Category Archives: Procurement Damnation

Infrastructure Sustentation 12: Airlines

Airlines are sometimes the most unpredictable of the infrastructure damnations. Postal services failures can be overcome with private carriers. Road closures can be overcome with longer detours. Port closures can be overcome by routing to alternate ports and trucking for longer distances. But when airlines fail, especially when all airlines are unable to serve a region, what do you do. Send a zeppelin? (And when was the last time those great balls of fire just waiting for a spark were used?)

The reality is that airlines are subject to a host of threats that can shut them down at a moment’s notice including, but not limited to:

  • Environmental Hazards

    planes can’t fly through hurricanes, tornados, or tsunamis; they can’t fly when the air is filled with volcanic ash (that will choke up an engine); they can’t land on water or thin ice); etc.

  • Geopolitical

    embargoes, disputes, and wars can close down a zone for an extended period of time

  • Labour

    worker strikes can take an airline down for an extended length of time

And even if this doesn’t happen, there’s still the risk that:

  • AirFreight can skyrocket over night.

    It’s not only ocean freight that can increase 20% or 30% almost overnight, air freight can too (especially when fuel costs skyrocket)

So what can you do?

Minimize Dependence on Air Freight

Yes it’s nice to get things overnight, but with proper supply chain planning, do you really need things overnight? For the bulk of enterprise and consumer goods, the answer is no. And with ocean freight able to get things across the ocean in as little as 23 days, that should be fast enough for most needs.

Have a Backup Plan

Have a backup airline, a backup departure point, a backup arrival point, plans to rail/truck the cargo to backup departure and destination points, and worst-case ocean or land backup plans for at least part of the journey if airlines shut down in a region due to another volcanic eruption.

Get Your Own Cargo Jet (Fleet)

As long as planes can fly, you can have more control. This isn’t a solution for anyone who doesn’t do a lot of air freight, but if you do, just like building your own power plant may soon be a necessity, so may be controlling your own air fleet.

Economic Sustentation 04: Gen X, Gen Y, and Gen Z

Talent is supposed to be Procurement’s salvation, so why are:

  • Generation X, born between the early 1960s and the early 1980s,
  • Generation Y, born between the early 1980s and the early 2000s, and the
  • Generation Z, born between the early 2000s and the present day

an economic damnation? As was discussed in societal damnation 50 on talent, talent is required to keep your supply chains moving. People are required to enter the data to keep the information chain moving, to move the money to keep the financial chain moving, and to move the goods that keep the physical chain moving. And the majority of this talent is a workforce between the ages of 20 and 55, who will have been born between 1960 and 1995, and thus will primarily be composed of Generation X and the Generation Y Millennials, and, as Generation X begins to retire en-masse, Generation Z will begin to enter the workforce. So, not only is talent a damnation, its a damnation that comes in three different flavours.

Generation X

Generation X wants stability, fair pay, a great pension plan, flexible hours, time-off to help good causes, good healthcare, and career development.

It’s a tall order if you’re working for a multi-national organization with fixed benefit programs defined in the 1990s — focussed primarily on privately managed pensions, healthcare, and ten year old pay-scales. This is good for a small percentage of the workforce — but if they have kids or grand-kids, fixed 9 to 5 hours every day, no exception, doesn’t work. If the organization believes the best way to help the community is to just donate cash, and the workforce can’t volunteer their time as well, they’re out. And so on. And some of these requirements are at odds with:

Generation Y

Generation Y wants unique opportunities, work-life balance (and more vacation than the mandatory 2 weeks), social responsibility, and mentoring.

The organization probably has decent unique opportunities for those it feels can handle them, as well as some mentoring for people on the fast-track, but that’s it. Generation Y wants responsibility and trust, and wants the mentoring and education so that it will be worth of the responsibility and trust.

Generation Z

The beginnings of generation Z are just beginning high-school. And whereas Generation Y grew up in the information age, Generation Z is growing up in the communication age where not only is technology ubiquitous, but communication technology is ubiquitous and just about every Generation Z is growing up with a smartphone were they can call, text, and e-mail 24/7. And while we don’t know what they will want from a job perspective, we do know that they will want to be connected to their friends and colleagues 24/7 — just not necessarily for work purposes.

So how do you balance all of these competing requirements? You adapt. And you focus on commitment, not fixed hours. Results, not process. Team, not silos.

And then understand the costs of what your employees are asking for vs. the opportunity costs of not offering a few extra benefits to your employees. For example, how much does an extra week of vacation cost versus the results a top Procurement Pro can bring through additional organization cost savings. Does it really matter if the employee works 9 to 5, especially if they need to negotiate with a supplier half a world away at 11 pm. How much does better healthcare really cost? And what about an extra week to allow your employees to volunteer for good causes? The energy and pride could inspire them to work even harder and achieve even more lofty goals when they return to work.

The reality is, most of what talent will ask for costs very little relative to the value that talent can bring your organization. Especially when a top employee can push a hard 3% savings straight to the bottom line on 10M, 100M, or even 1B of spend. And if we didn’t have the situation where only 1 in 7 American adults were competent in math (as per societal damnation 45 on lack of math competency), the math would be obvious. Give in to every reasonable request, make them happy, and realize savings of 3X to 30X their total fully burdened cost.

Geopolitical Sustentation 31: China and the New Silk Road

As per our damnation post last year, as part of it’s Grand Strategy, China has recreated the Silk Road, which has been active since November 18, 2015 when the first train left the city of Yiwu in Zhejiang province for a warehouse complex in Madrid, which it reached on December 9th. And it’s not going to stop until it crosses all of China and connects the entirety of Europe and Asia.

And when we say it’s not going to stop, we mean it. As per an article on Forbes on January 21, 2016 on how China is Moving Mountains for the New Silk Road – Literally, they won’t even let mountains get in the way. Four years ago, the entirety of the downtown Lanzhou New Area (LNA) was hundreds of mountaintops, which have been removed to make flat land for development. That’s right, they cut down mountains. In North America, it’s sometimes a massive undertaking just to flatten a few hills for a flat highway. They brought in the equipment and manpower to flatten mountains! If that doesn’t show you how serious they are about trade domination, I don’t know what will.

China is in the midst of implementing its OBOR (One-Belt, One-Road) initiative that will facilitate the creation of a gargantuan network of new highways, rail lines, logistics and industrial zones, pipelines, power plants, sea ports, and even entirely new cities that will stretch from East Asia to Western Europe, span over 60 countries, and impact over half of the world’s GDP, putting an end to US dominance once and for all. (The OBOR initiative also has a sea route, the 21st Century Maritime Silk Road, that goes through the Western Pacific and Indian Ocean, which also connects China to all of Africa (and the Middle East), giving them access to the entirety of 3 of the 6 populated continents and 6/7ths of the world’s population!

China is not only an emerging economy, it is the emerging economy that will soon be powering, directly or indirectly, almost 2/3rds of GDP when the silk road is completed and it has it’s hooks across 3 continents.

And, as we said in our damnation post, China is about to become your upstream as well as your downstream supply chain. You have to abandon your old view of the world, accept this reality, and start preparing for it. It doesn’t have to be the damnation that causes your undoing. It can be your salvation. Your choice.

So how do you prepare for it?

1. Learn Mandarin

Chances are your China partners will speak better English than you will speak Mandarin, but any attempt to seriously learn their language will be seen as a sign of respect and good faith and go a long way in negotiations. And even if you aren’t the negotiator, you will be able to communicate with almost 1 Billion native speakers. (That’s roughly twice as many native English speakers.)

2. Model your source-to-sink Euro-Asiatic supply chain.

Don’t just model the inbound supply chain, model the outbound too – and when you do your network design, strategic sourcing, and logistics models, try to find the best locations for storing inbound and outbound materials and products, for manufacturing to take advantage of a strong network design, and to minimize import/export/FTZ requirements and logistics network length. Long gone are the days when you are sourcing from China to sell in the US. Now you are sourcing from China to sell to the world, China included, so why manufacture in Malaysia to ship back to China. You need to take your supply chain and sourcing optimization to the next level. (Which is something the Six Samurai can help you with from a sourcing perspective.)

3. Treat your Big China Suppliers as Strategic Partners

Even if you are convinced they don’t understand your business model, the American marketplace, and the global consumer and even if you are convinced that their only goal is to rip you off at every turn (because you are paranoid or your golf course buddy found one of the scammers, which there are in every country), they know their local market and their own preferences better than you. And even if China is not a market today, if your company needs growth, chances are it will have to be tomorrow and you will need their guidance, and possibly even their innovation capability. So get ahead of your competition in their books.

Now, more will be required, but this should put you on the right track, er, road. The silk road. Which will again be the centre of global trade.

Societal Sustentation 45: (A Lack of) Math Competency

While Procurement needs to be able to deal from a full deck of skills (and SI has compiled a list of 52 unique IQ, EQ, and TQ skills a CPO will need to succeed, which will eventually be explored in future posts over on the Spend Matters CPO site once the outside-in issues, agenda items, and value drivers have been adequately addressed), many of the skills that Procurement requires rely on math. In fact, with so many C-Suites demanding savings, if a Procurement Pro can’t adequately, and accurately, compute a cost savings number that the C-Suite will accept, one will be tossed out the door faster than Jazzy Jeff gets tossed out of the Banks’ manner.

But, especially in the US, strong math skills are not in abundant supply. As per a 2010 SI post on how This is Scary! We Have to Fix This that referenced a MSNBC article on Why American Consumers Can’t Add reported on a recent study that found:

  • Only 2 in 5 Americans can pick out two items on a menu, add them, and calculate a tip,
  • Only 1 in 5 Americans can reliably calculate mortgage interest, and, most importantly
  • Only 13% of Americans were deemed “proficient”. That means
    less than 1 in 7 American adults are “proficient” at math.

So even if the Procurement Leader has strong math skills, it’s likely that not everyone on the team does. And even if the Procurement team has decent math skills, the chances of every organizational buyer having decent math skills is pretty slim. So you need to figure out how to ensure poor math skills don’t affect your performance. What should you do?

1. Make sure you know your team’s math competency.

If you need to, have each team member take a math competency test. You need to know their level of capability, and if you can’t get university transcripts, then you need to figure out their university equivalent math competency.

2. If they are not up to snuff, get them the courses they need – at your expense.

You have smart people. You hired them. They have talent, they just need a bit more math. So allow them to enrol in college or university courses, give them the time to improve their skills, and pay for the courses.

3. Acquire systems that make the math easy.

Give them systems where they can collect all the data, run accurate side by side comparisons and analysis, define formulas, and automate computations. The easier it is for them to create the models, analyze them, and make the right decisions, the better.

4. If possible, acquire systems that guide them.

For example, an optimization-backed sourcing system that asks them about the type of constraint, the split in a split award, and any filters and then creates the equation for them, where they only have to approve, vs. your buyers trying to do complex modelling in a spreadsheet is going to be more accurate and save you more money.

For math competency to improve overall, the importance of a math education has to increase overall. That is going to take some time. In the interim, work with what you got.

Technological Sustentation 90: Open Source

Open Source, which not only gives us free software, but some of the best software out there, should be a great thing, and it is, but from a Procurement point of view, it’s a damnation. Why?

  • How do you cost it?

    There’s no free lunch when you have to wash the dishes — for the entire Bawabet Dimashq Restaurant — and there’s no free software. It has to be customized, maintained, and supported. This takes people, and that costs money.

  • How do you defend against it?

    Chances are you will find that the software doesn’t quite do what you need, and then you will need to augment it. But under open source terms, you have to release those modifications. And that will be helping your competitor, won’t it?

  • How do you defend your investment against it?

    When a purveyor of proprietary software comes through the door and offers you its SaaS platform for half of what IT thinks it will cost to maintain your platform, how do you convince the CEO the customized open source software you want is the right way to go?

Now, in our world, it’s not usually the case that open source is the way to go, as modern providers of SaaS platforms, or at least those that aren’t too greedy, have made them such that they can offer better, faster, and cheaper alternatives than in-house open source. But that doesn’t mean proprietary will solve all of your platforms. Every organization is unique, and while SI expects there is a proprietary platform that can be configured to meet the majority of your needs, there might be a situation where something custom is needed, and the best way to build it is on open source technology. So how do you deal with the organizational pushback?

1. Know Your Unique Needs.

The first question is, why do you need it. There has to be a reason besides you want it, you like it, you think it will be cheaper than the alternative, or you think it will be the most flexible. If you’re gravitating towards open source, there should be one or more unique requirements that only open source can meet, these should be well understood, and you should be able to clearly convey why.

2. Know the Risks … and Have a Game Plan to Address Them.

Open Source brings unique advantages, but it also brings unique risk. Who is going to support the platform day to day? Maintain it and fix the bugs? Add new functionality and integration capability as the organizational platforms change? And how can you be sure someone didn’t sneak something proprietary in there, either on purpose or by accident, and you won’t be accused of IP theft or a license infringement and have to tack legal costs onto the bill (as there is no provider to indemnify you)? All of this is addressable, and controllable, but you need to be aware of all the risks, and have a game plan to mitigate them up front, or getting any open source project approved in an organization that still wants a one vendor platform and “one neck to choke” (that is outside the organization) will be an uphill battle.

3. Know the Costs … and the Value of the benefits.

Make sure to understand all of the costs of the solution, both hard and soft, as well as an expected value of the unique benefits that the open source solution brings, and add those to the cost equation of the best non-open source alternative. If the open source will allow for a drastic reduction in the manpower required to complete a workflow, allow for the organization to harvest a lot of market insight without paying for costly, marked up, data subscriptions, or provide some other cost saving, that is extremely relevant and the value ratio of the solution could even out when compared against the best proprietary solution. And having these value models worked out can go a long way to mitigating the “but it costs more for IT to maintain” dissension.