It’s been six (6) years, six (6) months, and six (6) days since SI published it’s first post. Religiously speaking, I believe that means SI should be evil today. As a blog, this presents SI with a bit of a conundrum. How can a blog be evil? A few years ago, SI would not have been able to answer this, but today, thanks to Twitter, it can. A blog can be evil by publishing its entire post to Twitter, and forcing you to read it in 140 character increments. Quite evil in fact. So, if you want to read the rest of today’s post, and find out two things that will tank your Supply Management Organization in 2013 if you’re not ready, you’ll have to follow @sourcingdoctor on Twitter! ha, hA, HA, HA, HA!
Category Archives: Market Intelligence
If America is Going to Be Number One Oil Producer By 2020, Will Canada Be Number Two?
According to this recent Economist Article on Energy to Spare, America is on track to produce all the energy it needs at home. Considering that Americans burn three and a half times as much energy as the average Chinese person, and hasn’t been able to meet its energy needs in over half a century, this seems like a tall order. Especially since, demand has more than doubled since America was last able to satisfy its energy needs from domestic sources.
However, the International Energy Agency is forecasting that America could become the world’s largest oil producer by 2020, when it could be churning out 11.1 Million barrels a day, and be energy self-sufficient by 2035. Coupled with the fact that demand is waning due to increased fuel efficiency, the prediction is that rising production and falling demand will equal out in 2035.
It’s an interesting prediction, but so is the prediction about the Athabasca Oil Sands north of the American border. Right now, production is about 1.3M barrels per day, but estimates are that production can get to 5.1M barrels per day. As per this article in the Economist, on The Sands of Grime, Canada’s oil sands contain over 170 Billion Barrels of oil that can be recovered economically with today’s technology. With the third largest proven oil reserves in the world, it’s quite likely that production can ramp up to make Canada at least fourth in oil production by 2020, with third place a strong possibility. Right now, Venezuelan production for 2020 is estimated at 6.5M barrels per day and Saudi Arabia, at close to 10M barrels per day, expects it can get to 11 M barrels per day (Source). With the difference between Canadian production estimates and Venezuelan production estimates for 2020 less than 30%, it would only take a 15% increase in Canadian production and a 15% decrease in Venezuelan production for Canada to edge in third.
Unless Saudi Arabian reserves are less than estimated, or Canadian production ramps up exponentially beyond expectations, we probably won’t make number two, but number three is a strong possibility.
Do We Have to Send CPOs to Disney for Training?
According to Steve Hall of Procurement Leaders, who was busy blogging while most people were off on summer vacation, the CPO’s challenge is to re-imagine supply chains. Traditional transformation is just not enough – you have to come up with radically different designs. You have to do for supply chains what Walt Disney Imagineering does for Disney – blending imagination and engineering in a unique way to create unique experiences with their creations.
It seems that according to Steve, rapidly escalating issues such as material shortages, commodity price volatility, increasing government regulation, and financial risk in the supply base cannot be tackled by current supply chains unless they are suitably re-imagined. I’m not sure I entirely agree.
It’s not that I disagree that CPOs will need more imagination, and more engineering skills, in the future, but we must remember that:
- material shortages happen all the time as a result of natural disasters, unexpected spikes in demand, etc.
- commodity prices go up and down as a result of shortages, or expected shortages, or expected surpluses
- government regulations are never-ending – going back decades
- financial risk has always been there – it’s just at a high-point now due to global economic instability
In short, these risks are not new. They’ve been around since trade began, we’ve had, and developed, methods to deal with them since trade began, and we’ve survived. The only difference now is that all four risk categories have simultaneously hit (near) all-time highs — and the situation is only expected to get worse. Plus, whereas shortages always disappeared in the past when production ramped up, in some categories, either due to space restrictions, climate issues, or production issues, the shortages are not going to go away any time soon. In some areas, there is only so much suitable farmland; in others, the climate is no cooperating, and others still, we can’t mine the materials as fast as we need to concern them. So, in these cases, we are going to have to engineer products to use less of these materials, or alternate materials, but this is as much of an engineering challenge as a supply chain challenge (and proof that Supply Management needs to be involved earlier in product development and closely collaborate with the rest of the organization).
In short, CPOs will need to use their imaginations more often and be more creative in their solutions when backed into tough corners, but it’s not time to throw away the time-honoured supply management toolkit just yet. We’ve faced many of these problems before (even if it has been a decade or two), and many of the solutions are still relevant.
The First 100 Days
One week from today, at 11:00 a.m. GMT, in The Salle de Fete Private Dining Rooms in Kettners, on Romily Street in London, England, Bravo Solution is hosting the sixth and final instalment of their Real World Sourcing Series Expert Briefings on The First 100 Days of your tenure as a new CPO.
In this talk, the presenter, Guy Allen, will discuss the priorities of a new CPO against two very different contexts, one where there is a burning platform, requiring immediate action and the other where there is a little more time to plan and get it right. Both situations are difficult. In the first, the CEO/CFO is likely expecting rapid results, and in the second, the CEO/CFO is likely looking for a plan of action to deliver long-term, sustainable results. In either case, credibility with key stakeholders will be key.
A specialist in cost transformation and procurement, Guy Allen, now a managing partner at 4C Associates, has considerable first-hand experience as a senior Procurement professional at Fujitsu, Abbey, and GlaxoSmithKline.
This series is put together quite well. The last presentation was by Peter Smith of Spend Matters UK on “Measuring Procurement’s Performance” and included a great segment on 12 ways that buyers can falsify Procurement Savings (and get themselves in trouble if it’s ever discovered). The talk categorized spend into Opex vs. Capex and One-offs vs. Recurring and presented methodologies to accurately measure and report savings in acceptable, defensible ways.
If you’re in or around the London area, and are a new CPO, or a senior Director / VP vying for a CPO job, it would be worth checking this event out as the first 100 days is critical to your success as a CPO in an organization. In today’s tight economy, even if the C-Suite is not expecting rapid results, they are expecting rapid acclamation and signs that their faith in you will deliver results in the long run.
The Real Problem With Most of Today’s Supply Chains?
They’re too fast and too slow.
And no, this is not an oxymoron.
As highlighted in this recent post on Supply Chain Digital, the product life cycle is in decline now that 50% of annual company revenues across a range of industries are derived from new products launched within the past three years at the same time that there are 250 supply chain disruptions to public company supply chains every month (Supply Chain Brain) that result in shareholder value dropping by 10.28% on average (SAS) and that takes the company an average of 50 trading days to recover from.
They’re too fast. There are too many products being introduced too fast. For example, how often do you need a new phone anyway? It’s a damn phone. And a dress shirt is a dress shirt. Now, it’s true that you need to constantly improve computing technology (to keep up with the bloatware), but do you need to change the form factor every year? Sure you need to increase the memory, the processing power, and the storage, but there’s no reason the form factors can’t stay the same — especially since density keeps increasing.
They’re too slow. The average company can’t respond to supply chain disruptions or market shifts fast enough to prevent significant stock-outs, significant drops in revenue, or reputational damages that take it, on average, two months to recover from.
Companies need to balance the competing agendas of innovation, renovation, and reverberation. While constant product innovation is needed, the innovation needs to enhance the product lines and not destroy them. Since research is expensive, the gains from each effort need to be maximized. That means reusing designs, components, and innovations to the extent possible for more than just a year or two.
Furthermore, some things just can’t be reinvented. A toaster is a toaster is a toaster. A new design every year isn’t going to drastically increase revenues and is, to be blunt, a waste of time.
Unnecessary efforts need to be eliminated and redirect to risk management. There’s not enough focus on risk or the mitigation thereof. For example, the benefits of an innovation efforts can be eliminated by the failure of a strategic supplier and the expected profits from a new a product launch can disappear if a supply disruption translates into stock-outs across the board in peak seasons.
In other words, your supply chain needs to slow down and speed up.