Category Archives: Procurement Damnation

Economic Sustentation 05: Currency Conservation

As we have previously indicated, there is no salvation, at least not now. It’s only going to get hotter, and the best you can do for now is survive. But survival will be easier if you know what to do, or at least know what you might try, so, in this post, and the posts that follow in this series, we will present some of the options at your disposal, starting with currency (conservation).

So how can you protect against the currency fluctuations that can cause you significant economic damnation?

As indicated in our original damnation post, one preventative measure you can take is to determine the Purchasing Power Parity (PPP) of a currency to determine whether it is undervalued, and likely to rise, or overvalued, and likely to fall, and base your total cost of ownership models not on the current value against your base currency but the expected (average) value over the course of the contract.

But of course, this is not enough to predict every fluctuation in currency as some currencies rise and fall as the result of significant investment being pushed into a country (because of low wages, energy costs, etc.), being pulled out (because of new, burdensome, tax laws, etc.), or political actions that cause boycotts of goods from a certain country, or even trade embargoes. The latter situations can cause currencies to rapidly rise or fall seemingly overnight. So what can you do?

First, whenever possible, try to buy in the standard, or preferred, currency of the organization, and, in particular, the currency that most of the customers are paying in. If the organization is being paid in US dollars, then it should, whenever possible, try to buy in US dollars. This even eliminates (potentially costly) exchange fees from the picture.

Second, if this is not possible, because demand exceeds supply and the supplier has more negotiating leverage or the customers are buying in a currency that is not the preferred currency of the organization going forward, try to negotiate discounts as a result of currency strength increases against a major currency or gold. If the supplier suddenly has considerably more buying power from their dollar and their customers have considerably less, then it might be in the best interest of the supplier, especially if it is producing its goods from raw materials bought in a different market using a weaker currency, to pass on a bit of savings to its customers that might otherwise have to default on a contract or risk bankruptcy otherwise. It won’t always be possible, but if your organization is a major customer whose absence would be felt financially by the supplier, it’s worth a try.

Third, if you have to deal with multiple currencies, keep investments in multiple currencies so that trades can be made at strategic times to allow the profits in the currency trades to cover the increased costs of an unexpected rise in the currency required to pay a supplier. While the currency markets aren’t a zero sum game, generally speaking, value lost in one market always appears in another. And while SI realizes that, in the eyes of an economist this is a gross simplification, economics and trade works because, at any one time, there is a fixed amount of GDP in the world and a fixed value of a currency related to that GDP. Thus, at any point in time, value is conserved just like energy is conserved in our universe under thermodynamic laws.

There’s no silver bullet, but there’s enough lead that, if properly sprayed, will get the job done.

What is Procurement Getting in 2016?

A lot of technology is being hyped yet again for 2016. For example, Juniper Research (courtesy of Entrepreneur) says the big trends to expect this year are:

  • Virtual Reality
  • Social Robots
  • Wearable Technology
  • Supercomputer Cell Phones
  • Multi-System Screen Sharing
  • Bitcoin
  • Cloud-Based Video Gaming
  • Professional Video Gamers Make it Big
  • Better Data Protection
  • Crowdfunding

Not only is there nothing new here (as some of this technology has been emerging for over two decades), but there is nothing that really helps business operate better.

  • Virtual Reality can create more immersive training simulations, but most business don’t need that.
  • Social Robots can take the automated attendant to the store, but it’s still just a fancy kiosk.
  • Giving everyone Google Glass isn’t going to make the world smarter (although it may make the NSA happier).
  • We don’t need a super computer in our cell phone.
  • Platform standardization makes multi-system screen sharing easy, especially if you are running virtual machines in the cloud. (And the now defunct SunRay made this a reality 15 years ago.) And if you don’t have the right information in the first place, who cares what screen it’s on.
  • Bitcoin is no more secure than the person holding the key.
  • If Psy’s Gangnam Style has wasted over 16,000 many years by June, 2014 (Source: The Economist), how many million of man years are being wasted by MMORPGs that are emerging in the cloud?
  • What has the world come to when “sport” is playing a video game?
  • Data protection always gets better, and is always better than 99% of people and organization’s need.
  • Crowds aren’t always wise. They have a history of lynching.

And since Procurement is still often treated as the Island of Misfit Toys, if the business isn’t getting anything good, what is Procurement getting?

Procurement Sustentation


It’s Procurement for the Damned
Our back’s against the wall
We turn into the light
We’re burning in the night

 

After our year-long series chronicling 101 Damnations and our warning that it will only get hotter, you know that, at least for the time being, Procurement is damned.

As we pointed out last year, the CPO is the Rodney Dangerfield of the C-Suite in the 9% of organizations lucky enough to have a CPO that sits at the table, and Procurement still don’t get no respect. But no respect is just the tip of the iceberg. When it comes to a day in your life, if no respect (and the perpetual kick-me sign taped to your back) was all you had to deal with, you’d have it easy. But from the time you get up in the morning until the time you pass out from exhaustion, it’s one emergency after another, one demand after another, and one impossible goal after another. You’re expected to perform eight miracles before breakfast, Monday morning. Demands get tougher after that.

And, in the interim, you have to deal with an amount of future sh!t being dumped on you that is greater than the truckload Biff Tannen had dumped upon his head in the original Back to the Future movie, way back in 1985. But, as SI has said before, echoing the great public defender Mr. Smith who said (on Spend Matters), all predictions will be wrong.

But the smug clouds that will be created by the futurists, and the vendors that will propagate their smug, will be smothering and when combined with the fires set upon you, you’ll hardly be able to breathe. And in the darkness you will find very little light, or help, as training budgets are still slashed, your platforms are still out of date, and your processes are still from the paper-age.

And that’s why SI is following it’s 101 Damnations series with it’s Procurement Sustentations series that, for many of the damnations you are facing, will give you some tips and tricks to deal with these damnations thrust upon you. It won’t be perfect, or complete (as there are some damnations you simply have no way to deal with, but it will at least be something to help guide you through the darkness.

The 101st Damnation!

And now, the damnation you’ve all been waiting for. The one that even tops damnation 100, bloggers, like the doctor.

Have you figured it out yet?

It’s obvious, isn’t it?

The last damnation is … is …

YOU!
 

You chose a career in Procurement (or at least accepted it when you were forced into it).

You stuck with it.

You believe you can make a difference.

You continue to stick with it, day in and day out, while everyone else tries their best to discourage you, circumvent you, and utterly make your life more of a living hell than it already is.

You continue to fight the underdog fight when the entire C-Suite is in the other corner.

In other words, while we didn’t start the fire, as it was always burning since the world’s been turning (as the world’s second, or is it third, oldest profession), our continued effort to fight the fire feeds the flame of damnation.

In our continued attempt to make the business world a better place, we clash with all of the departments, feel pressure from all of the authorities and influencers, and feel the constant consumer wrath as we struggle with infrastructure, regulations, and society as a whole. We get caught up in the geopolitical environment, get crushed under the weight of the economy, get reigned in by the environment, get boxed in by our providers, and, finally are constantly hindered by the technological limitations we are forced to live with.

Damnation is not self-perpetuating, but it gets reinforced every time we acknowledge it and fight against it.

But all is not lost. We might still be losing the battle, but if we are strategic in all of our actions, someday, we might just win the war.

SI’s Prediction for 2016 – It Will Only Get Hotter!

Last year, SI, which welcomed you to hell in the year of damnation (with 100 Damnations Down to date in the dirty dozen categories), avoided predictions because, as it clearly explained in its 2014 Series on The “Future” of Procurement and the follow up series which did a “Future” Trends Expose, most predictions are trash, with most futurists recycling the same old garbage year-after-year, and even though we are only four days into this year, it appears this year will be no exception.

the doctor is already seeing a number of 2016 posts about how this is the year we replace “negotiate” with “collaborate” (which the thought leaders have been saying since strategic sourcing decision optimization started becoming common in the leading Sourcing organizations, also known as the Hackett Group top 8%), that analytics will take off (which is the same speech we heard 15 years ago when Business Objects and Cognos were the names in analytics), that the skills gap will finally be addressed (which reminds the doctor of conversations he was having nine years ago), and so on. It looks like the amount of future sh!t that is going to be dumped upon you this year is greater than the truckload Biff Tannen had dumped upon his head in the original Back to the Future movie, way back in 1985. (A reference that is very appropriate because every year at this time it seems we get taken back to the future.)

The only prediction SI has ever really liked is last year’s prediction by Mr. Smith who “predicted all predictions will be wrong” on Spend Matters, because that’s one of only two predictions you can count on for this year. The other SI will give you now so you can get the prediction post itch out of your system and get back to work:

It Will Only Get Hotter!
You’re still in hell. Budgets are still too tight. Your platforms are still too out of date. The training budget is still zilch. Risk are still increasing. Commodity prices are still going through the roof. The emerging market, which is where the population growth is happening (especially now that China’s one child policy has been eased and a couple can have two children if either is an only child and the middle class in India is increasing), is gobbling up commodities and energy faster and faster (as even a small growth rate in the two countries that account for over one third of the world’s population is substantial) which is not only causing rampant price increases but shortages. Product lifespans are continuing to decrease and consumer preferences are changing faster than you can predict. The procurement equivalent of the second law of thermodynamics is in full effect and the result is chaos.

Last year, you might have been in the frying pan. This year, no matter what happens, you will be in the fire trying to dance between the flames. You have been warned!