana industry. Many dispensaries are happy to leave the cultivation and processing of marijuana plants to growers and act simply as the retail operation. Many growers simply want to focus on producing a high quality product, and have little time for the retail side of it all.
On one hand, it makes a lot of sense for the two to meet in the middle, forming partnerships. On the other, however, it can be painful for an organization on one side to deal with a dozen small outfits on the other. Not to mention the fact that some of those small outfits may land on the weaker end of the business acumen continuum. Besides, neither end necessarily wants to deal with the tax and regulatory management or logistics of the industry.
Enter California’s Cannabis Distributor License. Organizations under this license take up this relationship, and work with growers and dispensers to not only manage the logistics of the industry, but also myriad steps along the way – before handling the actual shipments, these organizations may also take part in the processing and packaging of the products, performing required quality control measures, and deal with the regulatory hassles that come with the territory. Just as importantly, growers and dispensaries can get a range of products from a much smaller, more reputable source.
This is a win for all parties involved. So, what is the issue?
For one thing, the California supply chain is being disrupted by a – very relatable for the rest of us – greater demand for distribution than there is right now. Plenty of dispensaries stocked up on product early on to ward against disruption, but there simply aren’t enough operators being granted licenses to keep the pipeline full.
This shortage isn’t the only concern. Plenty of attention is paid to high tax rate on one side and a banking industry that refuses to get involved in an industry still illegal on a federal level on the other. Both factors are squeezing the industry from a financial perspective.
A Look towards the Future
You may be asking, “won’t all of this get better as more states legalize?” This may be true over a long term. However, the federal government isn’t budging so far, which means every state is an island in terms of marijuana distribution. It wouldn’t matter if two neighboring states were both weed-friendly. That adjacency won’t count for anything, as state borders fall under federal jurisdiction. Hell, don’t even think about getting near some state borders as a cannabis distributor – simply approaching a border crossing zone between countries could land you in hot water, even if the distribution of marijuana within that border state is legal.
So let’s look towards what that longer future could look like. The biggest “if” factor out there is regulatory. Either states get their own ducks in a row and the federal government follows suit… or they don’t.
If they do, the cannabis distribution market could be a huge industry (we already see it growing quickly, albeit not quickly enough, in California). Limit the number of hoops to jump through and clear the way for distribution from a legal standpoint, and watch an industry thrive. If they don’t, however, I can see a slide back into the black market, regardless of the legality on a per-state basis. The lack of regulation and taxation could be too much of a draw for some to ignore.
And that would be a shame – from a quality and safety standpoint for the consumer and a revenue standpoint for the state, there are a lot of reasons advocates across the industry and interested in its success.
Spend Matters recently saluted the value leaders — SolutionMaps Best Performers — in the recent release of Q3 Solution Map. But as the Consulting Lead Analyst for the majority of SPT, the doctor wants to make one thing clear. SolutionMaps are a badge of honour for all those that participate.
Solution Maps are not your typical tragic quadrant or grave reports, chronicling arbitrary notions of “market leadership”, “vision”, or “revenue giants” of days gone past, with fuzzy definitions of fuzzier metrics highly dependent upon analyst interpretation of both vendor capabilities and customer feedback, and fuzzier definitions of inclusion criteria that can change from report to report.
They are highly objective technical analysis of very specific technical requirements with pre-defined scoring scales that allows analysts to objectively rank all vendors on the same scale crossed with raw, unfiltered, unbiased, customer feedback where raw scores are averaged by vendor — and then all these cross-products are mapped against each other using the center point on each of the two dimensions as the average.
And when you consider that the technical scores can be composed of anywhere from 100 to close to 1000 data points (depending upon whether a vendor is doing a single map or the entire set of S2P maps), you can see this is a monumental effort. The capabilities associated with every question must be clearly documented (and this can take a paragraph or two per question), exhaustively demoed, and the details maintained over time … because the analysts verify each and every claim of significance. Each and every claim. (In fact, some vendors claim responding to one of our RFIs can be more intensive than responding to an RFI from a fortune 500.)
And considering that three of the RFIs were written by the doctor, and a fourth co-written by the doctor and the maverick, you can rest assured that these questions are not broad high-level capability requests but detailed technical requests that must be answered with precision.
So, yes, all vendors who appear in a SolutionMap quadrant — be they solution leaders, customer leaders, or value leaders — have earned a badge of honor, and you should feel free to hail them all.
Every day, SI is becoming more convinced that if you want your Supply Chain to be a success, you need to ride the rails. It used to be if you were shipping goods long-haul over land, you’d ship them by train. There was no long-haul trucking and air was just too expensive. But then the war ended, Dwight D. Eisenhower championed the National system of Interstate and Defense Highways, the Federal Aid Highway Act of 1956 came into effect, long-haul trucking became an option, buses became more popular than trains for many trips, the railroads started to struggle financially, and ground eventually overtook rail for most cargo in the US.
And today, people in North America associate trains with the Wild, Wild West despite the fact that rail is, by far, the most cost-efficient way to move cargo over ground for distances in excess of 500 miles. It’s also typically the best choice for intermodal ocean freight as the major rail networks will not only have their terminals in the ports, but SLAs (Service Level Agreements) to make sure cargo is quickly transferred from ship to rail-car. For example, agreements between the Port of Halifax and CN Rail gives you a double-stack rail-service direct link to Chicago in 71 hours, which is typically a 3-day drive when you factor in daily driver limits and border crossing.
Why is SI becoming more convinced that Rail is the Future? Three reasons:
- Fuel Efficiency
Efficient trains can move a ton of freight nearly 450 miles on a single gallon of fuel. Find a truck that can do that!
The railroads control the rails – and can schedule them to maximize capacity and prevent traffic jams that can delay trucks for hours or more. Plus, well maintained lines and trains that keep to schedules suffer significantly less accidents than traffic on the road.
- Adoption by the East
While the young and immature west might have dumbly abandoned trains just like it abandoned trams (and replaced them with gas guzzling polluting busses), the East is investing Billions in new (high-speed) rail lines everywhere. Consider the amount being invested in the Kunming-Singapore Railway with Laos alone committing to invest 6.2 Billion on the 260-mile segment between Kunming and Vientiane straight through the mountainous region of Northern Laos. Think about that. The GDP of Laos is only 9.3 Billion! That’s a huge commitment for a country the size of Laos, even if the commitment connects China to Thailand and will capture a sizeable portion of the 4 Trillion worth of imports and exports that flow into and out of China. This 6.2 Billion dollar railway will require 196 km of blasting and will create 76 tunnels. To put this into perspective, combined they would form a tunnel long enough to connect Korea to Japan under the sea.
It’s time to ride those rails! All around the world!
In our last post we reminded you that there are valuable benefits to e-Procurement systems, as evidenced by the fact that many organizations are claiming to have saved millions of dollars thanks to their modern e-Procurement systems. This is great, but one shouldn’t just look at the savings, because if you spend enough on anything, you will likely show some savings for it. The real measure is the ROI.
And when you break it down as to where the ROI comes from, you see that it’s possible to get almost the same benefit from pretty basic systems that enable the proper processes and provide the right insight, often at a fraction of the price tag that comes with the big P2P/S2P systems. This means that the organization is not getting the ROI it could be — and isn’t the smartest business move to always chase the biggest ROI? (Since that leaves more money on the table for other high-performing initiatives?)
Yes, it is. So does this mean you go with the cheaper systems? That depends. On what? On what else the integrated system brings, your ability to use it, and your ability to define more sophisticated — and more appropriate — ROI models. If the benefits you expect to take advantage of in the beginning are few, and there are lower-end systems that give you 80% or more of those benefits for a fraction of the price, maybe you should acquire a low-cost SaaS subscription to a lower-end system for a few years. Reap the reward, improve your Procurement proficiency, and when you are ready to take advantage of more benefits, then you can upgrade to a bigger better system.
For example, a bigger, better, more integrated system can also bring the following benefits:
- negotiation management and contract creation support — integrated redlining, audit trails, e-Signing
- centralized supplier data and scorecards — make better informed, more risk averse decisions and identify opportunities for non-risky supply base consolidation and volume leverage
- wider adoption throughout the enterprise — this is important especially when department managers are authorized to do their own purchasing up to 10K or 25K …
- … and a slew of others …
But only if the organization is ready for them. In other words, in order to determine if an e-Procurement system is the best buy, the organization needs to evaluate the solution against an ROI model that accurately models the benefits its able to capture, not the benefits that are theoretically there.
In other words, just like there is still no one-size-fits-all P2P/S2P solution (and that’s why the doctor works with Spend Matters to make sure Solution Maps accurately capture and convey the differences), there’s no one size fits all ROI model either. Just because a competitor saved 9M on a 1.5M investment and saw a 6X return, that doesn’t mean you will. You have to take your time, do the proper evaluation, and run the proper analyses. That’s the only way to truly benefit from e-Procurement.