Daily Archives: January 19, 2024

The Prophet‘s 2024 Procurement Prediction Number 1

A Supply Chain Black Swan in 2024 A-

A major terrorist (or asymmetric military) threat incident in 2024.”

Very likely. As well as:

  • one or more elections of a populist dictator-want-to-be in one or more significant “democratic” countries/blocs with an election this year (including the four largest: India, the European Union, the United States, and Indonesia) and/or insurrections when they lose.
  • significantly more unrest and attacks in the Red Sea and more slowdowns/shutdowns in the Panama Canal due to lack of rain/water (thanks to the US deciding to “fight back” and bomb Yemen)
  • scarcity of capacity due to longer transit times as ships have to navigate the dangerous capes (Agulhas and Horn)
  • unavailability of raw materials as a result of military actions in the Congo, increased sanctions on Russia, and increased crime or political unrest in Brazil (which are 3 of the top 5 countries with the most rare earth metals / reserves)
  • etc.

In other words, this is not the year we’re not going to see another black swan. This is the year we’re going to see a full flight of black swans! (Which is a sight we never hoped to see!)

As The Prophet has noted, you’re going to have to split your business and geographically diversify your supply base (down to the source), but with respect to the recommendation of “at least one supplier with localized production / inventory“, it’s not enough if it’s the 20 in a 60/20/20 and definitely not enough if it’s the 10 in a 80 / 10 / 10. You can’t always produce enough locally, which is why, as SI has been saying for almost a decade and a half, you need to nearshore (not just friend-shore). If you can’t get the majority of the products you need on a truck crossing friendly, or at least not unfriendly, borders, you’re at risk of a significant supply chain disruption.

The other recommendations are right on the money:

  • overweight supply chain risk and visibility investments, and remember they are not the same — you need supply chain visibility down to the source of every raw material as well as transportation visibility of all of your orders, including materials you source on behalf of suppliers/assemblers/distributors, from the source to your warehouses to your customers; these capabilities are generally not always found in the same solutions
  • hedge with additional safety stock/inventory — JIT (just in time) is great until it breaks; and with every single disruption, you always lose more than you save with JIT; and if demand is spike and trough, you can’t always ramp up and ramp down fast enough, so inventory is being built up somewhere … and is that somewhere best in an insecure manufacturer’s warehouse half a world away, or a secure warehouse close to your customer base when release day rolls around? (moreover, you always save more with good demand planning than trying to optimize JIT)
  • conduct scenario planning and war gaming exercises especially for critical products or services that could destroy your business
  • cross-train for strategic roles not just to remove risk of personnel departure or insufficient staff for an emergency scenario, but so you can create better strategies that are not only more sounds but easier for all parties to understand and implement
  • automate everything that can be automated by removing UNNECESSARY human touch-points … as noted, a lot of AP, AR, transactional procurement, and tail spend can be automated … including POs, invoice processing, repeat purchasing, but so can contract drafting, regular analysis, sourcing planning, inventory and demand forecasting adjustments, etc. … the key is to make sure checks and balances are in place before something is automated and if a spend amount is too high, an invoice doesn’t match a PO, something is removed in a contract draft, etc. one or more humans are included in the loop to deal with the exceptions (which cannot be auto-resolved — for example, if an invoice doesn’t match a PO, the system can auto-notify the supplier of the discrepancy, auto-suggest a correction for automatic acceptance, etc. but should not automatically accept an uncorrected discrepancy, no matter how small)
  • insure every new hire you make is someone you would trust to save the business

And, even more importantly, with respect to the last recommendation, make sure these new hires get all the training they need and tools they need to actually save the business when one or more of the black swans break formation and barrel dive towards your business!