Category Archives: Procurement Damnation

Environmental Damnation 20: Oil & Natural Gas

Closely related to Economic Damnation #9: Oil & Natural Gas Reserves and Oil Price Shocks, Oil & Natural Gas is also an environmental damnation that hits us hard on the front end and hard on the back end.

In our economic damnation post, we talked about how the almost randomly fluctuating prices that can often double or halve within a year is a damnation that can wreak havoc with your supply chain. When prices double, your costs are going up, way up, and there’s nothing you can do about it. When prices halve, if you’re in a contract, you’re losing money hand over fist, possibly both hands over both fists if there was a fuel surcharge and the supplier refuses to remove it, claiming they are still in a fuel contract with their supplier and won’t see the price drop for a year. (And that’s why you always have to tie surcharges to market rates and monitor closely.) But that’s just the beginning.

Dirty Power

Oil and Gas is dirty power. Burning oil releases dangerous pollutants into the air that pose a risk to our health, a risk to our environment, and even a risk to machinery that requires clean air to ventilate. As a result, these are pollutants that, in many countries, must be captured upon their creation during the burning process by law. This requires expensive machinery that adds to production costs, maintenance costs, and overhead costs.

Disaster Risk

Oil and gas is explosive. Very explosive. It only takes a single miscalculation and your fuel, your factory, and, possibly even your workforce goes up in a hot fiery ball of liquifying flame and all that is left at the end of the day is charred remains of melted metal and smoke.

Shortage Risk

Reserves are limited. And so is our ability to tap them. There are only so many pumping stations, so many pipelines, so many tankers, and so many people to operate them. A single delay in transportation. A single accident that shuts down a pipeline or a pumping station and your supply can be cut off for days or weeks and your production shut down for that length of time.

Oil and natural gas negatively impacts your balance sheet on acquisition, and, if something goes wrong, on transport and utilization. But, in many places, it’s sometimes the only viable energy source at the organization’s disposal. (And why an organization with the dollars should invest in its own sustainable energy production methodology, and, if located in an appropriate area, solar, wind or hydro power to minimize its dependence on oil.) So, unfortunately, for the time being, it’s a double damnation that Procurement needs to live with.

Geopolitical Damnation 32: Political Unrest / Riots

It’s not just unexpected labour strikes that can throw a wrench into your best laid plans, but political unrest as well, both on the public side and the government side.

Political unrest on the public side can lead to widespread walkouts across the public and private sectors, including unauthorized strikes where unions are involved and unauthorized on-the-job walkouts in the private sector where unions are not present, and shut down the better portion of a city, state, or even a country. It’s like a port strike coupled with a driver strike coupled with a warehouse worker strike coupled with a retail sales outlet strike as your entire supply chain inbound and outbound in that city, state, or country is brought to a screeching halt. And this might be the best outcome as a result of widespread unrest.

If the people really get upset, they might not settle for walk-outs and instead decide that they are going to full-scale riot, which will, of course, result in looting, destruction of property, and possibly even terrorist-like actions that result in burning and destruction of entire facilities. So, not only might your supply chain come to a screeching halt literally overnight, but your inventory might be stolen, your production line destroyed, and your building burnt to the ground.

While political unrest on the public side can get quite bad, especially if your facility gets destroyed, political unrest on the government side can be even worse. If, all of a sudden, a government agent takes a strong dislike to your country of origin or your company, every one of your shipments can be held up at the border, any items that appear to be in violation of a directive (such as REACH, WEEE, or a country equivalent) seized until appropriate tests are conducted, each drum or container of a perishable food item at risk of contamination opened for inspection or confirmation (forcing an entire shipment to be destroyed), and each item deemed to be misclassified under the countries HS code held until you pay the maximum fine. And this is again the better outcome.

Your company can be put on a denied parties list and all imports blocked. Your country can be put under embargo for one or more categories of goods that your company produces, also blocking all imports. Your company can be suspected of engaging in, or doing business with companies that engage in, illegal activities and all of your operations in the country effectively shut down when your bank accounts are frozen, all of your files and servers confiscated, and your inventory seized. A government (agent) that has it out for you — possibly even because of the country your HQ is in, the country you are importing from, or the country you are exporting to — can effectively shut your entire operation down seemingly overnight with almost no notice whatsoever.

Political unrest is a very bad thing, and a very deadly damnation when it rises up to consume your supply chain operation whole.

Economic Damnation 3: (Un)Employment Rate

You’re probably asking why this is a Procurement damnation because, on the surface, it doesn’t appear to have anything to do with Procurement. And it’s a good question, because, on the surface, it has to do with the health of the overall economy, and nothing to do with the supply and demand (im)balances that drive day to day Procurement decisions, especially for those organizations still using the Kraljic (Portfolio) Purchasing Methodology.

And from that perspective, you would be right. But here’s the thing. The employment rate is related to the overall health of the economy and the amount of disposable income in the economy. The amount of overall disposable income combined with views on acceptable (consumer) debt levels determines how much consumers have to, and will, spend. The amount of spend determines overall demand for unnecessary and necessary products alike. (Yes, people need to eat and will always spend on food, as long as they can afford to, but if money is tight, “essentials” gets redefined to low-cost basic essentials and high-end food products like prepared meals, imported fruits and vegetables, and lobster are off the menu.) This, of course, determines demand, and demand determines not only your volume leverage in negotiation, but the overall profitability and health of the business, and, thus your overall budget. (Remember, no sale, no store.)

And even if you are in B2B sales, because you supply office supplies, MRO, technology, or equipment, you still depend on consumer spend because if consumers aren’t buying from your customers, your customers aren’t buying from you.

But that’s just one side of the equation. The other side is the talent side. If employment is high, people are buying, but talent, which you so desperately need to take your Procurement organization to the next level, is scarce, and your only option is to hire them away from a rival. This means a big bump in expected salary and lots of perks (and training, so bring that budget back or else) to get them to stay.

In other words, there is no good (un)employment situation for you because either unemployment is rising, which means falling demand and reduced leverage in negotiations and operating funds, or unemployment is falling, which means a lack of available talent and more funds dedicated to talent to keep the talent base you have.

In other words, the eternal damnation of (un)employment rate is not restricted to governments and economists. It affects Procurement quite heavily too.

Technological Damnation 91: Proprietary Madness Continued


Can I play with madness?
The prophet stared at his crystal ball
Can I play with madness?
There’s no vision there at all
  Dickinson, Harris, & Smith, 1988

And, as a result, big companies have decided to create their own vision, separate from everyone else’s, and thrust their own visions of damnation upon us. Locking us into technology platforms that we just can’t get out of.

Proprietary designs. Proprietary protocols. Proprietary APIs. All designed to lock you in and keep you in chains.

All the big companies in the tech space at large have done it. Adobe. Apple. Google. IBM. Microsoft. Etc. And now some, like Microsoft, are taking it further than we ever thought possible. Earlier this year, Microsoft decided to go beyond automatic updates to automatic OS upgrades without the user’s permissions. (Which, of course, bricked a number of machines due to problems with drivers and underlying hardware incompatibility.) Now, they’ve supposedly backtracked on this, but it seems that those who have been upgraded, or choose to upgrade, to Windows 10 will have updates forced upon them with no ability to choose or defer, meaning their machines could be bricked at anytime! Ouch! (And that’s why the doctor does not use Windows.)

But they didn’t start the fire. (Although it appears they did a lot of research in choosing the best accelerants.) Pretty much every big tech company has forced proprietary designs (that restrict upgrades to other products provided by the same company or authorized partners), protocols (for interfacing), or APIs (for developing) upon us and still does.

And it’s not limited to the tech space at large and underlying operating systems. In our space, we have proprietary networks, like Ariba, that mandates its hosted P2P tool users also use the Ariba network for all connectivity with suppliers, even in cases where suppliers are connected to other networks that then connect to Ariba’s in the same transaction stream (Source: SpendMatters: “Ariba Doesn’t Have Customers It Has Prisoners”). (And since suppliers have to pay to use the Ariba Network, this puts a heavy price tag on purchases through the network as opposed to a network where the buyer pays a flat fee and the supplier doesn’t, because the supplier is just going to increase their prices to cover this cost.) And to make matters worse, as Ariba starts to lose prominence in the traditional analyst rankings, it’s stepping up its efforts with the smaller tier firms who, probably lacking the manpower to do the in-depth analysis the larger firms are capable of, are giving it rave reviews on the plus side with very little mention of the weaknesses on the negative side. Case in point: a recent review by Ovum which called Ariba the “largest supplier network”, listed four strengths, and only one weakness. SI has to wholeheartedly agree with Spend Matter’s review of Ovum’s analysis  in “beware analyst research ovums review of the ariba network” — the coverage of the weaknesses was not thorough or fair and while SI does not have insight into Ariba’s network statistics beyond what they publish, SI does know that Basware’s volume is on par with Ariba’s published numbers. While Basware may not be a household name in North America, they are probably the biggest and most established network player in Europe in this space and one of the oldest (as the company turned 30 this year).

To make matters worse, there’s not a lot of open standards in our space. You could say that we have cXML, which a number of PunchOut sites are based on, but do we? While it is open and free for use without restrictions apart from restrictions relating to publications of modifications and naming, this protocol was not only created by Ariba in 1999 but is still controlled by Ariba. They could change it at any time, force all sites on the Ariba network to update at that time, and offer very little documentation or guidance as to how anyone outside of that network will go about doing that and, more importantly, support multiple versions simultaneously (for those in the network and those not), which would be a major IT headache. Even worse, they could decide to replace it with cXML 2.0, keep that version proprietary, and create a dichotomy where only those in the network have 2.0 and those don’t.

There is no completely free, non-proprietary, fully open-source standard in our space, and no guarantees. Proprietary Madness is a damnation that is going to haunt us for years to come.

Infrastructure Damnation 14: Roads


Roll on highway, roll on along
Roll on daddy till you get back home
Roll on family, roll on crew
Roll on momma like I asked you to do
And roll on eighteen-wheeler, roll on (roll on)
  David Loggins, 1984

When we think about transportation in Procurement, we typically think about Carriers and 3PL Firms, two of our provider damnations, but Carriers and 3PLs typically transport your goods using eighteen wheeler trucks, and eighteen wheeler trucks have to use roads. And they have to roll on — which they usually do, until they don’t.

Wait, what?

They roll on until they don’t. Roads deliver their own special type of universal damnation, which impacts Procurement more than most.

Road Hazards: Pot Holes, Sharp Debris, Liquid Tar

Your eighteen wheelers can’t roll on without those eighteen wheels. A pot hole, sharp debris (nails, industrial strength broken glass, etc.), and the asphalt itself (which can reach temperatures 50C or 100F higher than the ambient air temperature in the blazing hot sun) can cause tire blowouts on a regular basis due to the hard impacts, big holes, and the rubber melting temperatures they create. And your truck is grounded until the tires are replaced.

Road Conditions: Often Abysmal at the Best of Times

While the roads in most big cities and the roads that are designated as major highways are typically in pretty good condition in the USA, in some countries, your average highway is full of craters, and sometimes isn’t even paved. So while your goods may roll on at 110 km or 70 miles an hour in the USA, in some places in India, if you can get 30 km or 20 miles per hour, consider yourself lucky. The reality is that in some places, your goods aren’t moving any faster than if they were being transported by an old-fashioned horse-drawn carriage.

And sometimes more prosperous countries will attempt to improve the roads, and the you have construction. Instead of covering 30 km / hr, your driver will spend over half of his driving day sitting in a traffic jam and will watch the horses trot by.

And if the roads are good, and near a big city, everybody tries to use them and you get bumper to bumper traffic jams where traffic moves at about the same pace as a person who is speed walking.

In other words, truck transport is often slow, slow, slow.

Highwaymen

A lot of theft occurs on the open road. Sometimes your driver, on his own, is unlucky enough to be held up at gun point when he stops to investigate a hazard, heed the call of nature, gas up, or grab some hot food at a truck stop. Sometimes, he’s lucky enough to have his rig broken into, hot wired, and driven off when he’s heeding the call of nature in a restroom or eating in a roadside truck stop. Either way, his mode of transportation and your cargo is gone, gone, gone.

Confiscation

Sometimes the highwaymen won’t steal the truck, but will instead try to use it to transport illegal goods or aliens. The driver will pull over at a stop, the truck will be a few hundred kilos heavier than the paperwork says the truck should be, the truck will get searched by authorities, contraband will be found, and the whole truck and all of its contents will get seized. And if he’s unlucky, your driver will get arrested, and then, upon his release, immediately tell you where to stick the next driving assignment you try to push his way.

We may not want to think much about them, but roads are an eternal damnation of the Procurement professional as they are literally what the trucking industry rolls on. Sometimes it really is best to return to the rails.