Category Archives: Procurement Damnation

Geopolitical Damnation 26: The WTO

The WTO, or World Trade Organization, is an intergovernmental organization that regulates international trade, and one you need to be intimately familiar with if international trade is core to your business. Officially commencing operations twenty point five years ago on January 1, 1995 as a result of the Marrakech Agreement, signed by 123 nations, it replaced the General Agreement on Tariffs and Trade (GATT) that had governed international trade since 1948.

It serves to provide a framework for negotiating trade agreements and for establishing a dispute resolution process for alleged breaches of WTO agreements. Now, it is true that most of the agreements negotiated, as well as most of the mediations that take place, are between nations and, more specifically, their governing bodies, but the agreements that are negotiated, and mediated, limit what your private sector organization can import and export.

Being aware of what is going on is critical if you are involved in trading a commodity that is governed by an agreement being mediated or enforced by the WTO; if your government body is trying to enforce buy local or foreign exchange restrictions (as measures requiring the use by an enterprise of domestics products or measures restricting access to foreign imports to export amounts are explicitly prohibited as all members of the WTO agreed to the Agreement on Trade-Related Investment Measures [TRIMs]); or if your organization is trying to protect, and enforce, its intellectual property rights internationally as the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights [TRIPS] governs IP with respect to trade, for example.

Similarly, it’s important to be up to date on what’s not going on. For example, the current round of negations between member countries, which was dubbed the Doha Development Round, which was supposed to make globalization more inclusive and help the world’s poor by slashing barriers and subsidies in farming, has been ongoing since November 2001, with no end in site. As a result, many countries are resorting to establishing their own bilateral trade agreements, which they may or may not be all too public about until the agreements are signed. Case in point — The Trans Pacific Partnership (which is so egregious it is a Damnation in itself).

But if you keep up with what’s going on, you know whether the material, product, or service you’re interested in is covered under a WTO (mediated and regulated) agreement, whether it’s a bilateral agreement between your country and the country being exported from or imported into, or whether an agreement is being negotiated that will cover the material, product, or service and, more importantly, whether your lobby group, or your local manufacturers’ association lobby group, should be sticking their nose where the government may not want it to make sure that the negotiators understand all of the issues and what is good for private industry.

It’s important to remember that these agreements not only define the framework of international trade, but the bilateral agreements being negotiated now by those countries too impatient to wait for the close of the Doha round (which could take another decade) define the tariffs that private industry has to pay. And if tariffs come into effect that are too high on your primary product lines, your organizational existence could be in jeopardy. Unless Supply Management can find another source (or sink) in another country, the organization could be forced to change product or service lines or even go out of business.

For the most part, having framework and agreements is a good damnation, but it’s still a damnation nonetheless.

Technology Damnation 94: New Industrialization Era

Progress is good. Innovation is good. Invention is good. Until it destroys your business model. And that’s what’s about to happen, because unless the supply chain can adapt, the organization won’t survive. Because it’s going to be spotted by the supply chain first, it’s going to impact the supply chain first, and it’s going to distort the supply chain first. In fact, the new industrialization era is already revolutionizing global supply chains, and if your company hasn’t caught up, it may soon end up in the obituaries. Even some of the largest companies in history couldn’t survive the changes brought on directly and indirectly by technological shifts, including the South Sea Company (which was, adjusted for inflation, the third largest company in history in 1720), the Mississippi Company (which was, adjusted for inflation, the second largest company in history, also in 1720), and the Dutch East India Company (which was the largest company in history, adjusted for inflation, in 1637). These were all bigger than Apple, Microsoft, Google, and Facebook — which could all become blips in future decades. And even if you survive, you can fall from great heights to obscurity. Consider the Hudson’s Bay Company, founded in 1670. It’s still around, and has assets worth almost 8 Billion, but even a considerable number of Canadians aren’t likely to mention it, if they even know if it, if asked for prominent Canadian companies, instead citing companies such as Tim Hortons (sold again for 11.4 Billion last year), Imperial Oil, the Canadian National Railway, and Rogers (if they don’t realize that our biggest companies are actually are banks).

Three changes in particular are going to disrupt your supply chain in the near term, so if your supply chain is not ready, it better get ready. In no particular order they are:

3-D Printing

Those of you following SI’s landmark series on The “Future” of Procurement and the “Future” Trends Expose which basically clarified once and for all that the vast majority of “future” trends that were being touted by the average analyst, blogger, speaker, and vendor were actually trends that were years old, decades old, and, in some cases, centuries old and that while a handful were still relevant (as they are still emerging and only affecting the leaders), only a few trends being touted as “future” trends were actually recent enough to still fall into that category. One of these was 3-D printing.

As stated last September, while 3-D printing is not a new technology, as this year is its 30th anniversary, it was only in the last decade that it became accessible to more than a handful of businesses and only within the last few years that it has become widely accessible and affordable. Now that the technology is becoming mainstream, it’s entering a rapid maturization phase in which it’s going to become better, faster, cheaper, and infinitely more powerful. As a result, prototyping is not only going to become more rapid, but more powerful. Engineers will be able to iterate through multiple prototypes in rapid succession without having to wait six (6) weeks for the next iteration from the plant in China. Not only will this support the increasingly shorter and more complex product life-cycles, but it will help reduce failure risk and associated costs, and increase innovation potential as now you can try the product before you commit to a production run.

Robotics

Robotics is not new, and many factories, such as automotive plants, have been investing in automation for decades. But recent increases in computing power, hardware production, and control systems coupled with open source systems such as Arduino have revolutionized the ability for even garage start-ups to build elaborate control systems, create advances in robotic automation, and even unmanned vehicles for air, sea, and inhospitable (volcanic) environments. Space age developments can literally be done in a garage workshop. So it won’t just be your largest competitor that you have to fear, but an unknown start-up that can revolutionize a production process and decrease the cost of production by orders of magnitude.

Bio-Plastics

Bio-plastics are new age plastics that are derived from renewable biomass sources that are more environmentally friendly (as they are biodegradable) than petroleum base plastics. Although they are currently more costly, and in some case, more environmentally damaging to produce than traditional plastics, the inflection point is coming and then your competition is going to have cheaper packaging that is more accepted by the market than you. And while the focus now is on packaging and industries like electronics and automotive where injection moulding is required, they could even have applications in medicine. Think about liquid bandages. Variations of bio-plastics might lead to the (accidental) discovery of better, and safer, polymers. Bio-plastics might have less risk of leaking when used in casts. And so on.

And this is just the first wave of disruptive innovation that your supply chain has to deal with. More waves are coming. While progress is wonderful at a societal level, for those organizations not ready, it’s damning since the very nature of innovation means that for something new to emerge, something old has to die.

Environmental Damnation 18: Natural Disasters

Natural Disasters are on the rise. As per a 2011 publication from THINK Executive, from the 1970s to the 1990s, the number of natural disasters occurring worldwide has tripled. It is predicted that both natural and man-made disasters will increase five times in the next fifty years. Ouch!

Why? First of all, we’re still polluting and major energy and raw material consumers, including the USA, China, and India still won’t sign the Kyoto Protocol. This means that continual extreme climate change (which is better terminology than global warming because that’s only one * of extreme climate change) which brings category 5 hurricanes, tsunamis, deadly heat waves, and blizzards with snowfalls worse than any in recorded history are going to continue to occur on a regular basis.

Secondly, while there have been a number of earthquakes above 8 in recent years, there have only been two really deadly earthquakes since the 1976 Tangshan earthquake – in particular, the Kashmir quake of 2005 and the Haiti quake of 2010. But the tectonic plates are in constant stress and while it can never be predicted when they will slip, they will slip and the quake will be devastating. And not only is it likely that hundreds of thousands or millions of people will be seriously injured, or killed, but the region it hits will be entirely devastated. An entire city can be destroyed over night. Every office, every plant, every warehouse, and every truck when the road they are on is swallowed up.

Thirdly, and following on the last point, a considerable portion of the worlds population lives on the ring of fire — the west coasts of North and South America, the east coasts of russia and China, and a considerable part of Australasia. About 12% of Canada’s post population lives in BC; about 16% of US population lives on the west coast; Chile, Peru, Columbia, and Venezuela are almost entirely coastal; Korea, Japan, Taiwan, Philippines, Vietnam, Cambodia, Thailand, Laos, Myanmar, Malaysia, Singapore, Indonesia, Papua New Guinea, Bangladesh, Sri Lanka, New Zealand, and habitable Australia are almost entirely coastal; and a considerable portion of India’s and China’s population are coastal. Not only is this area at high risk of quakes, but it’s at high risk of devastating volcanic eruptions as well. The 2010 eruptions of Eyjafjallajökull were nothing in comparison to the devastating eruptions that have happened in the past. While there are not that many disastrous eruptions on record, the Krakatoa eruption of 1883, which was heard up to 3,000 miles away, destroyed most of the island, unleashed tsunamis which killed more than 36,000 people, and spewed clouds of ash into the sky more than 6 miles high which lingered for months. And almost everyone knows the story of Pompeii which was buried by an eruption. While the most devastating eruptions are a lot less frequent than devastating earthquakes, occurring as infrequently as every 50,000 years as compared to every 50 years or so, even an eruption as powerful as Krakatoa could disrupt supply chains in the region for a year or two.

We could go on, but you get the point. Disaster you can’t prevent, and likely can’t even predict, is always in the shadows, waiting for the worst possible time (when everything else is going wrong) to strike.

Organizational Damnation 60: Human Resources

Does the doctor even have to write this post? I’m sure many of you are already cringing from the title knowing how an overly process driven human resources department, free of logic and common sense, can ruin the best and worst of plans and inspire your best talent to run to the hills and run for their lives.

Why do human resources often bring damnation to Procurement? Simply put,

  • They exacerbate talent tightness. (Societal Damnation 51)
  • They drive talent away. (Societal Damnation 50)
  • They think they know what Sourcing is.

They exacerbate talent tightness.

HR will insist on owning the talent recruitment process. Now, it’s true that, in most organizations, HR should own the process because most departments wouldn’t know how to go to market for talent if the market came to them and bit them on the thigh like a boghog of NowWhat, but a good Procurement organization knows how to go to market for talent. In fact, a good Procurement organization knows how to go to market for everything the organization needs, and, more importantly a good Procurement organization knows what defines talent to the organization.

But this isn’t the problem, it’s the way that many non best in class Human Resource organizations go about the talent hunt. They blast a poorly written advertisement with a list of requirements no living or dead human can meet across multiple channels, collect hundreds, if not thousands of resumes, and then go through a last-man standing vetting process. They create a ridiculous checklist, a set of arbitrary rules for checking the boxes (because they don’t understand what the boxes are), and then eliminate every resume that doesn’t check every box. They then interview the last men, or women, standing, eliminate those that they feel won’t be a good organizational fit (based on gut instinct), and pass you the candidates that remain.

This is almost guaranteed to eliminate a large number of good candidates, if not the best candidates, because Procurement doesn’t need a candidate that checks all the boxes, training can often handle that, it needs a candidate with the aptitude to learn what he or she doesn’t know because organizational needs are always changing and no Procurement professional will ever know everything he or she needs to know.

They drive talent away.

Many HR organizations institute policies that are so onerous, they will drive every individual in the organization insane. These will typically take the form of expense claims and pre-performance review. In the latter case, these will take the form of ten page questionnaires asking the individual to update their resume in detail and list all changes since the last review, describe all of their accomplishments since their last review, list the top ten reasons they deserve a 2% raise, do a 360-degree review on their boss, rate the HR process, etc. until they want to scream and jump out the 10th story window. In the former case, since the review agony comes at most once a year, they will insist on nonsensical requirements for even the simplest of rebates. For example, some organizations have a policy that, in order to get an expense claim reviewed, every employee had to send in an envelope with their expense receipts (and their name on it) stapled to the expense claim to get a refund. This sounds like a good policy, since good fiscal accountability means that receipts should be provided for any expense over a nominal amount, until it’s enforced to the extreme. And some organizations enforce this to the extreme. For example, as described by Sigi in his recent book (reviewed in Gettin’ Sigi With It), one organization refused to honour an expense claim without an envelope, even if their was no receipt. For example, Sigi recounted the story of when one of his team members came to him with a printed e-mail that said an empty envelope with the team member’s name on it was required to be sent in by the team member to get his mileage claim reimbursed. Wow!

They think they know what Sourcing is.

In some organizations, it is HR that thinks they do the Sourcing because, as far as they are concerned, Sourcing is the process of acquiring talent and nothing else. So if you say you do Sourcing, they try to beat you down and kick you unconscious. It’s crazy.

the doctor could go on, but you get the picture. Human Resources is yet another damnation Procurement has to live with. They are the gatekeeper and we are still waiting for the key.

Technology Damnation 89: IP & Patents

Intellectual property and patents are a good thing, right? They protect your inventions and prevent your competitors from stealing your innovation and making money off of them, right? Wrong. That’s the theory, anyway, but the reality is considerably different. They don’t stop your competition from stealing your ideas and inventions, they only give you the right to go after your competitors in court for damages if they steal your inventions. And moreover, they make it easy for your competitors to duplicate your invention.

Remember, in order to patent an invention, you have to completely define the invention in enough detail for someone to easily reproduce it. (And it clarifies why many companies would like to keep as much as they can trade secret for as long as they can.) It’s like handing a car thief the keys to your brand new custom made Ferrari and asking him if he’d like a joyride.

But that’s not the worst part. Let’s say your competitor fully replicates your invention and starts selling it to your customers and making all the profit. Your only recourse is a lawsuit, and if your competitor is bigger than you, has deeper coffers, and more expensive lawyers, it’s going to be an expensive lawsuit. Even if you know you are in the right and there is a very good chance that you could recover legal fees in the award (after multiple appeals), you might not be able to afford the suit. In fact, even initiating a lawsuit might bankrupt you.

But this is far from the worst of it. The worst of it is that many companies file, or buy, patents not to protect their IP, but to prevent you from selling yours (and this has been going on for a decade as per SI’s classic post on how the patent pirates will plunder away. Since patent clerks are not experts in anything but the rules associated with filing patents, and the reviewers are typically not experts either, many patents that are much broader than they should be, and that actually patent innovations that exist in prior art as part, or all, of the invention, get pushed through by firms with big pockets and persistent lawyers. These patents are then used by companies, known as patent trolls, with no intention of actually developing or selling such products to go after companies with similar technology, like yours, for patent infringement, even if these technologies and companies are not actually infringing the patent. The idea is that, since you know how much a patent lawsuit will cost, you’ll simply cave and pay a small license fee to “license” the patent you are not already using. These patent trolls know that all they have to do to bring you to court (in Marshall, Texas) is make a reasonable sounding (not reasonably effective) case to a non-technical judge who will allow them to bring you before a jury. Now, it is true that the US is finally trying to put a stop to these trolls (who make the nasty trolls who live under bridges look like oversized benevolent gnomes) with a a new bill (S. 1137) that requires that trolls not only stipulate what patents are being infringed, but precisely how, before a case can be filed (and prevent filing of vague claims that are enough to get you on a Texas or Delaware docket on-demand) (and also requires that all claimants be listed and expensive discovery delayed until prosecution has progressed). It’s a good start, and will minimize the tens of billions of dollars of damage these trolls do every year (as these trolls do over 1 Billion in damage to the economy every two weeks as summarized in this post on how the US is still letting the patent pirates plunder away), but you know that, since the bill already passed the US Senate Judiciary Committee, the patent trolls already have their legal team looking for loopholes to use against you.

The reality is that the US is just not as smart as the EU Parliament, which quashed the Computer Implemented Inventions Directive 648 to 14 when it was introduced (and a significant portion of bullsh!t patents these days are computer related), and, for a big enough payday, the patent lawyers will become more and more creative and manipulative. Since the US allows business process patents (which, in the doctor‘s view, is a bullsh!t patent), this insanity is here to stay. So, you’re damned and you have to play the damnation game (and spend tens, if not hundreds, of thousands filing your own bullsh!t patent just to prepare a defense against the bullsh!t claims you know are coming if you get big, or threatening, enough).