Category Archives: Market Intelligence

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!

It’s No Wonder SMEs Can’t Get Procurement Right!

… when everything that the vast majority of publications tell them is barely on topic at the best of times, and, as per our article on a recent USA Today article, give them horrendously bad advice that makes absolutely no sense whatsoever.

Needless to say, the doctor found yet another article that is just, well, bad. At least this article wasn’t on USA Today. It was a regional business site in the UK (but what should we expect considering all of the examples of Bad Buying that Peter Smith has been bringing to our attention in his articles for about a decade now).

This article, which purported to educate us on 5 tools to streamline your supply chain only managed to identify three (3), that’s right three, actual supply chain tools, of which one (1), that’s right, one, tool would actually streamline your supply chain.

So let’s start with the ONE good suggestion:

Digital Freight Forwarding

Global logistics is hard. Very hard. All of the different paperwork requirements for pre-clearance, clearance, post-clearance; all of the different taxes and rates to keep track of on import/export/sale; all of the parties that need to be involved in getting the goods off the ship to the cross dock to the warehouse where the last mile carrier picks up; etc. is very demanding. If you’re not a big company that can afford a logistics department staffed by a logistics team, not just a PO clerk who has it as his part time job, you shouldn’t be doing it. You should be using a partner — it will be faster, better, and cheaper for you to do so. It will streamline your supply chain.

But that’s the last good suggestion. The following are two supply chain tools that will help you, but they will not streamline your supply chain.

Data Analytics

While a good data analytics solution will help you identify issues and bottlenecks, it won’t actually help you streamline them. You will have to leave the system to examine the issue, come up with solutions, and then go into some other system to implement those solutions.

Inventory Management

A great inventory management system will streamline inventory management processes, making it quicker and easier to maintain visibility into your stock, become aware of low stock (automated alerts), maintain your catalog, find product (when you can record the location), determine actual space utilization, and even optimize your storage rooms and warehouse. But an inventory management solution doesn’t streamline your supply chain if you need 60 days lead time and get an alert that you’ll probably be out of product 30 days before the next order arrives. For that, you need a proper forecasting tool, optimized global logistics with expediting options when needed, integration with your PoS systems for daily updates (to detect unexpected changes in sales early), etc.

And then the last two options weren’t even supply chain! (And definitely wouldn’t streamline the supply chain.) Because:

  • accounting software is for finance
  • chatbots are for customer support

If you really want to streamline your supply chain, then, in addition to help with logistics, you need:

  • automated supplier onboarding (with the ability to integrate risk/compliance data)
    (get a supplier in the system in days, not weeks)
  • P2P for easy (re)ordering and quick-hit RFQs
    (buy quickly when you need to)
  • online contract negotiation, signing, and management solutions
    (get the the deal done quickly)
  • good forecasting
    (so you know how much you will need to order and when)

And there are plenty of affordable options in each of these areas for small and mid-size enterprises. Just check out the many vendor lists that the doctor included in his 39-part Source-to-Pay series.

Grading The Prophet on His Supply Chain Predictions …

Hopefully you’ve been paying attention over on LinkedIn as The Prophet has been sharing his predictions for the Procurement and Supply Chain space for the coming year as the vast majority are right on the money.

When the series is done, the doctor will discuss each prediction in more detail, but for now, he’ll just direct you to the articles so you can catch up before The Prophet completes the series and you miss possibly the best intelligence on what is coming your way in 2024 (and what you need to consider if you are going to be anywhere near prepared for it):

Current Grade: A!

It Was Nice to See Procurement Get a USA Today Headline, But …

… it would be nicer still if the article made any sense!

Last month, the USA Today ran an article on How to Optimize the Procurement Lifecycle of Your Business that gave the doctor hope that maybe Procurement would get a sliver of the just desert it deserves. But, alas, the article was yet another example of how the big publications don’t care, don’t actually verify the content, and allow whatever big company gets their attention to push their agenda.

Because SEO has no place in any article on “How to Optimize the Procurement Lifecycle of Your Business”. Sales cycle, maybe. But Procurement cycle? Not a chance!

Let’s back up.

The article starts off by noting that understanding the procurement process is vital to improving cost efficiency, ensuring quality procurement solutions, and staying compliant with regulations, which is all true, and all critical to any business (among other things, but you can’t overwhelm the average reader who’s likely not a Procurement expert). It also notes that the procurement process is fraught with complexities and challenges which is also true, and also critically important for a non-Procurement person to understand.

Then it says that optimizing the procurement process entails the use of modern technologies, insights, and strategies, which gave the doctor hope that maybe it would help an average user understand what kind of technologies the organization needed, what insights the technologies should provide, and what types of procurement strategies the organization might want to consider.

But instead of actually providing these key insights it goes on to say that inefficiencies in procurement management can lead to increased costs, delayed deliveries, and compromised quality, which, while also true, is not that helpful at this point (and should have been listed as examples of the complexities and challenges highlighted above). It used this as a lead in to how modern point-of-sale (POS) systems are instrumental in dealing with inefficiencies, WHAT THE HELL?, which is used as a lead in to a whole section on digital transformation: incorporating SEO for Procurement Optimization, WHAT THE FUCK?

A POS solution is NOT a Procurement solution, and it’s certainly NOT instrumental in dealing with inefficiencies in Procurement management. Procurement is about acquiring the product an organization needs when — and where — it needs it. While a modern POS system can push roll up data into the inventory management system which, in turn, can generate forecasts to feed Procurement, a modern POS system is not necessary because all Procurement needs is sales projections, and if the delivery timeline from the source in Bangladesh or Shanghai is 45 to 60 days, it only needs 60 days of granularity, not sales data by the hour! Logistics will need that granularity to do finer forecasts to push stock where it is needed before it is needed, but NOT Procurement.

But the cardinal sin of this article is claiming that incorporating SEO techniques into the digital transformation strategy of the business can add another dimension to procurement optimization. No NO NO NO NO! The article claims that with SEO techniques, businesses can reach out to a wider pool of global suppliers, which is completely false because THAT’S NOT HOW SEO WORKS! SEO helps people doing searches find sites that match certain keyword searches, and, thus, would only work if the potential supplier has a sales person who is actively using the internet looking for new customers, who is using the keywords that the site has been SEO’d for, and who is searching in the organization’s language and in the organization’s geography (as most search engines prioritize same language results in the region). In other words, the chances of a supplier you might actually consider finding your SEO-optimized site and reaching out to the right person at your organization is only slightly better than you winning the grand prize in a mega-millions lottery.

The proper solution for finding new suppliers is a supplier discovery / network solution like
Apex Analytix,
Graphite Connect,
MFG,
Onventis,
Promena,
ScoutBee,
Supplhi,
supplier.io, and
Tealbook.

NOT SEO!!!

So, even though Procurement is the life blood of the business, when it comes to mainstream coverage, Procurement Don’t Get No Regard, No Regard At All!

There is a Price of Relocating to “Friendly Countries”, but There Are also Corresponding Cost Reductions

A recent article in El Pais on the price of relocating factories to ‘friendly countries’ noted that according to the European Central Bank (ECB), 42% of the large companies in the Old Continent that it has recently surveyed have resolved to produce in allied countries as a means of reducing risks. However, this relocation carries economic consequences, and international institutions — such as the IMF and the ECB — warn of its impact on growth and soaring prices.

The article is right. Some prices will go up as countries move out of countries in, or likely to engage in conflict, both of the physical (war) and the economic (closed borders, significant tariff increases, rolling lockdowns, etc.) variety, and move to more “friendly” countries. (As far as SI is concerned, it shouldn’t just be “friendly” countries, it should be “friendly countries close to home”. At least companies are realizing that China and/or the lowest cost country is not always the answer when that answer comes with risks that, when they materialize, could lead to skyrocketing costs and losses that dwarf five years of “savings”.

Furthermore, even though 60% of those contacted said that changes in the location of production and/or cross-border sourcing of supplies had push up their average prices over the past five years, this hasn’t been true across the board, it doesn’t have to be true, and some of those could still see savings as they optimize their new processes, methodologies, and supply chain network. (Changes don’t reach full efficiency overnight, and sometimes it is two or three years before you can optimize a supply chain network due to existing contracts, infrastructure, etc.)

Why are costs (initially) going up for many companies?

  • wages: many of the “friendly” countries are more economically mature, or advantaged, with a higher standard of living buffered up by higher wages / better social systems
  • utility charges: in “friendly” countries that are using newer, cleaner, sources of energy or limiting energy production from burning (coal, oil, natural gas) have energy costs that are often higher as the initial infrastructure investment has not been amortized, water costs could be higher if more processing inbound or outbound is required, and so on
  • production overhead: chances are that the factories are newer, required a large investment that isn’t anywhere close to being paid off yet by the owner, and you’re paying a portion of the large interest payment to the investors/banks as part of the overhead

However, it’s important to note that:

  • productivity: will go up when you move to a locale where the workforce is more educated and skilled and is better able to employ automation and modern practices, and thus gets more efficient over time, countering the initial wage increase
  • energy costs: will reduce over time as a solar farm or wind farm can produce renewable energy for decades, with the initial investment often being paid back within one third to one quarter of that time; as a result, energy prices should remain flat(ter) over time than in the locales where they are still burning dwindling fossil fuels (which rise every year in cost) and have not yet invested in renewables
  • overhead: will decrease once the investments are paid back (and the interest payments are gone), which means it can stay flat as other production related costs rise (compared to older plants which will eventually reach a point where the revitalization investment becomes significant on a regular basis)

In addition to:

  • logistics costs: will reduce when you choose a friendly country closer to your target markets (since most freight is ocean freight on fossil fuel burning cargo ships)
  • disruption costs: will reduce as less risk translates into less (costly) disruptions over time

So while costs may go up a bit at first, at least relatively speaking, they will go down over time, especially as network and process optimizations are introduced and obtained from experience with the new network, suppliers, and technologies.