Fifty Years Ago Today …

The 1964 New York World’s Fair comes to a close after a two-year run. More than 51 Million people attended the exposition designed to showcase mid-20th-century American culture and technology that is still inspiring some people today, as evidenced by its inclusion in Walt Disney Pictures recent epic film, Tomorrowland. While it was not sanctioned by the Bureau International des Expositions, it was the first time many of the attendees saw, and interacted with, mainframe computers, computer terminals with keyboards and CRT displays, and telephone modems when the few corporations that had computer equipment kept it in back offices.

Major exhibitors included General Motors, IBM, Bell Systems, Sinclair Oil, and Ford Motor Company — still big names in American Industry 50 years later. While it may have been a financial disaster, it’s legacy and remnants still live on today, with a handful of the pavilions being relocated to new homes around the country, including a ski lodge in western New York, a radio station in Wisconsin, a Hilton Hotel in Missouri, a Four Seasons Lodge in Missouri, a church in California, a science center in Seattle, and attractions at Disneyland.

These days there are conventions galore, but when was the last time there was a true international exposition that really tried to look ahead to what we could achieve with peace and prosperity instead of war mongering (and that people remember) ?

Societal Damnation 39: Brand

Joan Jett may not give a damn ’bout her bad reputation, because when you’re a rock star (or a bad girl movie star), that’s actually a good thing, but when you are a consumer-driven corporation, these days, that’s about the worst damnation that can be thrust upon you. Brand disasters can far outweigh the average 10%+ decrease in shareholder value found by Hendricks & Singhal back in 2003. As per a recent study by CIRANO on Corporate Reputation, not only is there an 80% chance of a company losing at least 20% of its value at least once during a five year period, a major incident that significantly impacts the brand can wipe out over half of a company’s value overnight! Just look at what happened to BP after the Deepwater Horizon disaster. BP’s share price experienced a 52% drop in 50 days. Brand has went from that crazy ethereal concept unnecessarily promulgated by marketing mad men to that very real, critical, corporate requirement that must be maintained at all costs. Why?

Bad press results in backlash and consumer boycotts.

Any indication that your corporation is not the most sustainable, ethical, and corporately responsible organization on the planet can land your organization in the news. A minor supply chain infraction will result in a back page story that will be picked up and circulated by bloggers and activists until every concerned customer notices it and decides to write you angry letters and stop buying your products, resulting in that 10% decrease in sales and value found by Hendricks & Singhal while major supply chain oversights such as using suppliers who experienced preventable (man-made) disasters such as the factory collapse in Bangladesh (which should have not only been condemned but demolished) or the Philippines factory fire (in an overcrowded factory with no fire exit) that resulted in large death tolls will get your organization in front page headlines. This will result in significant backlash and widespread consumer boycott. If consumers will boycott a franchise for its beliefs (such as the boycott of Chick-fil-A for its beliefs on same sex marriage, as opposed to an actual refusal to serve the LGBT community), imagine the backlash and widespread boycotts your organization is going to get if child labour, slave labour, or human trafficking is found in your supply chain as a result of lack of oversight.

Bad decisions result in NGO and governmental investigations, fines, and seizures.

If your company gets caught holding the bag when someone finds melamine in the milk, diethylene glycol in the toothpaste, or BPA in the baby bottle plastic, it’s going to have every governmental agency with authority investigating, watching, and looking for ways to fine it even if it was a supplier two tiers down in the supply chain that did the dirty deed. And every NGO in the sustainability and Corporate Social Responsibility space doing a 360-degree supply chain review to find out what other skeletons are hiding in your closet and what snakes are lurking in your supply chain. So, not only will the government seize any products it finds that violate any environmental laws and fine you as much as it can under environmental, supply chain, and human rights / trafficking legislation, but the NGOs will be feeding the media that will in turn be feeding the consumer backlash and consumer boycotts. Losses will multiply quickly.

And both result in lost investor confidence and severe value drops!

As soon as something goes wrong, even if Procurement had absolutely nothing to do with it because a decision was made, or forced on it, by another department and/or it followed organizational protocol in supplier evaluation and selection, it is going to be blamed by the Investors and the Board who are going to be quite perturbed at the egg on the company’s, and their, face, and want someone else to point the blame at. Procurement’s going to be hung out to dry and if the situation is perceived to be bad enough, someone is going to be made a scapegoat that will be sacrificed in efforts to appease the masses.

It’s extreme damnation, and any Procurement department that wants even the slightest hope of being able to deflect the blame is going to have to go well above and beyond the call of duty in supplier evaluation, selection, monitoring, development, and, if all else fails, dismissal if it wants to survive any attack on the corporate brand intact.

Economic Damnation 01: Fiscal Crisis

Bank Failure, which can be a result of fiscal crisis, is pretty bad, but the fiscal crisis that precedes it is often much worse. This is due to the fact that while a bank failure only affects the handful of companies that are using, and relying, on the bank, the fiscal crisis affects every company equally. No company is safe from a fiscal crisis — every company that does business in a country affected by the crisis is a company that is going to experience considerable supply chain impacts. Why?

Letters of credit become worthless

A letter of credit, which is a document from a bank guaranteeing that a seller will receive payment in full as long as certain delivery conditions have been met, is worthless in a fiscal crisis as sellers understand that the guarantee is only good as long as the bank is stable. But in a fiscal crisis, even apparently stable banks can become unstable so quick that a guarantee today might be worthless in a week when the bank, that over-insured buyers who are in danger of bankruptcy and in financial default, becomes unable to honour the letters of credit. As a result, no seller will be willing to take on additional letters.

Lending halts

As more and more companies begin to experience financial duress and become late, or default, on payments, banks will become very reluctant to lend additional funds as they will be short on cash and fearful of additional loss. As a result, companies that depend on that cash for payroll and day to day operations as they wait for customer payments will enter severe financial hardship, and their situation will worsen. These companies will then be unable to support their suppliers who will then be unable to deliver the products on time that the customers require before payment can be made, creating financial turmoil up and down the supply chain.

Corporations go into cash hoarding mode

As a result of the financial crisis that will result from the lending halts and the bank’s unwillingness to issue letters of credit, those corporations with cash will go into hoarding mode. Supplier payment cycles will be extended to 90, 120, and even 180 days and those companies that rely on the cash to survive, especially with few options, will be under even more undue hardship. So even if your company is okay, and doesn’t hoard cash and pays its suppliers on time, your suppliers could still be suffering as a result of most of their payments being delayed, and the actions of others puts your supply chain in jeopardy.

Consumers panic and stop spending

Eventually, when the fiscal crisis starts to enter panic mode, a large number of consumers, fearful for their jobs (as fiscal crisis almost always result in layoffs from cash-strapped or cash-hoarding corporations, take your pick), stop all unnecessary spending. As a result, any product line that your corporation makes that is considered unnecessary by a segment of consumers sees a drop in sales and all those nice rebates and discounts you negotiated based upon an expected volume commitment go out the window.

And since fiscal crises cannot be predicted, it’s another damnation that will drive you mad.

Societal Damnation 46: Mass Hysteria

While mass hysteria is a term that typically refers to collective delusions of threats to society that spread rapidly through rumours and fears, it also means unmanageable emotional excesses on a large scale, and both can be damning to your supply chain. Each of the following situations can significantly impact your supply chain in a negative way.

Fear of Your Product

If a rumour gets out that your product is dangerous to use, it can lead to mass boycotts and an immediate drop in sales whether the rumour is true or not. For example, let’s say someone claims that your bottles are laced with BPA that leaches at room temperature, your cell phones are not properly shielded and increase a person’s risk of brain cancer by 20%, or your toddler toys regularly break into plastic pieces with sharp edges that can be swallowed and cut and choke the toddlers playing with them and the rumour spreads across the internet at today’s internet speed. True or not, that could be thousands of lost sales in minutes.

Fear of Your Processes

Just ask the oil industry how well their operations progress when they want to start drilling, or even worse, fracking. And while the former can be quite safe with today’s technology, and the latter reasonably safe with the right geological conditions (with no nearby ground water reservoirs for the chemicals used in fracking to leak into, no underground caves that can rupture and cause sinkholes, etc.), many people, understandably, don’t like these processes and many more are just outright fearful. And they don’t stop at boycotts of your product. They hold protests and do everything legally, and sometimes, illegally possible to stop your progress.

So, if they fear that you are using a process that creates an unsafe product, that puts people, or animals, at risk, or that is polluting any part of the environment (air, water, or ground), they will speak out. And they will verbally, and sometimes physically, attack your supply chain (and the people who run it).

Fear of Your Ethics

Sometimes people will think you’re just out to make a quick buck, no matter what the cost, and you don’t care who gets hurt, or, more precisely, used, abused, and financially bankrupted along the way. Now, this may be true of your psychopathic CEO (who is, statistically, the most likely person in your organization to be a psychopath, even more so than the corporate lawyer as per our post on societal damnation #48: worker’s rights), but this is likely not true of you.

This poses a real problem during a strike or walk-out, legal or not, when the instigators, who may be delusional (and see themselves as the re-incarnation of Cesar Chavez) or may not, believe that you are going to displace and dispel them at any cost, possibly with force, and believe that their only option is to counter with force. This, of course, not only puts your supply chain at risk but your workforce at risk as well.

Craze for Your New Product

Sometimes hysteria swings in the other direction and instead of fearing your ethics, processes, or products, for whatever reason, everyone has to have your product — now. And we get what is now typically known as Black Friday Madness where people literally trample each other to death trying to get one of your products before the local retail establishment sells out. Now, you’re probably saying, how does this affect Procurement? Isn’t it the job of the retail establishment or sales and marketing to properly forecast demand and make sure there is enough and the public relations personnel to insure the message gets out that there is enough units to satisfy demand and no on needs to panic? Well, yes, but if there are not enough units by the release date, that’s Procurement’s fault and Procurement should know that when it comes to demand planning, the models typically go over the heads of most people in the organization and only Procurement, with its advanced modelling skills (that it applies daily in its Sourcing projects), is fit to check the model and make sure everything is as accurate and reliable as it can be. Procurement’s fault or not, we have the ethical responsibility to do our best to make sure no one else screws up on behalf of the company in a manner that puts people’s lives at risk (or the company’s brand reputation at risk either — we depend on that too).

Hysteria is very real, and since people not only run our supply chains, but provide the reason(s) that they keep running, hysteria is a very real damnation that we have to be prepared for.

Environmental Damnation 20: Oil & Natural Gas

Closely related to Economic Damnation #9: Oil & Natural Gas Reserves and Oil Price Shocks, Oil & Natural Gas is also an environmental damnation that hits us hard on the front end and hard on the back end.

In our economic damnation post, we talked about how the almost randomly fluctuating prices that can often double or halve within a year is a damnation that can wreak havoc with your supply chain. When prices double, your costs are going up, way up, and there’s nothing you can do about it. When prices halve, if you’re in a contract, you’re losing money hand over fist, possibly both hands over both fists if there was a fuel surcharge and the supplier refuses to remove it, claiming they are still in a fuel contract with their supplier and won’t see the price drop for a year. (And that’s why you always have to tie surcharges to market rates and monitor closely.) But that’s just the beginning.

Dirty Power

Oil and Gas is dirty power. Burning oil releases dangerous pollutants into the air that pose a risk to our health, a risk to our environment, and even a risk to machinery that requires clean air to ventilate. As a result, these are pollutants that, in many countries, must be captured upon their creation during the burning process by law. This requires expensive machinery that adds to production costs, maintenance costs, and overhead costs.

Disaster Risk

Oil and gas is explosive. Very explosive. It only takes a single miscalculation and your fuel, your factory, and, possibly even your workforce goes up in a hot fiery ball of liquifying flame and all that is left at the end of the day is charred remains of melted metal and smoke.

Shortage Risk

Reserves are limited. And so is our ability to tap them. There are only so many pumping stations, so many pipelines, so many tankers, and so many people to operate them. A single delay in transportation. A single accident that shuts down a pipeline or a pumping station and your supply can be cut off for days or weeks and your production shut down for that length of time.

Oil and natural gas negatively impacts your balance sheet on acquisition, and, if something goes wrong, on transport and utilization. But, in many places, it’s sometimes the only viable energy source at the organization’s disposal. (And why an organization with the dollars should invest in its own sustainable energy production methodology, and, if located in an appropriate area, solar, wind or hydro power to minimize its dependence on oil.) So, unfortunately, for the time being, it’s a double damnation that Procurement needs to live with.