Category Archives: rants

Should You Recession Proof Your Business … or Idiot Proof It?

Industry week recently ran an article on how to “recession proof your business” by three authors that had a rather interesting take on how you go about this. According to the article, you start by identifying the tribes that constitute your business and determining where they are in their sociological progression. If they are in the “life stinks” (stage 1), “my life stinks” (stage 2), or “I’m great” (stage 3) stage — where the latter is said to be the case for 48% of workplace tribes in the U.S., then the consensus (of the authors) is that your business won’t survive the recession.

It’s obvious that a “life stinks” and “my life stinks” mindset is a recipe for disaster. But why is a “I’m great” mentality mindset insufficient? As the author’s note, this is where the theme is “I’m great, and you’re not”, people at this stage have to win, and winning is personal … they’ll out-work, [out-]think and [out-]maneuver their competitors, and the mood that results is a collection of “lone warriors,” wanting help and support and being disappointed that others don’t have their ambition or skill. As I’ve mentioned before, the day of organization man is over … it’s the era of networked person, who’s a team player.

In comparison, a tribe that has reached the “stage 4” mindset, where they believe that “we’re great”, have evolved beyond a loose organization of lone-warrior organization men into a tightly knit organization of cooperative networked persons. As the authors note, they are nimble, innovative, stress-resistant, and adaptable — the qualities that help them do well no matter the circumstances. They align on core values, build strong relationships, and develop plans in real time — the key to the responsiveness needed to navigate the troubled waters of a downturn and the uncertain demand that it brings.

Thus, the authors contend that the best way to “recession proof” your business is to do what it takes to help your team reach “stage 4”. Now I’ll agree that this is a necessary factor for success, and one of the keys to surviving a downturn — but, I hate to say it, it’s not necessarily sufficient. It takes a good team — but this team needs good data, good technology, great support, and resources. If your team doesn’t have good data, how will they make good decisions? If they don’t have the technology they need to capture good data and analyze it in real-time, how will they be able to take action with any confidence? If they don’t have your support, how likely are they to be willing to put their neck on the line when it counts most? But most importantly, if they don’t have the resources, and more importantly, if you don’t have the resources, does it matter?

Innovation, enabled by an innovative team, is the best way to survive a downturn and come out as a market leader, but that team is going to need good systems, good management, and the resources to ride it out. That requires you to be running your company appropriately in the first place — to be making smart long-term decisions on a regular basis and spending the corporate coffers responsibly. If you’ve been following the market, throwing money away like the boom is never going to end, making bad decisions year after year, or acting like an Enron or Boo.com (remember them? — if not, look them up) — in short, running your business like an idiot, then chances are that a great team is not going to save you — because, at this point, there won’t be enough of your company left to save. And when it comes right down to it, if you’ve kept your team free of idiots, there’s a good chance that your teams quickly achieved “stage 4” on their own — which would mean that your business is already recession-proof. So isn’t the answer to idiot proof your company?

To All The Whiners …

For those of you who haven’t noticed, Jason Busch over on Spend Matters has found a new cause – Anti-Dumping Fever (because “Dumping is Code for We Suck, Help Us”. (Much better than the China Fever he had last summer and fall.) And I have to agree with him this time … but what’s really peaked my attention is how fast the “no-trade” protectionists who want to transform America into the Soviet Union or China of times past when the iron and red curtains were drawn tightly shut have jumped on him like a hoard of hungry jackals on a wounded rabbit.

Take yesterday’s comment from an anonymous poster offering one opinion:

You offer up an interesting argument but it is only one side of the story. What about the jobs that Leggett and Platt provides to its workers? Will they be sent to China? Shouldn’t US workers have a right to a job in global economy. It is not their fault that their employer has made business mistakes. And what happens when there are no inner spring manufacturers left in the US? What will we sleep on? Trade is a tricky subject with multiple perspectives.

Wow! What an argument! Maybe the government should step up every time management in a company screws up and “protect the jobs of the workers”! Can’t produce parts cheap enough? No problem, anti-dumping. Granted mortgages you never should have granted in the first-place? No problem, bail-out. Stupidly hired more workers than you can afford? No problem, tax-break.

While we’re at it, why not start “socializing” all of the businesses! The government can be a part owner in everything. That way, at the first sign of trouble, it can start creating and enforcing new anti-dumping and anti-free trade laws instead of waiting until things get too bad. That way, no jobs get lost and no massive bail outs are needed.

Aw, heck! Why stop there? Why not repeal all the free trade acts introduced by past administrations – you know, the ones that catapulted America to times of unmatched economic glory and solidified its place as the leader of the free world. After all, in a free market, there are always losers as well as winners, and the losers will have to lay people off … and even though many of them will be instantly snatched up by the winners, there’s always a few that might be out of work for a while – and we all know that it’s the good of the few, or the one, that matters, and not the good of the many – so let’s make sure their jobs are protected for life! That way, even the lazy and incompetent, a small minority but a minority nonetheless, will never have to worry about their jobs again!

And yes, I’m being very sarcastic. I don’t know how else to describe how backward-thinking or narrow-minded these individuals are. If they have their way, America would be the next socialist/communist regime – and one only has to look at Venezuela and Zimbabwe for some recent examples of how devastating that can be … and for those with longer term memories, the former Soviet Union or China before they started opening the iron and red curtains. Where people stood in lines for days just to get basic food and household items because the economies were in a constant state of collapse.

And it’s not like the US economy isn’t in a bad enough state as it is. The dollar is already worth less than its northern neighbor on some days and is now worth roughly half of a British pound. Closing the borders and finding new and creative ways to block free trade is only going to make things worse.

So what if some jobs go away? In a global economy, new jobs are also created every day. And for first world leaders, these are usually better jobs. If you’re a qualified engineer … you’re in demand. No more inner-springs? Okay. Make springs for automotive assemblies. Those get outsourced too? No problem – design springs for next generation automobiles. Remember, outsourcing intellectual tasks is always exponentially harder than outsourcing grunt labor. And leadership is one thing that just can’t be outsourced.

Furthermore, isn’t the US supposed to be a leader in education and accessibility thereof? Can you not only retrain for another job but also retrain to be a world-class designer and leader versus just a rank-and-file doer and follower? Then, not only will you always have a job in the global economy (though not necessarily the same one you have tomorrow that you have today – and that’s the point!), but you will be a leader in the global economy – and possibly one that manages R&D teams around the world.

So what do you want? A continued rise to glory? Or do you want to oppress the country into a state that would make even the dark ages of olden times look good? It’s your choice, and I hope the majority of you, especially at the polls in November, choose wisely.

And to the whiner’s, I dedicate this poem:

To the whiners on Spend Matters
Who moan about free trade spatters
I wish they’d all stay home
I dedicate this poem
To the whiners on Spend Matters

To the whiners who always moan
So much that they would fill a tome
On issues big and small
Their moans don’t enthrall
Oh why should we throw them a bone

The winds of change are always blowing
And every time you try to stay
The winds of change continue blowing
And they’ll just carry you away

To the whiners so full of strife
Go suck it in, it’s free trade life
We don’t live in a dome
I dedicate this poem
To the whiners so full of strife

To the whiners so pitiful
Who will cry you a bucketful
You’ll never get my heart
Even though you are a part
Of the populous resentful

The winds of change are always blowing
And every time you try to stay
The winds of change continue blowing
And they’ll just carry you away

To the whiners against free trade
Who always belch such long tirades
If you had just stayed home
I couldn’t dedicate this poem
To the whiners against free trade

‘Green’ Asbestos

While scanning Logistics Management, an article by Jeff Berman that said “a new approach for sustainable supply chains is needed” caught my eye. I’m a big believer in sustainability, but I’m also a strong believer that in their effort to jump on the bandwagon, some companies, governments, and individuals are doing – to be blunt – stupid things.

The article was based on a recent report by Adrian Gonzalez of ARC Advisory Group, in which the author notes that there are various tradeoffs when shippers and carriers strive towards sustainability. The tradeoffs exist because most products, manufacturing processes, and supply chains were not designed and built with sustainability in mind.

Gonzalez also noted that many people in the space are equating green with the reduction of their carbon footprint, as if the two concepts were interchangeable. Furthermore, even among those that realize that there is a spectrum to environmental friendliness, the author is finding that individuals are giving higher priority to initiatives perceived to reduce their carbon footprint – and, contrary to what you might expect, this may not be a good thing.

Let’s start with my favorite pet peeve – bio-fuels – and corn-based ethanol in particular. Although it’s true that the amount of contaminants, and carbon, produced by burning a barrel of corn-based ethanol is significantly less than the amount of contaminants, and carbon, produced by burning a barrel of crude oil, the fact of the matter is that, when you factor in how much oil you have to burn to create the bio-fuel, it actually increases your carbon footprint!

Using today’s technology, it can take up to 7 barrels of oil to create 8 equivalent barrels of corn-based ethanol. That’s a 12.5% return. 12.5%!!! That say’s that if you simply reduced your energy requirements by 12.5% you’d be a lot more environmentally efficient using oil! And you wouldn’t be harming the poor every time you drive your converted Honda. That’s right – by burning bio-fuel that’s inefficient to produce, you’re harming the poor every time you drive your Honda by driving up food prices! Last November, the American Farm Bureau (as chronicled over on Supply Excellence in “Inflation at the Thanksgiving Table”) reported that the cost of a traditional thanksgiving dinner rose 11%. Not only are corn prices rising due to ridiculous bio-fuel demands, but so are prices of wheat, grain, barley, and hops around the globe as farmers start planting corn for bio-fuel instead. These increases are in the double digits, and in some cases, triple digits as shortages are starting to become common. (Hops shortages are already threatening European brewers – who like their beer almost as much as us Canadians.) In other words, I guess what I’m saying is if you don’t mind increasing the lines at the food banks, then feel free to stay on your ethanol kick.

Now if this was the only example of stupidity from a sustainability perspective, it might not be so bad, but it’s only one example. Another example of ‘green‘ asbestos is the over-promises and unreasonable expectations associated with the use of fluorescent bulbs. Now, don’t get me wrong, I’m a believer in this technology (I use them myself) – but it’s not as green as you think it is. The average bulb contains mercury for crying out loud! And it’s not as efficient to produce them as an average light-bulb. They do require less energy, and they do, on average, last a lot longer, and I believe that this offsets the extra damage caused by the manufacturing process and inevitable recycling process, but it’s not a silver bullet. And it doesn’t mean that you don’t have to worry about leaving your lights on 24 hours a day – they still take energy! The only way you’re going to be green in using them is to be green with respect to their use – and turn them off when you don’t need them. This means you need to do more than just outfit your office building with them, like installing sensors that actually turn them off when there’s no one in the room!

I could go on (and might in another post), but the point is that it takes more than just “reducing your carbon footprint” to be green and sustainable. Furthermore, everything you do has a price or tradeoff associated with it. Ethanol is green, but its production is not. It’s still better to be energy efficient (better processes, new technology with lower energy requirements, conservative uses). However, it’s not the only green source of power – what about the stuff that occurs naturally around us – like wind, waves, and sun rays? So be smart – and then you’ll truly be sustainable and not just another product of ‘green‘ asbestos.

Integrity Interactive Gets Ethical

Earlier this month, Integrity Interactive announced the formation of a Supplier Ethics Management (SEM) Charter Group with Ryder System, Inc., H. J. Heinz Company, and bioMerieux as founding members. The goal of this initiative, as outlined in the Supply & Demand Chain Executive Article on “Combining Forces to Improve Ethics and Compliance in the Extended Supply Chain”, is to help develop specific practices and technologies that will ensure the integrity of products built and delivered through extended global supply chains. More specifically, the goal is to develop an online solution to monitor and improve the integrity of the supply chain (as per the Integrity Interactive website).

Now, it’s obvious that today’s supply chains need more ethical monitoring, in addition to more compliance and regulatory monitoring (as evidenced by the many posts on sustainability and corporate social responsibility that you will find on this blog and others), as the following statistics from a compliance survey of Global 2000 companies that were quoted in the original press release are scary enough:

  • 88% do not maintain a platform for identifying, tracking, and communicating with suppliers
  • 78% do not include suppliers in the company’s code of conduct
  • 58% don’t regularly assess compliance risk in the supply chain
  • 56% do not audit supplier compliance with code standards

But ethics goes beyond compliance, and I really have to wonder if an online solution for supply chain monitoring is going to fix the “ethics” problem. I do believe an on-line solution could go a long way to monitoring compliance, and that solutions like Aravo‘s Supplier Information Management (SEM) and Ecovadis‘ for Sustainable Supply Management (SSM) and CSR monitoring are a good start, but how do you monitor a supplier’s ethics without actually visiting its locations and getting to know its personnel.

Let’s face it, just because they don’t employ child labour at the locations they make your merchandise at does not mean they are not opposed to the idea, or that a sister company at another location (owned by the same parent “shell”) doesn’t employ child labor. Just because they check a box saying that their employees don’t work more than 50 hours a week doesn’t mean it doesn’t happen. Just because they say they are an equal opportunity employer, doesn’t mean that they are an equal opportunity employer with respect to the definition you or I would attach to the term. After all, just because they’d hire a woman to stitch garments, that doesn’t mean that they’d ever allow one to be promoted into management.

The point is, in today’s age of global sourcing, your suppliers are half a world away in another country with customs, beliefs, and traditional standards of operations that are likely quite different from what we are used to. And just because they check a box on a web form doesn’t mean that they are being compliant – or that they even understand what you are asking! (And just because they show you a plant that appears to be in compliance the day you show up after you gave them a month’s notice, it doesn’t mean that is how the plant always operates.)

Just like the only way to confirm compliance is to do unannounced plant visits, as far as I’m concerned, the only way to confirm ethics is to do the unannounced plant check and have a few good heart to heart talks over dinner afterward (assuming they pass the plant visit).

What do you think?

the doctor Would Like To Remind You That Any Balloon Will Pop Under A Sufficient Pressure Differential

I don’t care what it’s made of – there isn’t a container in existence that won’t explode if filled to a point where the internal pressure exceeds the external pressure by a sufficient amount. Remember the second law of thermodynamics – the entropy of an isolated system not in equilibrium will tend to increase over time, approaching a maximum value at equilibrium .

In free-market economics we have a similar law, called the law of supply and demand which predicts that in a competitive market, price will function to equalize the quantity demanded by consumers and the quantity supplied by producers, resulting in an economic equilibrium of price and quantity . Taken to extremes, it means that if prices skyrocket, demand plummets, falling to zero at the extreme. This holds true in the stock market as well, as it’s a free market where the good is ownership.

That’s why we have boom and bust cycles and why an unrestricted boom is guaranteed to result in a spectacular bust. There comes a point where investors en-masse are going to decide that the price is just too damn high and want out, even if we don’t know what that point is in advance. That point is much more likely to be hit if share prices rapidly skyrocket. If this happens market-wide, due to a sizable increase in invested capital in a short time-frame, we have a boom. If the boom continues unabated, a bust is guaranteed.

So, needless to say I was quite annoyed to see an article titled “Emerging Market Mania: Is It Different This Time” on the Knowledge @ Wharton site (one of my favorite publications) – because the answer is bloody obvious. It’s not different! It’s never different! The laws are immutable! As long as we use a system of measurement that places a finite value on the GDP of each nation, the sum of the GDP for all nations is going to be finite. This guarantees that there will exist a point in each stock market, and each stock, where the price will be too high for the average investor, and these investors will want out en-masse. When this happens, you have a bust. “Market Mania” is always bad! Participating in market madness again and again is equivalent to putting your hand on that hot burner again and again. You’re going to get burned. That’s not going to change! And don’t give me that “it’s a different company” or “it’s a different market” bullshit as your excuse. The fact is that any burner on the stove will burn your hand just like any burner on any stove will burn your hand.

So, before you go diving into a market everyone else is diving into, be sure to do your homework and make sure it’s a justified move. If a market is extremely under-valued or under-served or has a considerable excess of supply, then it will be able to support a large influx of competitors and currency. However, if it is over-valued or over-served or does not have enough supply to meet current demand, any investment or entry by any organization is a very bad idea and you never know what entry is going to be the entry that causes the market to reach the tipping point and start the rapid downhill slide from boom to bust.

If you’re wondering why I’m rambling on about the inevitable bust that’s sure to follow an irrational boom, just remember that it’s not just finance that needs to worry about market valuations – supply management has to as well! The financial strength of your supplier is at least partially dependent on the financial strength of the market it’s shares are traded in or on the strength of the local economy. From a risk management perspective, the financial strength of your supplier is a key factor in terms of evaluating how much risk an award to that supplier poses – and any supplier in a risky market is going to carry a certain amount of risk.

Before I conclude this blogologue, I should point out that the article did have some good points. It pointed out that emerging markets cannot be evaluated en-masse – each is distinct and needs to be evaluated on its own. It stated the need for differentiation between emerging markets like Brazil, Russia, India, and China (the “BRIC”) and the frontier markets like Egypt, the Balkans, Bangladesh, and parts of Africa that could be the next investment hotspots. It noted that countries with abundant natural resources will likely experience an economic boom for the foreseeable future (thanks to increasing demands from the developing economies). And it noted that knowing where to go next with investment capital is always a challenge.