Category Archives: Procurement Damnation

Environmental Damnation 22: Natural EMPs

An EMP, or an electromagnetic pulse, is a short, typically intense, burst of electromagnetic energy that is generally disruptive, if not damaging to, electrical and electronic equipment, and high energy EMPS can even damage buildings and aircraft.

While EMP weapons are a concern, as they could be set off in a terrorist attack, naturally occurring EMPs are of a greater concern as they are often even less predictable and not preventable (whereas an EMP weapon can be prevented if the person holding it can be prevented from setting it off).

Whether one realizes it or not, a number of natural events cause EMPs:

  • lightning
    which is the most common, and well known, cause as it is known that it can fry the electrical and electronic systems of anything it hits
  • solar flares
    intense solar storms, like the one that occurred on July 23, 2012, could knock us back to the stone age; the geomagnetic storm (which occurs when a solar flare hits the earth’s atmosphere) of March 1989 collapsed the entire Hydro-Quebec electricity transmission system
  • earthquakes and volcanoes
    while not likely, an intense earthquake or massive volcanic eruption could (theoretically) cause an EMP similar to that produced by a massive (nuclear) explosion (as electrical discharges have been recorded as a result of earthquakes)

Just when you thought you understood the natural disaster risks in your supply chain, a whole new level of risk, that can decimate the information supply chain that the physical (and financial) supply chains depend on, is exposed.

When we said Procurement is Damned, we meant it!

Environmental Damnation 24: Rare Earth Metals

As defined by Wikipedia, a rare earth metal (REM), or rare earth element (REE), is one of a set of seventeen chemical elements in the periodic table, specifically the fifteen lanthanides, as well as scandium and yttrium (because they tend to occur in the same ore deposits and exhibit chemical properties). While many of these elements are relatively plentiful in the Earth’s crust, they are rare in that, due to their geochemical properties, they are typically dispersed and not concentrated in ore deposits that are (easily) economically exploitable.

They are a damnation because:

  • almost every piece of modern technology depends on at least one of these elements
  • many of these elements are in short supply and supply, based on current mining capacity, is expected to be insufficient as early as 2020 for some of these elements
  • many of them cost more than precious metals
  • on average, 95% (or more) of rare earth metals are now being mined and provided by a single country: China
  • … and China is considering export restrictions that could significantly cripple global production of modern technology if implemented

To illustrate just how important these metals are, consider the common uses:

Metal Selected Uses
Scandium aerospace, metal-halide and mercury vapor lamps, and radioactive tracing agents
Yttrium lasers, superconductors, microwave filters, and spark plugs
Lanthanum flint, hydrogen storage, battery electrodes, camera lenses
Cerium oxidizing agent, polishing powder, catalytic uses
Praseodymium magnets, lasers, carbon arc lighting, didymium glass
Neodymium magnets, lasers, didymium glass, ceramic capacitors
Promethium nuclear batteries and luminous paint
Samarium magnets, lasers, neutron capture, masers
Europium phosphors, lasers, mercury-vapor and fluorescent lamps
Gadolinium magnets, lasers, X-ray tubes, computer memory, neutron capture, MRI contrast agent, magnetostrictive alloys
Terbium phosphors, lasers, fluorescent lamps, magnetostrictive alloys
Dysprosium magnets, lasers, magnetostrictive alloys
Holmium lasers, optical spectrophotometers, magnets
Erbium lasers, vanadium steel, fiber-optics
Thulium X-ray machines, metal-halide lamps, lasers
Ytterbium lasers, decoy flares, stainless steel, nuclear medicine
Lutetium positron emission tomography, lutetium tatalate hosts

And every computing device requires magnetics, memory, and optimal transmission (and this includes your laptops, phones, cameras, cars, etc.). These days almost everything has a microchip with a persistent (flash) memory. So when you consider the five-pronged reality described above, rare earth metals are quickly becoming a thorny Procurement Damnation.

Organizational Damnation 61: Leadership

In an average organization, leadership is both a blessing and a curse. While good leadership can be the saving grace for an organization on the verge of collapse, bad leadership can quickly take an organization at the top of its market into obscurity in just a few years. (Remember what happened to Apple during Steve Jobs’ absence?)

Plus, even the best leadership can be a curse if the leadership is more insightful than the rest of the organization and tries to steer the organization on a course that the organization is not yet ready for (and won’t be until it gets the proper education to understand where it needs to go, the training to get there, and the systems and processes to support it). If the leadership decides that the organization needs to change its modus operandi in a mere six months, but the best estimates are that it will take eighteen months to get the organization there in a controlled and orderly fashion (that will decrease organizational chaos instead of increasing it), it’s not hard to see that there is at least one disaster waiting to happen.

But this isn’t the biggest problem. A leader that is insightful enough to realize that the organization needs to do a 180 can often be convinced of the necessary means and with the right education will often reach a realistic compromise. The biggest problem is a leader who is stuck two decades in the past, refuses to change his ways, and is intent on bringing the entire organization down with him if that’s what it takes to keep doing things the same way he’s done it for the last twenty years until he hits retirement in five years.

Such a curmudgeon will not only block every advancement effort you try to put forward, but will deny his team any training that relates to new systems or processes, instruct them to keep doing things the old way regardless of what Supply Management adopts as a new standard, and even publicly disparage Supply Management’s efforts (and might even go so far as to threaten dismissal of anyone who sides with Supply Management).

In addition, such a curmudgeon, who will rule his fiefdom with an iron fist, will do anything to make sure the size of his domain does not decrease (so forget about any efficiency improvements that could eliminate the need for tactical personnel who are the most expendable, least able to find a new job quickly, and desperate to hold onto their jobs at any cost, even if it includes serving as the court jester). He will badmouth your organization and its efforts. Stab your leadership in the back. And generally do his best to make your life a living hell should you threaten his current way of life in any way or attempt to do anything that would increase the effort he needs to apply to his job.

And if the CEO, CFO, or C-Suite at large feels he is essential to the organization, there isn’t a thing you can do about it, until such time as you manage to convince them that the cost savings or value that will be generated from your plan will significantly exceed the cost of the effort required and may even be the difference between success or financial ruin. A task that will require considerable effort with the curmudgeon blocking your way at every turn and a task that might not succeed until the CEO realizes that the only way to quell the uprising is to take a lesson from the monarchs of old and deal with problematic fiefdoms in a terminal fashion — off with their heads! (Figuratively speaking, of course.)

Societal Damnation 47: XaaS (Part II)

In our last post we introduced you to XaaS, Everything as a Service, and told you that this latest craze is going to cause your Supply Management organization nothing but suffering and pain. Why? Because even though, historically, the transformation of a non-core but essential function or utility to a service was a good thing that made your life easier, like all good things, there is an end to the goodness. Taken too far, nothing but chaos will result by handing over a function to a third party that is not well equipped to handle your service needs because they do not have the expertise, cannot achieve the necessary economies of scale, or just can’t be managed effectively.

For example, let’s say sales and marketing decides that IT just isn’t cutting it and decides to outsource IT support for marketing to a third party, and the organization is a CPG company that depends on all communications, orders, and marketing deliverables being properly archived in the ERP and Marketing Procurement system for compliance, cost management, and post-campaign/event analytics. This brings with it a host of problems. One, the systems are not being managed by IT or the support organization IT recommends. This increases 3PM overhead, causes the organization to lose out on better rates that come with more volume, and could result in core systems being bypassed (if the provider is inept and can’t figure out how to push critical data into the core systems). Two, it sets the organization up for a compliance nightmare down the road (when audit trails go cold due to missing data). Three, it opens the door for over billings, duplicate billings, and even fraudulent billings when AP can’t find all of the associated PO and contract data to m-way match an invoice. Four, instead of providing Supply Management with an opportunity to determine why IT isn’t meeting Sales and Marketing needs (which could be due to a misunderstanding, lack of staff, or other issue that could be easily solved by Supply Management) and identify a solution that would benefit the entire organization, it instead opens the door for each OU to hire their own provider (since Sales and Marketing did it), and burden the organization with a 3PM nightmare in IT.

And this is just the tip of the iceberg, as IT has been commoditized for over a decade now, and there are methods to manage this madness. The real problem is when different Business Units decide that anything they don’t feel is critical to manage in-house should be a service and the marketplace adjusts to that mindset. Product Design as a service. (R&D) (Hey, all we need to do is approve a design since we just need something to sell, right?) Supplier Management as a service. (Engineering) (We’ve approved the design, who cares who builds the product and how they do it, right?) 3PL Transportation, Inventory, and Distribution Management as a service. (Logistics) (Who cares how it gets to the shelves as long as it eventually gets to the shelves, right?) Campaign Management as a service. (Marketing) (Once we’ve defined the message we want to get across, we can just hand it off to a local marketing management firm to best tailor the message to the region and produce the ads, right?)

Each of these services can lead to massive headaches, fines, and reputational damage if the service provider does not understand the needs of the organization, does not employ proper processes and procedures necessary to ensure quality and reliability, does not have the right certifications and insurance, does not have a proper focus on sustainability and Corporate Social Responsibility, and does not ensure fair and equitable treatment to workers throughout the supply chain. For example, a design that does not adequately consider product safety and results in an electrical appliance electrocuting a consumer during normal use (due to lack of safeties and blowout circuits) will result in massive lawsuits. Poor supplier management could result in missed deliveries, poor quality, high defect and return rates, and even the inclusion of banned chemicals or compounds in the product which will result in costly recalls or border seizures. Poor logistics management will lead to high stock-outs on the shelves, and lost sales, which, if significant, could make the difference between profitability and impending bankruptcy for the organization. And a poor marketing campaign, that includes phrases or images offensive to members of the local community, will result in a media onslaught that will result in massive damage to your brand. And that’s just the beginning.

Services are good. But Everything-as-a-Service is a ridiculous concept and any organization that buys into it is just asking for trouble.

Societal Damnation 47: XaaS (Part I)

XaaS, short for Everything as a Service, is the latest craze that is going to cause your Supply Management organization nothing but suffering and pain. While it sounds really cool, because, historically, the transformation of a non-core but essential function (legal, accounting, etc.) or utility (water, electricity, waste disposal, etc.) into a service made your life easier, as with any good thing, it’s always possible to have too much. (A glass of red wine a day is a good thing, unless you are an alcoholic, but the same cannot be said of a bottle. A couple of aspirins are a good thing if you have a headache or a mild heart condition, but a bottle can kill you. Recruiting firms are a good thing, but imagine the chaos if you had to hand over all hiring to a third party who knew nothing about your corporate function or talent needs. Think about that for a minute.)

The right services can provide an organization with considerable advantages that include, but are not limited to:

  • Expertise
    that the organization might not have
  • Cost Reduction
    from economies of scale when all the service provider does is a certain function (and can amortize solution and personnel costs across multiple clients)
  • Efficiency
    that comes with best practices and the focus of personnel on homogenous tasks in an efficient manner (under the right, lean, six-sigma optimized, virtual production line model)

provided the organization does not have the economies of scale, dedicated personnel, or expertise in house. However, the wrong services will burden the organization with a number of considerable disadvantages that may include, but are not limited to:

  • Cost Increase
    as cost reductions only materialize if there is enough work on which to achieve a cost reduction (through the provider’s economy of scale) that covers the incremental overhead and management cost that goes with outsourcing a function
  • Efficiency Decrease
    since the management and administrative overhead of handing over a small amount of work is more than the efficiency savings achieved by the third party when there is not enough work to take advantage of an economy of scale
  • Loss of Control
    which is critical if the task is critical to organizational success (which is the case if the task supports the core business function of the organization)
  • Third Party Management (3PM) Nightmare
    if the provider is difficult to work with, in a time-zone that is opposite to normal working hours or the time-zones under which most other third parties operate, or has management requirements that are unduly burdensome to an organization already stretched thin with regards to third party management requirements

And if different business units decide to start outsourcing what they perceive as non-core functions (which are in fact core to the business or which should be managed by Supply Management or a different business unit), functions for which the service provider cannot achieve economy of scale, or functions that have not been optimized for outsourcing (which will result in an efficiency decrease as a best-practice provider will not be able to optimize inefficient workflows) willy-nilly, Supply Management will have quite a third party management mess to deal with.

How so? Come back for Part II.