Category Archives: Economics

the doctor’s Top 10 Cities for Supply Management Centres of Excellence (Where Should Your Supply Management Organization Be Located? Part V)

Yesterday, I gave you the top 10 mega-regions in which to locate your Supply Management Centre of Excellence, and indicated the major cities in each region that should top your list. For those of you keeping count, I listed 46 cities. If you’re indecisive, that’s a lot of cities to choose from! So, today, I am going to give you the doctor‘s top 10 cites for your Supply Management Centre of Excellence and his rationale!

Rank City Mega-Region Rationale
10 Dallas The Dallas Triangle The telco corridor. Oil and gas USA. Just a few hours north of Silicon Hills. Finance. More Fortune 500 headquarters than any other city in the USA. The centre-point of the largest metropolitan area in the south and the fourth-largest metropolitan area in the USA. East-West and North-South focal point of the interstate highway system — get anything, anywhere, anytime. One of the largest, and busiest, airports in the world (so you won’t miss Chicago). Sports, sports, and more sports. The world famous Dallas Cowboy Cheerleaders. People named JR. A great education system. Birthplace of Amy Acker, who, before taking the Whedonverse by storm, made sure that those of us who were adults with young children didn’t get the short end of the Wishbone.
9 Frankfurt The Frankfurt-Gärtringen Corridor The stock exchange, renewable energy, great transportation and telecommunications infrastructure, and German engineering! And let’s not forget Frankfurther Rindswurst. Woot! Woot!
8 Rio de Janeiro The Rio de Janeiro to Sao Paulo corridor It’s not the CRIB, it’s the BRIC, and it starts with Brazil. It’s the emerging South American powerhouse, which is the most visited city in the southern hemisphere (and home to Carnival), on the coast, and surrounded by a great transportation infrastructure. It is the headquarters of many state-owned companies, the centre of the oil and gas industry in Brazil, and the second largest industrial producer in the country. Foxconn, who produces all of Apple’s iPads and iPhones is down the corridor in Sao Paulo, so you know that Brazil, and Rio de Janeiro, is here to stay as a major player in global trade.
7 Paris Greater Paris La ville des lumières. La ville de l’amour. La vie en rose. Audrey Tautou. La mode, l’architecture, et la philosophie. Quoi d’autre avez-vous besoin?
6 Seoul Greater Seoul A megacity with a population over 10 Million, it is the largest city proper in the OECD developed world, that is home to major multinational conglomerates and one of the world’s top ten financial and commercial centres. A very technologically advanced infrastructure and an openness to the Western Way of doing business. Architecture, fashion, and culture extrude from every crevice. And it’s home to the Wonder Girls of K-Pop. How can you go wrong?
5 Amsterdam Amsterdam – Brussels – Antwerp Central European location, an almost universal understanding of English, great international relations, strong fashion and tourism industries, architecture, and culture (even excluding its world famous Red Light District). Plus, lots and lots of conventions — no travelling required!
4 London London – Leeds – Chester More visits from The Doctor than any other place on earth (and the most likely city to be the first to participate in intergalactic trade). On a more current note, the LSE, the fashion scene and haberdashery shops, and the entertainment industry draw all shapes and sorts of creative talent. Plus, it gave us The Clash and Generation X. What more can you ask for?
3 Tokyo Greater Tokyo Domo arigato gozaimashita! You have to interact with a lot of people everyday. And not all of these people are polite. Why not go somewhere politeness reigns? Plus, it’s the home of Sanrio (hello kitty) and the J-Pop explosion. How can you go wrong? (Oh, and the financial clout, hi-tech infrastructure, and the wide range of cultural pursuits from ikebana and origami to shopping and whiskey, doesn’t hurt either.) And if that’s not enough, anime, manga, and gaming central! (If you think Gibson is inspired, just wait until you read Masamune Shirow!)
2 New York Boston – New York – Washington Corridor If you’re gonna be in Supply Management for the long haul, you gotta have Heart. And since New York is The Heart of Rock & Roll, it’s as good a place as any to start. Plus, the easy access to capital doesn’t hurt!
1 Los Angeles The California Coast Despite our desire to move to a paperless office, we still have to deal with a mountain of paper every day. Purchase Orders, Goods Receipts, Invoices, Import Forms, Export Forms, RFXs, etc. etc. So why not base your Supply Management organization in the home city of Wil Wheaton, the guy who made collating paper cool!

Commodity Prices Have Exceed the Peak of World War I

And it doesn’t look like they are going to decrease any time soon. But more importantly, recent analysis by the McKinsey Quarterly indicates that commodity prices will remain high and volatile for at least the next 20 years. As per this recent article in the McKinsey Quarterly on “a new era for commodities”, demand for energy, food, metals and water will continue to rise inexorably as three billion new middle-class consumers emerge in the next two decades.

And the changes will be significant. As per the article, the global car fleet will double by 2030. Calorie intake per person in India will increase 20%, per capita meat consumption in China could increase by 60%, and urban infrastructure demand will soar in both countries. A hundred years ago, this was not that big of an issue as improvements in exploration, extraction, and cultivation techniques kept the world ahead of ever-increasing global needs. But today, the potential climatic impact of carbon emissions associated with surging resource use limits exploration and extraction because we’re already at a level where global carbon emissions are significantly above the level required to keep increases in the global temperature below 2° Celsius — the threshold which has been identified as potentially catastrophic. Plus, current cultivation technology is pretty much at its limit as only so much food can be grown in a fixed space.

And everything is connected. The ripple effects of water shortfalls at a time when 70% of water is consumed by agriculture and 12% is consumed by energy production can be catastrophic. For example, in Uganda, water shortages led to escalating energy prices which led to the use of more wood fuels which led to deforestation and soil degradation that threatened the agricultural food supply.

As a result, for the short term, commodity prices are going to stay high and your organization had better be prepared.

Five Steps to Long-Term Growth – Huh?

Even though I was browsing the HBR Bogs, I was still a little surprised to see a post titled Five Steps to Long Term Growth because, to be honest, thanks to Wall Street, I didn’t think anyone knew what Long-Term Growth meant anymore. And I’m being serious here. The focus on quarterly earnings calls has gotten so intense that it’s almost obscene — the nosedive a stock takes in the market after a bad earnings call is typically so severe that one would think the world is going to end.

Not only did this intense focus on short-term profit cause the end of the famed research labs in the 1990s (like Bell Labs, Xerox Parc, Texas Instruments — and yes, I know that Bell, PARC, and TI still exist, but what we have today is not what we had then), two major market busts in the naughts (as everyone tried to IPO at unsustainable valuations), and the loss of hundreds of thousands of jobs (because people cost money and it’s more profitable to operate at skeleton crew levels and make everyone, in fear for their jobs, work unpaid overtime than actually be responsible and use the obscene amounts of profit the corporation is making to actually hire the headcount the organization should have), but it pretty much spelled the end of any thought to growth plans beyond the next year in the corporate boardroom – at least as far as I can see.

Of course, it is this lack of focus on the long term that captures everything that is wrong with the marketplace today. Once long term growth and sustainability take centre stage, short term profit becomes unimportant, Wall Street is told to go <expletive> themselves, people become as important as product, and the market changes — for the better. If you would like the market to change for the better, and become successful beyond your wildest dreams when it does, you can start by taking Vijay Govindarajan’s advice and take the following Five Steps to Long Term Growth.

1. Decide What You Are Playing For

Are you playing for the fat <expletive>s on Wall Street? Or are you playing for yourself and your stakeholders. If the latter, then you have to take a stand and do something about it. No one is going to do it for you.

2. Get Everyone Speaking the Same Language

Once you decide you’re playing for the long term, the next thing you have to do is something different. Growth means fostering transformational or breakthrough innovation. This will require identifying value propositions that will expand your business into new markets with new advantages.

3. Imagine Your Future

If you want sustainable growth, you must have a sense of what the future will be, what it will require, and how you will win. Then you apply your breakthrough or transformational innovation to achieving that vision.

4. Align Your Actions With Your Intentions

As Def Leppard said in a fit of Pyromania, it’s Action, Not Words. You have to remember that your people are used to hearing a lot of big talk about great new initiatives that never come to pass and without some action behind them, they will assume that your words are just another corporate fad that will be forgotten as time passes. If you say you are going to eliminate all traces of phosphate from your products, assemble teams to do it. If you say you are going to create 50 jobs with a new initiative, start hiring!

5. Do It!

Growth is hard work requiring strategy, judgment, and leadership. It involves risk. It involves you. You will have to keep doing it. Day in. Day out. Day over. Day under. Day torn asunder. And back to day in.

Risk 2011: Economic

In our last post, we discussed the top three geopolitical risks facing your Supply Management organization that were chronicled in the World Economic Forum‘s 6th annual Global Risks report. Chronicling thirty seven types 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. Today, SI is going to continue its coverage of the report by discussing what it believes are the top three risks from an economic perspective.

03: Asset Price Collapse

Most of an organization’s capital is tied up in two things – its people and its assets. This includes its buildings, its inventory, and the raw materials that will be used to create future inventory. If all of a sudden the value of each of these assets drops 50% over night, the organization loses 50% of the value of these assets – and will likely sustain additional losses when it has to sell its inventory at a deep discount.

02: Extreme Energy Price Volatility

Today’s organizations are ultimately dependent upon three things – people, raw materials, and the energy required to transform the raw materials into the product the organization will sell. If oil doubles in price, that could make the difference between being able to produce the goods in China and import them into the US for sale at a profit and having to import them into the US for sale at a loss (or risk losing the entire inventory).

01: Fiscal Crisis

The fiscal crisis can lead to many things – currency volatility, a credit crunch, and overall infrastructure fragility. Weakening currencies can cause costs to skyrocket. A credit crunch can severely restrict cash flow and make it almost impossible for an organization to temporarily borrow the cash it needs to secure the inventory required to produce the goods it plans to sell to create revenue and, eventually, generate profit. And infrastructure fragility, which weakens every time there is insufficient cash to invest in necessary maintenance, can result in transportation lanes, power plants, and basic utilities becoming unavailable overnight. The ramifications of a fiscal crisis can reach far and wide.

De-Mystifying Economics

A few months ago, Bob Rudzki pointed out a great article on economics that appeared over on the Talking Points Memo (TPM) site this summer where the “CBO Schools Tea Party Freshman on Basic Economics”.

The article, which reprints a letter from Douglas W. Elmendorf, CBO director, starts off by noting that changes in government spending can affect the economy in two different ways: in the short term, by changing demand for goods and services and over the long run, by changing the potential supply of goods and services. Then it goes on to note that economic activity can deviate for substantial periods from its potential level in response to changes in aggregate demand and that increasing government spending can increase aggregate demand and thereby narrow the gap between the economy’s actual and potential levels of output. But most types of government spending have this short-run effect on demand and changes in government purchases and transfers create demand-side effects that are usually only temporary because they raise or lower output relative to what it would be otherwise only for a while because, over time, stabilizing forces in the economy tend to move output back toward its potential.

In other words, government intervention has only a temporary effect and can not be depended upon to increase demand for your products in the long term. In order to increase demand, you need to understand that demand — which is the desire to own, the ability to pay, and the willingness to pay — is dependent upon price point. It could be the case that while only 100 people want your product at $100, 100,000 could want it at $80.

Thus, if the organizational goal is to increase demand, the price point will have to be effectively lowered — and if the organization is going to get through tough times, it’s going to be dependent upon supply management to either reduce costs, increase quality, or find a way to offer more (value-add) features without increasing the price point. That’s why supply management is one of the most critical functions in today’s enterprise and why they need better tools and technologies to achieve their goals. And a few SCRAPS to help them keep the focus to get there.