Category Archives: Procurement Damnation

Regulatory Damnation 36: Labelling

While the subject of labelling sounds harmless enough, it can still pose a nightmare for your supply chain. Products that are not properly labelled can be held up or seized at the border, seized for violation of state or federal labelling regulations from your warehouses or shelves, or result in massive fines and trade embargoes until the problem is corrected.

Labelling can be a nightmare, regardless of what industry you are in. In food and beverage, many jurisdictions require not only that all products contain nutritional information but also indicate whether or not the products are derived from GMO (Genetically Modified Organisms). In the tobacco industry, despite continuous threats of lawsuits from the tobacco companies (see this recent expose from the John Oliver show), countries are starting to impose plain packaging laws and third parties dictate what packaging can and can not contain. In electronics, some countries are considering imposing laws that force a company to indicate the expected lifespan of the product being produced and how long it will be supported (as this is very important to a consumer spending hundreds, or thousands, on a new electronic device with the belief that the manufacturer is going to support the hardware and software for at least a few years). And different countries require different units, warnings, languages, etc.

Not that any of this is necessarily a bad thing, but if multiple jurisdictions require different labelling requirements, it can be difficult to produce a label that satisfies all of the jurisdictions that operate under the same language. And if the company needs to produce a multi-lingual label that satisfies multiple jurisdictions in multiple countries, it can be a nightmare.

There are steps a company can take to make it easier.

First of all, the company can implement a Global Trade Management (GTM) solution that tracks all of the labelling requirements in each country the organization plans to sell products in.

The company can review each label or proposed update before it is sent to the packaging supplier to make sure it is in full compliance.

Finally, the company can set up alerts and each time a labelling requirement changes, and check that all labels are in compliance. If not, packaging production runs can be halted until an updated label design is prepared and approved. This will save the organization a lot of time, money, and headaches, and, as indicated above, prevent the organization from experiencing problems with customs, legislative authorities, and even retailers.

But, like every other endeavour that needs to be undertaken, this will require time, resources and money to get done.

Organizational Damnation 54: Marketing

So far we’ve tackled the organizational damnations of Logistics and Legal, but these are just the beginning. Today we’re going to tackle one of the biggest organizational damnations of all: Marketing. Like Legal, Marketing is one of those evils that the organization can’t live without, but Supply Management often can’t live with.

While it’s true that marketing is usually necessary to create demand for the products and services the organization produces, which in turn necessitates the demand for the raw materials, components, and services that Supply Management exists to source, it’s also true that sometimes when marketing creates that demand they use advertisements that are misleading as to the capabilities of what is being sold or promises that are unrealistic and, sometimes, those advertisements are outright lies and those promises are impossible to keep.

For example, let’s say the organization is selling a new phone. Marketing might claim it runs on a faster network (when, in reality, none of the carriers that support your phone support the faster network protocols), has a processor that is 30% faster (even though every independent benchmark only has it 10% faster and the design specifications indicated that the expected performance improvement was only 20%), and uses next generation RAM because it supports a faster MHz (even though it’s current generation RAM).

In this example, marketing is being almost realistic by stretching the truth with only a few small lies. If the organization is not as lucky, marketing might have the gall to say that your organization’s product is an effective cure for the common cold (because no one in the study caught a cold during the one year preventative trial), even though there is no evidence to that effect. (If the control group happened to be in an isolated community and were selected because they were the fittest of the group, it’s a biased study.) This is an example where marketing did not even attempt to be realistic in their claims.

But it might not stop there. Marketing might promise functions that are full of bugs, features that are still in development, and delivery schedules that would be unrealistic even if the design was complete, all the R&D was done, the team was fully staffed, and all of the resources that are required are available. As a result, Engineering will be freaking out and demanding that Supply Management find it better materials, new suppliers that can complete the work that is required in the time-frame that is available, and more talent to fill its ranks. This could be a very tall order on a very short notice.

Moreover, it’s an order Supply Management will have to fulfill for the organization to meet its obligations, maintain its brand integrity, and stay profitable. As if Supply Management’s job wasn’t hard enough to begin with.

Societal Damnation 40: Crime / Piracy

These damnations have been around longer than supply chains, and they aren’t going away any time soon. THe only difference is that today the types of crime an organization is exposed to today are much more varied than the crimes an organization was exposed to in the past. For example, terrorist attacks, identity theft, and cybercrime were not something the average large organization had to deal with on a regular basis, if at all.

But now, terrorist organizations, many of which are composed of individuals who are ex-military or trained by military and/or government agencies, are becoming common in many countries where there is significant civil unrest or animosity towards a people or government. And these terrorist organizations often target large shipments of goods that they need to sustain their efforts near the territories that they are based in — and this is not just restricted to weapons but also includes fuel, food, clothing, and personal electronic devices. It’s not just common thieves and criminal groups plotting to steal a few boxes or empty an 18-wheeler when the driver takes a lunch break — it’s a terrorist organization planning to steal an entire convoy of 18-wheelers (because they want the trucks too).

It used to be that identify theft was when one person impersonated another to fool an unsuspecting individual at a company or bank to gain access to funds or products, and this could easily be protected against by good security measures, passwords, and biometrics, but now we have the situation where the identify of entire companies is being stolen. This has become especially prevalent in the US since the introduction of MAP-21 (which SI likes to call RIP-21) which resulted in thousands of small transport companies going out of business when the minimum bond was increased from 10,000 to 75,000. Shortly after this happened, some very enterprising individuals decided to setup fake companies that pretended to be the company that was out of business. They faked registration documents, insurance certificates and bonds, and personnel records, presented themselves to 3PLs that the company previously worked with (stating that they managed to raise the bond money and were back in business), and even presented themselves to large manufacturers and retailers the company used to do business with. When contracts were awarded, they acquired trucks, hired drivers, and made deliveries. Some of them even operated just like a legitimate company for months until they were trusted with a multi-million dollar shipment of products that would fetch a similar sum on the black market — then they vanished overnight with millions of dollars of products. (See SI’s post on how increased cargo theft is the next impact of MAP-21.

And cybercrime has hit entirely new levels. It used to be that the best a hacker could do was steal a bank account number and password, do an ACH transfer, and make off with the operating account. But now, hackers can infiltrate your networks and make off with all of your bank account numbers and passwords, hack other networks and replace the corporate director and officer records, falsely represent themselves as your company to banks and lenders (by stealing the identities of your corporate officers and then hacking your virtual private networks and spoofing your IP addresses to access your bank accounts in what appears to be a legitimate access by the bank), take out massive loans and not only make off with every dollar in every account you have, but leave your company on the hook for millions more. And that’s if the hackers are being nice. Plus, while the hackers are at it, they hack your merchant terminals, steal all of your customer’s credit card information, sell it on the black market, and leave you with a massive media black eye that puts your brand reputation in the toilet.

If you thought the Fraud and Corruption (as chronicled in Damnation 41) was bad, just wait until you have to deal with the new terrorists, identify fraudsters, and cyber-criminals. And if you survive this first wave, then you get to deal with the Somali pirates! (And they are a whole lot meaner than the Saskatchewan pirates.)

Environmental Damnation 15: Waste, RoHS, & WEEE

Waste is bad, and legislation that requires waste to be minimized, dangerous chemicals and compounds to be avoided, and products to be properly recycled and reclaimed and safely disposed of is good. But it’s not good for your supply chain if new legislation comes into effect faster than you can react.

While all products should be designed with recycling and reclamation in mind, it takes time to identify new designs that use safer materials, build new production lines, and get the products to market. And while efforts should currently be in progress to redesign each and every product that contains a substance restricted in at least one major market, sometimes a design does not yet exist that uses an alternative chemical or compound and a more restrictive or new legislation could threaten a major product line.

This is becoming more likely by the day. While the US might not be as advanced as the EU in terms of environmental legislation, some states, like California (which just sent “a bumper crop of environmental legislation” [nrdc.org] to the Governor) are making a push and it won’t be long before it’s even harder to get products approved in some states than it is in the EU. Furthermore, as noted by SI in the past, when even countries like India and China (through the initial Order 39 in 2006 and the updated version in 2012) are considering more restrictive Environmental Legislation (which can be thought of as their own version of RoHS – the Restriction of Hazardous Substances Directive, one can be sure it won’t be long before this type of legislation become the norm and not the exception.

And while there is a lot one can do to prepare for the coming reality, it all takes time, money, and preparation.

First of all, one needs to make sure the organization has a good bill of materials system in place that tracks each and every compound and chemical that is used in each and every product produced, imported, and exported.

Then, one needs state of the art trade document management systems that properly completes all of the necessary import and export documents to make sure that, provided the goods are compliant, they are not held up or confiscated at the border.

Finally, one needs to implement a good online collaborative design solution that will allow all parties within the company and its partners to design, and produce, alternative products that are compliant with the relative legislation where the company wishes to produce the product or import it for sale.

And while all of these systems are systems that the company should have in place regardless of current or expected legislation, it requires time to identify the right systems, implement the systems, and learn to use the systems to their maximum potential.

Infrastructure Damnation 11: Postal Services

While most Supply Chains don’t run on public postal services, and instead rely on private transportation companies for both their freight and package delivery needs, public postal services are still needed. Why?

Without public postal services, there would be an effective private monopoly in mail and package distribution. While there are multiple private options, without a public body to set baseline prices, there is no incentive for the private companies to be competitive. As long as the private companies thought they could charge more, it is very likely that rates would increase across the board, consistently, until the average company switched to independent bike couriers.

More importantly, without public postal services, the average consumer would not be able to afford to shop online as much as she does now, which would likely lead to an across the board decline in sales for many companies, which would, of course lead to a decline in order volumes and Procurement’s negotiating leverage with its suppliers.

And this is looking like a reality in multiple countries right now. As discussed here on Sourcing Innovation over the last few years, The First World Postal Services Are in Trouble and the, US, UK, and Canadian public postal services are all deep in debt and may need to drastically reduce services in the coming years in order to balance the books and keep in business. Consider SI’s recent posts on the US, UK, and Canadian postal services (including, but not limited to, our posts that asked if the U.S. Post Office Can Be Fixed and Too Bad the US Post Office Did Not Follow Royal Mail’s Lead). They are billions in debt (Canada Post is over 1 Billion in debt exclusive of pension liabilities, the recently privatized Royal Mail has a debt to equity ratio of 91% (which puts its debts at over 1 Billion US Dollars, and US is over 100 Billion in debt (cnsnews.com) when underfunded pension liabilities are taken into account, and it’s not getting any better.

While one may think that this will never happen, as Canada has had its own public mail service since 1867, the US has had a reliable public service since the Pony Express started back in 1860, and the UK has had public mail since 1516 — but we could be just a few years away from the day it’s private bike courier for mail and small packages (and we need a Dark Angel for reliable deliveries). It is likely that Royal Mail is only still in existence because it was privatized (and that postal services in North America, if they do not drastically restructure operations, will have to follow suit).
And while you might not see a large impact to your supply chain, since the 3PLs and trucking companies are here to stay, when your order volumes decline and you have to pay double just to send a contract across town, you will.