Risk – The More Things Change, The More They Stay the Same I – Society

The World Economic Forum‘s 7th annual Global Risks report was recently. Again chronicling dozens of risk divided into five categories, this report did a tremendous job of covering the types of risk that an average Supply Management organization needs to prepare for. What’s interesting about this report is how the biggest risks in many of the categories haven’t changed at all since last year. Take Society for instance. While it chronicled seven major risks in this category, the top two dwarf the other five and they are the exact same as last year.

02: Food Security

People need to eat. As a result, they need access to safe, secure sources of staple foods at an affordable price point. If they don’t have access to safe, secure sources of staple foods at an affordable price point, they riot — as we have seen in Tunisia, Algeria, Bangladesh, Mogadishu, India, China, and even the UK and Canada this year. When people riot, property gets destroyed — property that could include your delivery trucks, your goods in your warehouses, and even your production plants. Try ensuring supply with no distribution mechanisms for raw materials, no working production lines, and no warehouses to store anything.

01: Water Security

Not only do people need water, but supply chains need water. First of all, supply chains need energy. Energy production requires water (as per the Water Energy Nexus). For example, in the USA, about 2 US gallons of water evaporates to create one kilowatt hour of energy. Steel, which is a component of many goods, requires 62,000 gallons of water for the production of a single ton. Semi-conductor fabrication plants often require up to 2,000 gallons of water per minute. No water, no goods, no components, and no energy. And if water gets too scarce, so is food. And a vicious downward societal cycle will begin.

It should be obvious by now that while the risks of pandemic, chronic disease, religious fanaticism, migration, and age aren’t going away, they aren’t going to matter much if we don’t have the food and water to sustain ourselves.

Spend Rappin’ (5th, and Final?*, Repost)

It’s Boxing Day! And you know what that means … at Sourcing Innovation, it’s Spend Rappin’ time! (It’s a very well-established holiday tradition!)


To the Tune of “Christmas Rappin'” by Kurtis Blow

Don’t you get me all that JIVE about code you used before I’s alive,
Cause this ain’t 1965 – ain’t even 1999!
Now I’m the guy named Lamoureux and Spend is one thing that I know.
So every year, just about this time, I celebrate it with a rhyme!

Gonna save it, gonna shave it, gonna make it good,
Gonna take it all down through your neighbourhood.
Gonna wring it, gonna sling it till it’s understood.
My rap’s about to happen, like the knee you was slappin;
Or the toe you been tappin’ on a hunk of wood.
‘Bout a two fisted dude, with a friendly attitude
and a sack full of savings for the people on the block.
He’s an old grey beard, maybe looks kind of weird,
and if you ever seen him he could give you quite a shock.

Now people let me tell ya about last year
when the dude came slicing spend through here.
Well the wit was out, the gloves on the ground,
folks stayed to watch him cut it down.
The beat was thumping on the block,
and they were glued to just one spot,
as the master cubed at a solid pace,
…
got a taste of the waste thrown in your face.
…
And this old spend slayer laid down a heavy layer
of his slicing dicing rhythm to a tree-mapped beat.
And the guy with the database started to participate,
and I could sure appreciate the spend roll up neat.

We were all in the mood so we had a little brood,
not a sound did abound, as he ploughed through the mound,
then I thought I heard a gasp as he sliced through the past,
and laid our mav’rick spend bare, as I flopped into a chair.
So I went to the attic where I thought about the static
that our last spending tool was programmed to always give.
And I threw up my arms at the industry yarns,
Just a trick, a nick, and I’d let the suckers in.

He was quick, he was sharp and always on the mark,
he had a lot of success on his chinny, chin, chin.
He avowed, he was proud of the savings he allowed
from the tip of the ‘burg he found the savings within.
He’s cool for a fool throwin’ out every rule
every hour of the day when the cold winds blow.
Though the beard was-a cleared, I still have never cheered
like I did in the storm when I was in the know.

I said you’re right, my spend’s a fright,
Can you stop for a drop before you have to go?
He said “Sure, Bill, if the wine is chilled
and I’ll stake a steak down at the Monaco”.
So we went out back and discussed the stack
of invoices that had all been over-paid
and every dollar spent off of the contract
and then we laid it all bare till we made the grade.

And before he went this fine old gent,
finding gifts went to sift through his spend reports.
From the top to the bottom he reached in and got ’em,
spend trends for me, and variances from torts.

And the higher-ups got presents too,
Banned suppliers and a stale contract.
A bloated pie ’bout as clear as the sky,
the best that money couldn’t buy.
Cause money could never ever buy the feelin,
the one that comes when there’s no concealin’
of your spend by a tool that’s new
and that’s what Strovink’s does for you.

The dude ya read’s back at the keys,
up late till all’s where it should be.
But if he were right here tonight,
he’d say Truthful Spending and to all a good night!

* As most of you are aware, Opera Solutions acquired BIQ this year and has begun folding it into their solution offerings, offering BIQ Exploratory Analytics as one of their Vertical Offerings and using it to power parts of their VEKTOR platform.

P.S. For my new readers, this cheerful verse is the result of a sly comment by Eric over on e-Sourcing Forum back in 2007 on How Not to Get a Job.

P.P.S. For those of you who’d like to be spend rappin’ too, please download the new white paper on Spend Visibility: An Implementation Guide. No registration required. It’s the best boxing day gift your organization will ever get!

Christmas Rappin’


by Curtis Blow
mp3
 on YouTube

(Since it’s difficult to find complete and well-formatted lyrics on the web.)

Don’t you get me all that JIVE about things you wrote before I’s alive,
Cause this ain’t 1823 – ain’t even 1970!
Now I’m the guy named Kurtis Blow and Christmas is one thing I know,
So every year, just about this time, I celebrate it with a rhyme!

Gonna shake it, gonna bake it, gonna make it good,
Gonna rock shock rock you through your neighbourhood.
Gonna ring it, gonna sing it till it’s understood.
My rap’s about to happen, like the knee you was slappin;
Or the toe you been tappin’ on a hunk of wood.

‘Bout a red suited dude, with a friendly attitude
and a sleigh full of goodies for the people on the block.
Got a long white beard, maybe looks kind of weird,
and if you ever seen him he could give you quite a shock.

Now people let me tell ya about last year
when the dude came flying over here.
Well the hawk was out, the snow’s on the ground,
folks stayed in to party down.
The beat was thumping on the block,
and I was dancing in my sock,
and the drummer played at a solid pace,
…
and a taste of the base was in my face.
…
And the guitar player laid down a heavy layer
of the funky junky rhythm of the disco Beat.
And the guy with the 88 started to participate,
and I could sure appreciate it sound so sweet.

We were all in the mood so we had a little food,
and a joke, and a smoke, and a little bit of wine,
when I thought I heard a hoof on the top of the roof.
Could it be or was it me, I was feeling super fine.
So I went to the attic where I thought I heard the static

on a chance that the prance was somebody breaking in.
But the noise on the top was a reindeer clop,
Just a trick St. Nick, and I let the sucker in.

He was roly, he was poly and not the holy moly,
you got a lot of whiskers on your chinny, chin, chin.
He allowed, he was proud of the hairy little crowd
on the point of the door where the skin should’ve been.

Get’s cool for a fool throwin’ out every yule
for a day on the sleigh where the cold winds blow.
So the beard maybe cleared, but I never have a-cheered
’cause it’s warm in the storm when it’s ten below.

I said you’re right it’s cold tonight,
Can you stop for a drop before you go?
He said “Why not if the music’s hot
and I’ll chance a dance beneath the mistletoe”.

So he went downstairs and forgot his cares
and he rocked the spot and danced like a pro.
And every young girl tried to rock his world,
but he boogie oogie oogied till he had to go.

And before he went this fine old gent,
finding gifts went to sift through his big red bags.
In the top for the bottom he reached in and got ’em,
toys for the boys, and for the girls flat rag.

And the grown-ups got some presents too.
A new TV and a stere-u.
A new Seville ’bout as blue as the sky,
the best that money couldn’t buy.

Cause money could never ever buy the feelin,
the one that comes from not concealin’
the way you feel about your friends
and this is how the story ends.

The dude ya read’s back at the pole,
up north where everything is cold.
But if he were right here tonight,
he’d say Merry Christmas and to all a good night!

If You Think You Have Supply Chain Problems, Think About Poor Santa! (Repost)

Santa, who has to travel 2,860 miles per second in order to visit 1,700 homes per second to deliver over 2 Million Tonnes of gifts to boys and girls around the world, has supply chains and logistics challenges that put even the logistics challenges of the largest multi-national or US military (that has to support almost 1.5 Million people on active duty around the world that need everything from food and clothes to jeeps, tanks, and aircraft to do their job) to shame.

Reviewing a few simple stats, that we can compile from this article on The Science of Christmas in the Telegraph, this article on Santa’s Logistics Challenge in the Bangkok Post, and this article that asked What if Santa Had a Supply Chain Problem over on Open Kitchen, we find out that:

  • There are approx. 1.9 Billion children in the world.
  • Approximately 33% of these children have Christian parents.
  • The majority (defined as 90%) will be deemed nice by Santa.
  • In total, about 570 Million children need gifts.
  • If there are 3 children per household, on average, about 190 Million households will need to be visited.
  • Since Santa likely cannot start delivering gifts safely before 9 pm in a household, and since some children will not sleep more than 7 hours (on Christmas Eve), Santa has only 31 hours to make his deliveries.
  • This says he must visit almost 1,700 homes per second.
  • Since Christianity pervades our planet, he’ll have to cross most of the 510,000,000 kms of the planet’s surface.
  • Assuming the houses are equi-distant (which is a fair approximation as they’ll be dense in the city are far apart in rural areas), Santa will have approximately 2.7 km to travel between households.
  • That’s 513 M kms of travel in 31 hours.
  • That’s equivalent to 4,600 kms per second.
  • But this is just the delivery. He also needs to acquire the toys to deliver.
  • Let’s assume 2 toys per child, or 1.04 Billion toys.
  • Assuming a distribution where popular toys are distributed to
    tens of thousands, hundreds of thousands, or millions of children and where unpopular ones go to thousands, or hundreds, of children, we are probably looking at 10 Million toys.
  • While some vendors may produce 100 types of toys, others will produce one, and we can settle at about 10 toys per vendor.
  • That’s 10 Million vendors to manage!
  • If they are scattered all over the earth, and if each toy can go direct or through nearby 3PLs, and if each toy can go by a mix of truck, rail, sea, and air, that’s probably between 2 and 20 lanes per vendor, with 5 being a good number.
  • That’s 50 Million lanes by which goods could be arriving.
  • No wonder Santa needs a Super Spaceship and an army of elves!

An Informative Piece on Making Better Decisions with Cost Modelling

The ISM recently published an informative piece on how to “make better decisions with cost modelling”. Given that projected cost modelling can help supply management organizations reduce procurement costs and generate information that could improve cost performance throughout the supply chain, proper cost modelling is something every organization should have a good grip on.

The breakdown graphic is very good. The cost of any particular good is:

  1. the direct material costs plus
  2. the direct labour costs plus
  3. the indirect overhead costs plus
  4. the (amortized) SG&A costs (of the organization) plus
  5. the (amortized) R&D costs plus
  6. the profit margin

The last three costs in particular should not be overlooked. While they will typically be small in comparison to the other costs, they are there, and they cannot be driven to zero no matter what the volume requirements or the economies of scale. They will always exist, and squeezing a supplier’s profit margin to unreasonable levels seriously jeopardizes the health of the supplier. In addition, while tempting to do so, SG&A costs that are not directly applicable to the good being produced should not be included in the indirect cost. While the indirect costs can be reduced with production line efficiency, SG&A cannot.

And cost models are not hard to build, at least approximately. Direct material costs can be estimated using public indexes, direct labour costs can be estimated using government statistics bureau data, overhead costs can be estimated using government statistics bureau data and industry averages, SG&A can be estimated using public filings, R&D cost ca n be estimated as an industry average percentage, and profit margin can be estimated using a fair percentage.

Furthermore, cost models are even easier to correct. Simply state that, unless the supplier proves the model wrong, you will assume that it is right and base your negotiations off of it.

And once you have a correct cost model, you not only gain deep insight into a supplier’s costs, but into their inefficiencies. For example, you will learn where they are spending too much on raw materials, whether or not they are not competitive in labour costs, and where their processes are inefficient. Then, you can work with them to either help them negotiate better contracts with their raw material suppliers or buy on their behalf (with a larger aggregated demand that you can use to leverage a better contract) and to remove inefficiencies from their processes. This can create win-win situations and give you preferred customer status, which will be beneficial if demand outstrips supply.

Your Supply Chain Is Only As Safe As the Most Insecure Point

Just like a chain is only as strong as the weakest link, your supply chain is only as safe as the most insecure point – and the surprising thing (to you) is that it’s probably not where you think it is (at least not if you do business the local way).

As per this recent article over on the Logistics Briefing Blog on Transport Intelligence, “2012 is a record breaking year for freight criminals”. It was bound to happen sooner or later. As the article points out, with an average electronics shipment valued between 3 Million and 30 Million, these shipments are worth a lot more than most shipments of drugs or even guns, and are more valuable to thieves in more ways than one.

  1. The margins are higher.
    The cost of an operation to steal one of these shipments is typically 10% of the value, or less. It truly is a steal.
  2. The risk are lower.
    Most law enforcement agencies haven’t realized just how attractive these shipments are to criminals.
  3. The downside is much lower.
    If you do get caught, and it’s a first offence, it’s unlikely that you’ll end up in jail (unless the theft was violent and someone got hurt). In comparison, if you’re running drugs, you’re going to jail. Even if it’s just a few ounces of marijuana. (Plus, the chances of being hunted down by a heavily armed SWAT team are miniscule in comparison.)

But what is really going to surprise you is where the crime is picking up. Many of the significant thefts are in the EU! A recent theft in Hungary involved about €3 Million worth of smart-phones. Theft in the Netherlands shot up when the U.K. launched “Operation Grafton” to reduce thefts in Heathrow. And freight crime in Belgium has increased 90%.

So for those of you worried about India and China, think again. (And, as mentioned in the first paragraph, if you’re willing to do business the traditional way in those countries, and grease a few palms, your cargo will be quite safe. SI is not endorsing this, especially if you’re in the U.S. or the U.K. where such actions might be seen as violating the FCPA or the Bribery Act, but just noting that, statistically these countries are safer to ship in than a number of countries in Europe and can be much safer than just about anywhere in the world with the right preparations. The point is that your first instinct is probably not the right one when it comes to judging safe shipping zones.)