Category Archives: rants

The Purpose of a Contract is Easy to Define

A recent post over on Contracting Excellence on “the purpose of contracts” indicated that it can be difficult to describe the “purpose” of a contract. I have to disagree. While the definition may vary slightly depending upon the role contracts play in your business and the importance placed upon them by your personnel, the fundamental purposes is unwavering: the purpose of a contract is to define both parties’ responsibilities with respect to a desired scenario outcome to the level of detail necessary to make both parties comfortable with respect to the relationship.

Now, while this may seem like a bit of a cop-out because “responsibilities”, “level of detail”, and “comfortable” are open to debate, this is the slight variance I mentioned. The fundamental, unwavering, purpose is the definition of the desired scenario outcome. This, of course, means that before you start contract negotiations you need to not only have your goals for the negotiation defined, but your goals for the relationship. Do you just want 10,000 units delivered to your warehouse in Omaha in 10 equal shipments on the 21st of every month? Or are you looking for a limited type of partnership where your supplier will partner in research initiatives to replace harmful chemicals with environmentally friendly substitutes in your product designs, to reduce packaging requirements, and to reduce the number of SKUs you need to deliver your products?

If you haven’t defined your desired end-state for the length of the relationship, then you haven’t defined the true purpose of what you want the contract to help you achieve, which means you can’t define the purpose of the contract and what you’ll end up with is a bunch of ‘legally acceptable’ words on paper that don’t please anyone, even if you manage to bring it down to an acceptable reading level.

If you figure out what you want, and get your supplier on the same page, I’m sure that you’ll find the contract will fall into place quite nicely and that you’ll have no problem achieving plain english, which is the best policy.

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It’s 2010 … Time to Crank The Fear Factor to 11!

Well, it sure didn’t take CNN long to get the 2010 Fear Mongering Bandwagon rolling. Check out The Buzz from January 2 on “what could go wrong in 2010” (CNN Money, Jan 2, 2010). (That’s right, Saturday January 2nd. They couldn’t even wait two days for the first work week to start!)

According to the article,

  • we’re in for part two of the double-dip recession,
  • the US currency is likely to be debased,
  • the housing market could still hit bottom,
  • the market is in for a lacklustre year, and
  • the job situation is not going to improve.

Wouldn’t it be great for a change if the media focussed on the positives and instead of spreading more FUD, talked about the lessons we’ve learned and how we can use them to right the economy?

After all, this is the 2nd major recession in less than a decade, as the the tech bust of 2000 was still a little less than 10 years ago. And a number of other global economies have had similar downfalls in the last 10 years. Should it not be obvious by now that:

  • out-of-control growth will be followed by a rapid contraction,
  • when you flood your country with government paper you decrease the value of your currency value,
  • house prices cannot increase in value at a rate above inflation forever as they quickly reach a point where no one can afford them,
  • high double-digit returns year-after-year-after-year are not sustainable (and anyone who says they are might be another Madoff in the making) in the long term, and
  • it can take a long time to recover from a recession.

Once you’ve learned these lessons and go back to the old-school of business (which takes the long term view that most of Corporate America seems to have forgotten since the turn of the Millennium), where you plan for steady, incremental growth, hire in a controlled fashion, and don’t make, or price, products out of reach, I see no reason that you can’t, once again, do just fine.

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When a Twit Speaks in the Twittersphere … Does Anyone Hear?

Check out this great experiment chronicled on Boris Dinkevich’s blog on technology and what’s wrong with it. According to Boris,

  1. A friend used the Twitter APIs to create an account that automatically scanned twitter users and find users who were “most likely” to read his twits.
  2. The first pass returned a:
    • 50+ Twit Count (user active)
    • 100 Following Count (might read twits)
    • 50 Follower Count (typical statistic for real users)
  3. Everyday it would delete accounts added the previous day that didn’t re-follow and then run the algorithm again to add more users. In a few days, the account (which had not even twitted) had about 300 followers.
  4. Then, the friend published a post with a bit.ly link on the newly created account, and his own account which had about 30 followers.

The results? ZERO people from the newly created account clicked the link. In contrast, 13 people of the 30, who were likely his friends and colleagues, clicked the link.

In other words, a large Twitter base means nothing. ABSOLUTELY NOTHING. Just that there are a bunch of twits out there who want to feel self-important by collecting followers and following people they think are more self-important than they are. And in the long run, the majority of them will abandon the platform as they figure out just how little usefulness it really has. (It’s a fun toy. That’s it. Nothing more). In fact, over 60% of Twitter users will abandon the platform within a month (Nielson.com blog). That’s why I’m Twitter Free. I’d rather spend my time writing real content you might actually want to read instead of writing down every half-formed thought that rambles through my head in 160 characters or less.

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There’s Good Risk Management Advice …

… and then there’s the risk management advice in the Logistics Management version of the “Supply Chain 2010” article. According to this version, you should:

  • get in the habit of much shorter contracts
    … and throw any hope of cooperative innovation right out the window
  • adopt a logically variable cost structure
    … and watch your costs go through the roof every time an index runs wild
  • get in the habit of stress testing your supply chain
    … instead of taking the time to design it properly so that it survives the stress tests

Risk isn’t going away and you have to start managing it better, but don’t make stupid decisions based on the assumption that this transient, lengthy recovery is the way things are going to stay. We’re working our way back to the Old Normal, and as I pointed out in my last post, that requires visibility, flexibility, and education. Don’t forget that.

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This is Scary! We Have To Fix This!

Last month, MSNBC published an article on “Why American Consumers Can’t Add” that’s frightening. Look at these statistics:

  • Only 2 in 5 Americans can pick out two items on a menu, add them, and calculate a tip.
  • Only 1 in 5 Americans can reliably calculate mortgage interest.
  • Only 13% of Americans were deemed “proficient”. That means
    less than 1 in 7 American adults are “proficient” at math.

Furthermore

  • 20 M Americans — roughly 1 in 9 of Americans aged 18-65 — pay someone to fill out their 1040EZ: a one-page tax form with around 10 blanks to fill out
  • The U.S. Ranks 25th of 30 industrialized nations in math scores, down near Serbia and Uruguay!
  • 50% of American 17 year olds couldn’t do enough math to work in an auto plant

And if this isn’t bad enough,

  • In 18 US states, not even one elementary math class is required for teacher certification
  • Some U.S. teaching colleges allow admittance as long as students have math skills equal to their future students — that is, as long as they could pass a grad 5 math class. (Are they smarter than a 5th grader? You have to wonder!)
  • In some states, you can pass the teacher certification exam without answering even a single math question correctly!

Not only did our collective lack of math skills contribute to the current fiasco — after all, if you’re paying $100 to a tax preparer for 3 minutes of work, taking out 250% APR payday loans, and agreeing to 1,000% overdraft protect loans from your bank, how could you possibly see through the consequences of an (unpredictable) adjustable-rate mortgage or make a sound bet on their future earnings potential or fight with financial planners over fees that are swallowing one-third of your retirement savings.

We can forget about a recovery and any hope of regaining former glory if we don’t fix this — and do it fast. Math is becoming more and more necessary in just about every profession, and supply chain in particular. How can you do an analysis, break down a cost model, or even know whether or not the offer you’re getting is any good if you can’t do enough math to figure out a total landed cost per unit?

I don’t know what the answer is, but it has to start at the foundation. No more teachers who don’t know at least 1st year University math, and no more curriculums that don’t give math at least the same level of importance as every other subject. We need to get back to the three R’s, Reading, wRiting, and aRithmetic … because Math is now the common language of the world. If you can’t read and write math, at the rate the information revolution is progressing, there might soon come a time where you can’t communicate at all!

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