All The World’s A Stage … and 115 Years Ago Today, the First Hague Conference Tried to Set the Rules of Performance.

One hundred and fifteen years ago today, the First International Peace Conference was held at The Hague in the Netherlands. The goal of the peace conference was to negotiate disarmament, the laws of war, and war crimes and, if possible, to create a binding international court for compulsory arbitration to settle international disputes — an establishment considered necessary to replace the institution of war. While most of the countries present favoured the process for binding international arbitration — including the United States, Britain, Russia, and China, a few countries — including Germany — vetoed it.

However, in addition to the creation of three primary treaties, ratified by all major powers, namely:

  • Convention for the Pacific Settlement of International Disputes
  • Convention with respect to the Laws and Customs of War on Land
  • Convention for the Adaptation to Maritime Warfare of the Principles of the Geneva Convention

and three declarations, ratified by all major powers except the United States (and Great Britain with respect to the first declaration):

  • Declaration concerning the Prohibition of the Discharge of Projectiles and Explosive from Balloons or by Other New Analogous Methods
  • Declaration concerning the Prohibition of the Use of Projectiles with the Sole Object to Spread Asphyxiating Poisonous Gases
  • Declaration concerning the Prohibition of the Use of Bullets which can Easily Expand or Change their Form inside the Human Body

it did manage to establish a voluntary forum for arbitration, the Permanent Court of Arbitration (PCA), which is typically overshadowed by the International Court of Justice that replaced its sister court, the Permanent Court of International Justice that was formed in 1922.

The PCA is important, even though you’ve probably never heard of it, because it is the court that administers cases that arise out of international treaties (including bilateral and multilateral investment treaties) that span a wide range of legal issues, including maritime boundaries, international investment, and matters concerning international and regional trade. While your company will likely never end up in the courtroom, your government likely will, and the decisions might change what your country is, and thus what you are, allowed to do — and might be the entire reason laws change overnight (which will happen if a maritime boundary is rezoned and you are fishery, for example).

Of course, if you are a big multinational, the PCA might be the registry for your government arbitration that is being conducted under UNCITRAL arbitration rules.

(For example, the PCA recently held a hearing between Bilcon of Delaware et al v. Government of Canada on an arbitration claim about the need for Canada and its subnational governments to fairly administer and follow their environmental and investment laws and regulations to ensure a high standard of environmental protection that arose out of unfair, arbitrary, and discriminatory application of certain government measures relating to the permitting of a basalt quarry and marine terminal at Whites Points in Digby County, Nova Scotia because the type of environmental assessment that the Investors were required to carry out were more burdensome, unfair, and arbitrary than the types of environmental assessments other Canadian investors with similar projects have had to undergo.)

While it was not the preferred outcome of the Peace Conference, the court does give nation states a viable alternative to war and corporations and investors a way to hold nation states accountable to the global agreements they signed up for. And it is a fairly busy court. Right now, the PCA is the registry in eight inter-state arbitrations, fifty-two investor-state arbitrations, and thirty-three arbitrations under contracts or other agreements to which one party is a state, state-controlled entity, or intergovernmental organization. If you’re working for a big multi-national, the PCA is an entity you should be aware of.

2 in 5 Fleet Owners Suspect Fuel Invoice Errors. What About the Other 3?

A recent article over on TruckingInfo that wanted to know if you are Staying On Top of Your Fuel Invoices noted that only 40% of respondents to a recent survey by FuelQuest suspected errors in their fuel invoices. SI’s question is, what about the other 60%?

According to the article, unaddressed, bulk fuel invoice error rates tend to hover around 25%, but some companies have rates as high as 55%. This is due to complex fuel and freight contracts as well as manual or sample-based reconciliation processes. This is because they lack the processes and technologies to insure complete, consistent, and effective invoice matching and review.

Furthermore, the lack of proper processes and technologies results in the business impact from invoicing errors including overpayments, increased operational costs, and lost trust in suppliers being significantly underestimated. If a large fleet company is consistently being over billed 3 cents/gallon, that’s up to $12 of over-billing on every fill up and up to $2,000 a year of over-billing for every 18 wheeler (with an older model getting an average of only 5 mpg). If you have 50 trucks in your fleet, that’s an over-billing at a rate of 100K/year until it is detected. And how much will be recovered?

Even if you are a 3PL/Logistics Carrier you need end-to-end invoice automation, m-way matching, and exception-based management. Otherwise, you don’t know how much money is being needlessly burned by your fleet.

The Board Gamers Guide to Supply Management Part XX: Le Havre, The Inland Port

You like being the harbour master, but getting in a rousing game of Le Havre is difficult because of the average playtime of one and a half to three hours and you want to get in a rousing game over lunch. Plus, sometimes only one person will dare to take you on. If only there was a more streamlined two-person variant, just like the All Creatures Big and Small variant of Agricola, things would be great.

Good news, there is! Based on the original Le Havre, Le Havre: The Inland Port is a streamlined variant of Le Havre that can be played by two people in thirty to forty-five minutes, allowing you to get a rousing game, or two, in over your lunch break as you both vie for the title of Habour Master — an important title given the importance of ocean logistics, cross-dock, and warehouse management in your supply chain.

As with All Creatures Big and Small, The Inland Port is simpler to learn than the full game, but is just as hard to master, especially since there are 31 building tiles and you will be able to play at most 12 each during the course of the game, and the order of play can change each game (as can the order of availability if you play a full random game).

As in regular Le Havre, the game consists of a fixed number of rounds (12 to be precise) and each round consists of a fixed number of turns (equal to 3 in the first 3 rounds, 5 in the next 3 rounds, 7 in the following 3 rounds, and 9 in the final 3 rounds for a total of 72 turns in all). As in regular Le Havre, one player has more turns than the other in each round, but each player still gets the same number of turns by the end of the game. However, the variable number of turns dictates that, in each round, one player will have one less chance to use available buildings, including two buildings that will become unavailable for use by the end of the round.

Le Havre, The Inland Port reduces the time and complexity required in the game by cleaning up the 3-biggest time crunches in Le Havre

  • Replenishment and Upkeep
    In Le Havre, at the end of every turn, available supplies are replenished and a lot of time is spent updating available inventory (and unlocking buildings now available for use). In The Inland Port, there is no replenishment phase as all supplies are increased (and decreased) through the utilization of available buildings (or the purchase thereof)
  • Feeding
    Although this is an important mechanic, as it represents the real-world need to maintain enough cash-flow to pay your workers, it is a time consuming one. In Le Havre, the feeding requirement is eliminated, but the net effect (of decreasing your cash reserves and/or food supply) is compensated for with the forced-sale mechanism. Any building that is built must be sold within 5 rounds at a loss equal to half of its value.
  • Resource Collection and Usage
    In regular Le Havre, when you use a building to take an action, you are often increasing or decreasing your available resources and moving a lot of resource markers around. In The Inland Port, you keep track of your resources using a resource board which only requires you to move a single resource marker to a different board location when a resource is acquired or disposed of (to buy a building, for example).

These three modifications, combined with the fact that a player has only two action choices on his turn — use an available building or build (or buy) one (along with the ability to sell an existing building at any time) — make gameplay fairly rapid once the basics of the game are understood by both players (and both players are familiar with what each building fundamentally does). The difficulty in this game is not in playing it, it’s figuring out what to do when to maximize your wealth. Proper building acquisition, utilization, and resource disposal sequences can generate tons of wealth (and a player can easily accumulate 200 Francs by the end of the game if she knows what she is doing and is not impeded by her opponent). On the other hand, poor choices will leave the player relatively cash poor throughout most of the game.

In order to maintain some complexity and keep the game challenging, The Inland Port maintains the unit concept, and extends it to all base goods. So, just like you’d waste one unit of energy using coal to power a building that took two units of energy (if you did not have two wood available), if you only have a 3-block of resources, and only need 1 or 2 units, you will have to over-utilize. This dictates the need to balance the utilization of buildings that give you 3-blocks of resources with the utilization of buildings that give you multiple units so as to maximize your resource utilization.)

Each building in The Inland Port:

  • moves one or more good counters a multiple of one unit or three units,
  • generates Francs,
  • exchanges Francs and/or resources for other resources,
  • sells one or more resources for Francs (at the end of the game), and/or
  • increases your wealth.

The amount of goods and/or Francs generated, exchanged, and/or sold varies according to the building type and each building available for use can be used 2 to 4 times by a player on his turn, depending on how long it has been available. (A building, which can only be in play for five rounds, can only be used in at most four rounds as it can not be used the round it is played. It can be used up to 2 times in the following, round, up to 3 times in the round following that, and up to 4 times in the final two rounds it is available for use. Finally, if used in the last round it is available, it also generates 1 Franc.)

It’s a complex little game, and one that will force you to balance your strategic planning and resource utilization skills, as your plans might not always come to fruition — just like wrenches get thrown into your supply chain at the most unexpected of times.

Analyzing Indirect Spend … The Key To Success is to …

Over on Purchasing Insight, your blog-master extraodinaire, Pete Loughlin, recently ran a two part series on Analyzing InDirect Spend (Part I and Part II) from Michael Wydra of REL Consultancy.

In his two-part series, Michael correctly notes that it is often the case that indirect spend areas provide higher improvement potential that is often easier to realise. For most companies, this is non-strategic spend that is easy to overlook, but the lack of oversight often results in these categories not being managed in a professional manner, resulting in a lack of visibility and control. This can be very costly to a company as indirect spend typically accounts for 13.5% to 22% of revenue, depending on the industry. (If indirect spend is 20% of revenue, and the savings opportunity is 10%, the organization can quickly shave 2% off of the top by tackling indirect spend. If direct spend has been carefully managed for years, chances are the direct spend savings opportunity is only 3%. Even if direct spend is 50% of total spend, that indicates that the total savings opportunity on direct spend is a mere 1.5%, making indirect spend more valuable.)

According to Michael, the first step on getting a handle on indirect spend is a proper spend analysis — which might indicate that the spend is spread over thousands of suppliers with a high number of different payment terms, which adds an additional layer of complexity (that is often not necessary). One of the reasons this is important is that, on average, 12% of negotiated savings on indirect spend categories is lost because contracted rates were not adhered to.

This spend analysis should identify opportunities for cost reductions that are sustainable and that facilitate monitoring spend, improve supplier relations, lower transaction costs, and align service levels. If the right opportunities are identified, and the right programs are put in place, a company can become world-class in indirect spend management — and realize, on average, 45% lower indirect procurement process costs than its peers in addition to lower product and service costs.

Sometimes savings opportunities will be obvious — a dozen different suppliers across the country for janitorial supplies when one will suffice, no contract for toner cartridges and no standardization on office printers to allow bulk buys, and temp labour not measured against standard rate cards. But some opportunities will be less obvious — such as two of twelve offices, in the top four spenders, not switching to the new cell plan and overspending by tens of thousands, not matching invoices to rate cards for IT services, and not capturing the annual rebates from the office supply vendors. To find these opportunities, you have to dig, dig, dig — just like an archaeologist.

The New Silk Road Might Be the Biggest Boon to Supply Chain Finance This Year

In yesterday’s post, we asked what impact will the new silk road have on global trade. Specifically, what impact will the new Russia, China, and Germany trade partnership have on global trade — besides simplifying and building Eurasian trade relationships.

One thing it will do is strengthen the resolve of these countries to not only de-couple their currency from the dollar and launch a new reserve currency backed by their union, but to trade in local currencies as well. As trading in local currencies becomes more and more common, banks will become more and more inclined, and even comfortable, to lend in foreign currency denominated debt as well as local currency. Private lending institutions will not only follow, but begin to lead the way.

This will be a great boon to foreign companies which, until now, have been limited to either borrowing from local lenders, at high interest rates, but in the local currency, or a handful of global lenders, at slightly lower interest rates, in a foreign currency, that could cause their debt to skyrocket if their currency weakens with respect to the foreign currency.

The whole point of Supply Chain Finance is to help the cash-strapped supplier. Early payment or dynamic discounting doesn’t help the supplier if the discounts are too high. Arranging for third party lenders to lend using your credit score, and not the suppliers, doesn’t help if the supplier has to take a risk in a foreign currency. And factoring isn’t a solution at all! (Since a third party will only buy your suppliers’ receivables if it can make money off of them — loan sharks at their finest.) Arranging for lending in your suppliers’ local currencies on your credit score when you can’t pay early is safest for your supplier and probably the best supply chain finance solution we’re going to see for a while.

Thoughts?