Nine Rules for Insuring the Dash For Cash

CFO World recently published a short piece on “ending the dash for cash” in which they outlined then steps to success that an organization can take to help shrink working capital in which they got it all wrong.

Good working capital management doesn’t shrink working capital, it enlarges it. So, in the spirit of Mark Perera’s “Nine Rules for Stifling Supplier Innovation” (Old St Labs), Sourcing Innovation gives you nine rules for insuring that you will eventually have to dash for cash to keep your business afloat.

  • Focus on recently overdue accounts. If the customer has a history of paying on time, but just missed a payment or two, even though chances are they just screwed up because they haven’t implemented proper e-Invoice Management and temporarily misplaced your invoice, call them up and give them a stern lecture on how deeply disappointed you are in them.
  • Insist that there is no acceptable excuse for late payment. Even if the excuse is that the customer is disputing the amount you charged them because you failed to apply a discount or mistyped the quantity they actually received (because there is no integration between your shipping system and billing system and a data entry clerk has to key in quantity). Insist they should pay now and you will resolve the dispute later.
  • Never change your standard payment terms. They worked ten years ago, why shouldn’t they work now?
  • Pay on your terms, no matter what. Who cares that the supplier has to borrow at 20% annual compounding interest to float your 120 day payment terms. That’s their problem, right?
  • Don’t fret the inventory. If sales ordered it, they’ll move it when they’re good and ready. It’s not your problem, it’s the COO’s.
  • Forget next quarter. Wall Street is only going to judge you on this quarter, so do whatever you can to put the books in the best possible light, especially if it’s year end. You’ll figure out next quarter when next quarter arrives.
  • Link performance measures to year-over-year profit. Again, that’s all Wall Street cares about, so forget about those pesky savings targets, sustainability initiatives, or long term cost reduction measures. They never materialize anyway, right?
  • Focus on quarter-over-quarter cash on hand and net income reporting. Reporting on increases in current and future liabilities just dampens everyone’s mood unnecessarily.
  • Don’t be a sucker for early payment discounts. It lowers your cost, but it lowers your cash on hand even more — and that’s what Wall Street will judge you on.

Follow these rules and I ensure you that, sooner or later, you will be making a dash for cash.

One Hundred Years Ago Today, China Made Global Trade Easier

One hundred and forty years ago this October 9, a precursor to the United Nations formed the Union Postale Universelle (UPU), a specialized agency that coordinated postal policies among member nations. Prior to the UPU formation, each country had to prepare a separate postal treaty with other nations it wished to carry international mail to or from, which resulted in the US calling for an International Postal Congress in 1863. Thus led to the formation of the General Postal Union as a result of the Treaty of Bern on October 9. Four years later, the name was changed to the Universal Postal Union. The UPU established that:

  1. There should be a uniform flat rate to mail a letter anywhere in the world,
  2. Postal authorities should give equal treatment to foreign and domestic mail,
  3. Each country should retain all money it has collected for international postage and

Furthermore, as a result of the treaty, it ceased to be necessary to affix the stamps of any country though which one’s letter or package would pass in transit. Stamps of the member nations were now accepted for the entire international route.

Even though the UPU now has 192 members, in the beginning there were only 20: the German Empire, Austria-Hungary, Belgium, Denmark, Egypt, Spain, the United States, France, the United Kingdom, Greece, Italy, Luxembourg, the Netherlands, Portugal, Romania, the Russian Empire, Serbia, the United Kingdoms of Sweden and Norway, Switzerland, and the Ottoman Empire.

But over the years, that number increased and one hundred years ago, China joined the UPU. And trade with China became a little easier …

Energy and Utility Procurement – Where Do You Stand?

Before ProcureCon released their recent “State of Indirect Procurement Benchmark Report”, they put out a study on “Energy and Utility Procurement” that summarized responses from 39 survey participants. While it was by no means an empirical study and the be-all-end-all to energy and utility sourcing, it does allow you to compare your own program to some extent and may inspire ideas for program enhancement.

One of the most interesting points of this report was that there doesn’t seem to be a single approach to any aspect of managing energy that respondents agreed upon. Like many other aspects of non-direct sourcing, companies are all over the board. This is likely due to the relatively new involvement of procurement, the sheer complexity of the category and variety of energy requirements on a company-by-company basis.

This is one of the many areas where, due to the varying degrees of regulation in different locales, the different types of energy (production) available, and the different views on the need for green, it helps to get with your peers and get different ideas, best practices, and perspectives — as well as the inside information on what works, and what doesn’t.

Fellow Canadians, your options for events have been limited, but now that ProcureCon has come North, you have one more option. Join the doctor at the inaugural ProcureCon Canada event (and register with code PCA14SI) and share your experiences.

The (Board) Gamer’s Guide to Supply Management Part IX: Small World Part 2

In Part V of our original series2, we introduced you to Small World, a delightful game from Days of Wonder (iOS Version available) that, in the words of Wil Wheaton, combines the military strategy of Risk with the delightful art and fantasy races of Cosmic Encounter. Except its more dynamic than Risk, and more variable than Cosmic Encounter, because while the races and powers are fixed, the combinations are not. [There are 14 races and 20 powers, or 280 different possible pairings. Plus, the pairings are ordered, and if a player does not select the pairing made available to him during his turn, he must spend 1 gold for each pairing, up to 5, that he wants to skip, which not only impacts his ability to accumulate the most victory points and win the game, but improves the selections available to the next player, who may gain one or more victory points by selecting a skipped pairing. So, if you do the math, there are P(20,14) possible power-race combination orderings, which is equal to 3,379,030,566,912,000 possible distinct games when orderings are taken into account!]

So what does this have to do with supply management? As per SI’s original post, Wil could just have easily have said Small World combines the military strategy of Risk with the marketing strategies of an MBA program. Whoever has the most money at the end of the year wins. We earn money by conquering and maintaining market territories. Empty, blue ocean, territories cost two units to conquer. Every competitor or obstacle in a territory costs one more unit to conquer. At the beginning of every game, each player will choose a primary market strategy, like brute advertising force, niche marketing, or price-undercutting, and combine it with a perceived marketing advantage such as a big war chest, coveted partnership, or new manufacturing process that allows production costs to be drastically slashed. The primary market strategy and perceived marketing advantages change every game. And therein lies the connection. Small World is a good introduction to how your supplier’s sales and marketing force is going to try and counter, and undermine, your every effort to procure and manage supply at a fair and sustainable price (as profit is the name of their game, not cost control). Today we are going to dive into the races and powers and solidify that connection.

The races1 in small world can be mapped to the different personality types in an organization that, directly or indirectly, support, or limit, the sales organization. Consider the following:

  • Amazons: A nation of all-female warriors in Greek mythology, these warriors seem to multiply in battle. They’re like the accounts receivables clerks who come out of the woodwork to descend on your deadbeat customers en-masse.
  • Dwarves: The mythical miners from the popular fairy tale, they’re the professional arbitrators who excel in dark rooms and endless negotiations.
  • Elves: The long-lived long-ears from the world of Tolkien who are almost immortal, they’re like the IRS auditors who never die.
  • Ghouls: Like the accounting trolls in Accounting popularized in Dilbert comics, they are the immortal accountants.
  • Giants: Like the feared giants of medieval times, the rich C-Suite, when they are on top, can conquer others with less effort.
  • Halflings: Like the burrowing hobbits, these 3rd party independent consultants pop-up out of nowhere and take over part of the project, and there’s nothing you can do about it.
  • Humans: Like the born-and-bred farmer who is a master of his fields, these account managers excel at up-selling your existing customers.
  • Orcs: Like the toll-extracting orcs of myth, these high-performing salesman excel at getting the big deal, by force if need be.
  • Ratmen: Think lawyers. ‘Nuff said.
  • Skeletons: Like mythical skeletons, these marketers multiply every time they conquer a new territory.
  • Sorcerors: Like real sorcerors, the members of your corporate intelligence team uses espionage and influence to convert insiders to win a deal.
  • Tritons: Like the legendary masters of the sea, these logistics managers rule the sea trade.
  • Trolls: Like the gate-keeping trolls, these on-site consultants — once they are embedded in your culture — are almost impossible to get rid of.
  • Wizards: Just like the wizards could conjure something out of nothing, these analysts can conjure actionable intelligence out of random data bits.

And the powers can be mapped to different skills that can give your race an advantage:

  • Alchemist: In the old days, these magicians turned metal into gold just like your smooth-talking salesman turn feature requests into profitable change orders.
  • Berserk: Just like these warriors sometimes gained sudden bursts of strength before every battle, your evangelists can sometimes beat the competition even when the odds aren’t in your favour.
  • Bivouacking: Just like invading armies would sometimes build encampments to fortify their defenses, your account managers are masters at placing on-site consultants to fortify yours!
  • Commando: Like the marines, your analytics team, with more training than your competition, can beat the market hands down with fewer resources (allowing you to outperform your peers).
  • Diplomat: Your customer relations are so good, no one can encroach upon your customer base! Your smooth-talking sales team should be in public office!
  • Dragon Master: One of your CXOs is a legend in the space, and never loses the one battle he chooses to engage in, just like the mythical warrior who rode the dragon never lost.
  • Flying: Your command of the air, also known as your no-limit travel pass, gives you a larger territory in which to trade.
  • Forest, Hill, Swamp: Just like certain people are suited for certain terrains, your sales team does better in certain verticals than others (and makes a lot more money from a lot less effort).
  • Fortified: Just like conquering armies would sometimes build an almost impenetrable fortress from which they could rule their newly conquered land, you can dedicate your efforts on a marquis account and become so embedded therein that the account becomes almost impossible to steal.
  • Heroic: Just like mythical heroes could’t be conquered, the efforts of your two best sales teams, and their House of Lies, are unparalleled and can’t be challenged.
  • Merchant: Like the great merchants of legend, you make more profit on every sale than the people you are trading with.
  • Mounted: Just like a mounted army was more effective than one on foot, your big data advantage crushes the uninformed competition.
  • Pillaging: Just like the Vikings would loot, when you conquer an account you always find integration and data maintenance efforts that double your profit.
  • Seafaring: Just like the most successful merchants in ancient times always rules the seas, your command of the sea allows you to trade where others can’t.
  • Spirit: Just like spirits never die, your on-site consultants are so knowledgeable in their domain that even when a competitor manages to sell their product, your consultants are still maintained for their expertise and you play on.
  • Stout: Just like the army of anubis never needed rest, neither do your sales team who can swoop from one deal to the next without need for a recharge. They live on caffeine, adrenaline, and victory!
  • Underworld: The domain of the lawyers. ‘Nuff said.
  • Wealthy: Just like the tomb raiders of old, you come into sudden wealth when that one client decides to shift all its consulting to you.

It’s a small world
But it’s the only one we’ve got
Huey Lewis

1 For this post, we are limiting ourselves to discussion of the 2nd Edition of the original Small World and not Underworld, Realms, or the various expansions such as Cursed and Be Not Afraid!

2 The original series:
Part    I: Ticket to Ride
Part   II: The Settlers of Catan
Part  III: Munchkin
Part  IV: Castle Panic
Part   V: Small World
Part  VI: Zombie Dice, Tsuro, and Get Bit!

… and the new series to date:
Part  VII: Upon a Salty Ocean
Part VIII: Agricola

Ocean Freight Capacity is On the Rise … But the Consequences Are Unclear

South Korean shipyards are busy churning out Maersk’s “Triple-E” class, which at 400 meters in length are the world’s biggest Super Post-Panamax ULCV (ultra-large container vessel) container ships; new Super Post-Panamax ship-to-share cranes that can lift up to 65 tons (or more) are being installed at ports around the world; the Panama Canal Capacity is doubling its capacity in 2015 (and the average vessel calling on the US East Coast is expected to double in capacity from 4,500 TEUs to 9,000 TEUs); and North American Eastern ports are expanding up and down the coast.

This means that the capacity to do more global trade, both across the Atlantic and the Pacific, will soon be here. If trade doesn’t increase as fast as the big ocean carriers are predicting, even though fuel costs are rising, it’s likely that costs will remain stable, or even decrease slightly, despite inflation, as carriers compete to keep their holds full. If trade increases at the predicted rate, it is likely that costs will continue to rise at a steady rate. And if trade increases faster than expected, it will only be a few years until the major ports are again congested and growth potential flat (unless you take advantage of ports like Halifax).

What will come to pass, it’s hard to say, but not being aware of the potential for anything to happen where ocean freight is concerned is a risk. But it’s not the only risk to the viability, and cost, of your supply chain in 2014. It’s just one in dozens. There are a number of other significant risks that your supply chain could be facing in 2014, each with its own cost impact. If you would like some insight into what 13 other risks are, and what you can do about them, download SI’s latest white paper on the Top Ten Transitions To Tackle in 2014 to Tame the Tolls, sponsored by BravoSolution. (Registration Required) The follow up to last year’s Top Ten Things to Do in 2013 to Control Costs, this white paper looks at the state of the market one year later and provides you the foundations you need to attack the forthcoming challenges of 2014 head-on.