Russian (Border) Trade Agreements Are Nothing New

So why is everyone fretting about the $20 Billion Oil Deal between Iran and Russia? Yes, it delivers another blow to the US-based petro-dollar, but is it really any worse than China and it’s efforts to not only reign in the value of the western dollar but control the valuation of its yen at the same time? We should not forget that the GDP of China is more than FOUR times that of Russia and that Russia and Iran used to be neighbours. Even though Russia is now two countries away from Iran border-wise — as it now borders Kazakhstan which borders Turkmenistan which borders Iran — it wasn’t always this way. The Russian Empire began to expand into what is present day Kazakhstan back in 1813 and essentially all of present day Kazakhstan was annexed by 1907. Similarly, Turkmenistan was annexed by the Russian Empire in 1881 and became a constituent republic of the Soviet Union in 1924, only regaining its independence upon the dissolution of the Soviet Union in 1991.

And Russia has a long history of either conquering, annexing, trading, or negotiating with its neighbours. For example, 691 years ago today, the Treaty of Noteborg was signed between Sweden and Novgorod (present day Russia, more or less), and for the first time the border between the two countries was regulated. The conclusion of the Swedish-Novgorodian Wars, the treaty awarded three Karelian parishes to Sweden who, in return, would stay out of the conflict between Novgorod and Narva (present day Estonia, more or less). In addition, both sides would refrain from building castles on the new border. So it should be no surprise that, given the opportunity to reclaim Crimea — and to do so relatively peacefully — that Russia took it or that they took the opportunity to trade with Iran on local terms.

But it’s not worth fretting about. One has to look at the bigger picture. When it comes to the BRIC, Russia is essentially the weakest player. India has considerably more population and a long-term outlook of becoming a top 5 GDP player. Brazil has a larger GDP (by as much as 20%) and very bright prospects as the new near-shoring destination for North America. And China has 4 times the GDP, 9 times the population, and a heck of a lot more clout when it comes to global trade!

So don’t fret about a 20 Billion Oil deal, the return of what is essentially a small province to Russia, or the fact that Russia has agreed to pay China in domestic currency. It’s a drop in the bucket. The real shocks to global trade will come from China and the new Silk Road they are building.

Don’t get caught up in the meaningless media frenzy focused on Russia. Just because the media has forgotten that the cold war is over doesn’t mean we should.

Have You Mastered the 4th T of Tracery?

Regular readers will know that the time of PPT — People, Process, Technology — has long passed. In today’s fast paced world where product life-cycles are sometimes over as soon as they hit the market, and where your competitors are constantly striving to outpace you in both sales and supply management, you can’t live on processes anymore — they go stale almost as soon as you’ve got them figured out. And in a knowledge economy, just having a butt in a seat or a worker at an assembly line isn’t enough to succeed — you need a worker who, at the very least, is smarter than the average worker and, preferably, smarter than the worker employed by your competitor. And your technology cannot get out of date.

That’s why SI has been promoting the 3 T’s for years — Technology, Talent, and Transition. You need a solid, regularly updated, technology foundation upon which to build your modern Supply Management Organization. You need talent to put together good operating procedures, properly use the technology, and to constantly identify new opportunities for cost reduction or value generation. And you need great transition management as even best six sigma process today won’t cut it tomorrow when you need to upgrade your product offering, switch suppliers, change distribution methods, and make sure your product is Designed for Recycling from the get-go as new regulations are forcing you to take back your product at end of life and recycle it as you are using chemicals and / or rare earth minerals that are heavily regulated.

But while these are necessary conditions for Supply Management success, they are not necessarily sufficient. While it is true you will not succeed without a mastery of technology, talent, and transition management, as per our first post on Project Assurance, organizational success also depends on selecting a superior strategy and seeing it through until the desired results are achieved (or the organization changes its strategy, which hopefully wasn’t done arbitrarily on the whim of a CXO after talking to a buddy on the golf course). However, in order to properly implement a strategy, you have to not only see it through from start to finish, but you have to make sure all of the process streams necessary for success are both completed and properly synched. Just like the key to a good weave, as one might find in Egyptian Cotton, is a skillful interleaving of the thread, the key to a good strategy, is a skillful interleaving of the process strands into an effective transition plan from where you are to where you need to be.

And this, dear readers, is Tracery — the “delicate, interlacing, work of lines as in an embroidery”, or, more modernly, “a network” — the glue that not only binds the Technology, Talent, and Transition Management that your Supply Management organization needs to succeed, but that interleaves these threads in a way that causes each of them to reinforce each other and make a stronger whole.

Only 5 More Years …

Until the 500th anniversary of the sail date of the first Voyage of Circumnavigation!  Four Hundred and Ninety Five Years ago today, five ships (the Trinidad, San Antonio, Concepcion, Santiago, and Victoria) under the command of Ferdinand Magellan left Seville, Spain, in an expedition that, even after the death of Magellan in the Philippines on 27 April 1521, would be the first to circumnavigate the globe under the command of Juan Sebastian Elcano (who was Magellan’s second in command) when the Victoria returned to Spain on 6 September 1522.  This voyage took the fleet to the Canary Islands, the Cape Verde Islands, Santa Lucia Bay, Rio de Solis, Cabo Virgenes, around the tip of South America, to the Sharks’ Islands, San Pablo Island, the Ladrones Islands, Palawan, Brunei, Tidore, Ambon Iasland, Timor, The Cape of Good Hope, and then back to Spain.

Considering that there is no record of anyone completing the feat prior to this voyage, that the voyage was finished in 3 years in a time when you were sailing by sail alone, and that, even today, circumnavigation efforts take amateur sailors a year and half, this was no small feat*.  (For example, Laura Dekker, whose voyage was interrupted at several points, took 518 days to circumnavigate the globe in her 38 foot yacht.)

It was a historic day as Magellan, and Elcano, discovered new trade routes that would be utilized for centuries to come!

* Although it would have been faster had Magellan not tried to convert the Lapu-Lapu of the Philippines to Christianity, which not only cost the voyage time, but Magellan his life.

Risk Management and Suppliers: How Banks can Comply with the OCC’s Guidelines on Third-Party Relationships

Today’s guest post is from Rebecca Lorden, Business Development and Marketing Manager of Source One Management Services, LLC.

In October of 2013, the Office of the Comptroller of the Currency released specific guidelines to banks and federal savings associations that outline how their companies should assess and manage risks associated with third-party relationships. The OCC’s reason behind these guidelines was mainly due to the fact that “the quality of risk management over third-party relationships may not be keeping pace with the level of risk and complexity of these relationships“. (OCC Bulletin 2013-29, October 2013).

It is true that third-parties pose a threat if their own security protocols are not up to par with that of a major financial institution. In fact, in March of 2013, Bank of America became quite aware of this when they announced that a hack into TEKsystems, a third-party security firm they contracted, was the reason their internal emails were released to the public. These emails were no ordinary messages, but documented proof that Bank of America was monitoring hacktivist groups. Furthermore, the hacking group, known as Anonymous, later revealed that data was not retrieved from a traditional, time intensive and difficult hack, but “stored on a misconfigured server and basically open for grabs“. (“Bank Of America Says Data Breach Occurred At Third Party”, Computer World, February 2013). The scandal was not only damaging to Bank of America’s reputation, but also an obvious indication that banks needed to manage supplier risk more effectively.

The OCC’s guidelines outline eight key phases that should be considered when developing risk management processes. These phases include planning, third-party selection, contract negotiations, monitoring, termination, accountability, reporting and reviews. As clear as that might be, banks are still struggling on how to properly implement controls around these factors. That is where supplier relationship management can play a significant role.

Supplier relationship management, otherwise known as SRM, is the actual practice of strategic planning and managing all interactions with third-parties to maximize their value. Many think of SRM as a way to reduce spend. SRM processes can reduce quality issues and delays with suppliers that, in turn, can translate into cost savings. More importantly, however, SRM can function as a main component in reducing a bank’s risk with suppliers. Supply chain experts feel as though SRM offers a “solid framework” that can provide companies with a “formal risk and control process to follow“. (Building The Case For Supplier Relationship Management, May 2014).

For those that already have an SRM program in place, or believe SRM is just a sales tactic for supply chain consultants, now may be the time to reevaluate. First, suppliers can be neglected over the course of their contract. Even if the relationship started off on a good foot, the value from a supplier can diminish pretty quickly, especially if the supplier or the bank is faced with turnover or a redirection in initiatives. SRM dictates a process that continually communicates and supports the relationship, helping build supplier engagement no matter what changes are on the horizon. Secondly, for those non-believers, consider this: if managing suppliers is now a major priority set by the OCC, what better way to adhere to these guidelines than to build a solid foundation on which to base all third-party relationships on?

It certainly seems that these OCC guidelines are a daunting task for banks to tackle. Managing supplier risks and enforcing compliance is not something that can be done overnight. Banks, however, have a secure solution in supplier relationship management. SRM can be the catalyst to successful third-party relationship management, ensuring that the risks are minimized to the best of a bank’s ability.

Thanks, Rebecca.