Category Archives: The Prophet

The Prophet‘s 2024 Procurement Prediction Number 3

Supply Chains Cope By Developing a Sense of Humour A+

You have two choices. Laugh or cry. Crying didn’t work in Covid and certainly won’t now. It’s literally the only choice for Supply Chains that want to survive.

Moreover, with so much going on, as The Prophet notes, how does one predict what supply chain and procurement show is next to drop? And will it be:

  • frenetic commodity and input costs rendering sourcing strategies all but impossible to get right
  • wrong demand signals resulting with you being stuck with all the wrong inventory
  • supplier bankruptcies disrupting production and essential services
  • a global scale terrorism event, as per The Prophet‘s 2024 Procurement Prediction Number 1
  • the whiplash of DEI-led HR procurement/supply chain strategies which walked experience and expertise out the door in favour of inexperienced and uneducated minorities to fulfill an agenda

as well as (which were not mentioned by The Prophet in his list)

  • massive, coordinated, labour strikes across multiple ports
  • acts of war that result in massive sanctions against an entire country that effectively eliminate them from the sourcing equation entirely
  • escalated global boycotts of your products simply due to state (country) affiliation that create a rampant drop in demand (when you have perishable goods and contracted deliveries in transit)
  • more countries undergo rapid massive economic decline (like Venezuala, Ukraine, and South Africa, which are all in the top 30 for economic decline); e.g. Iran, a home of the Houthi rebels, is a top 40 fragile state and a large global producer of Petroleum)
  • the double whammy of long-term double-canal shutdowns as we enter Panamanian dry season and an increased escalation of attacks in the Red Sea

… and about a dozen more risks of slightly less severity and probably three or four major risks we haven’t thought about yet! (Many of which, as we noted in part one, are going to hit us one by one as the black swans break flight formation and barrel roll directly at our supply chains.)

So if you huddle in the tub and cry, not only will you either permanently damage your tear-ducts or drown, but you won’t solve anything. So it’s time to develop, possibly a very dark, sense of humour, laugh when you can, and get yourself mentally ready for black-swan defense and disaster mitigation.

The Prophet‘s 2024 Procurement Prediction Number 2

DEI Discrimination Dies in the Supply Chain B+

According to The Prophet, this will be the year DEI dies in the top-performing Supply Chain and Procurement Departments as a result of

  1. corporate abandonment (as a result of / prevention for lawsuits) and/or
  2. a desire for better performance.

However, these agendas were put in place by companies that wanted to

  1. have a politically correct reason to hire certain groups/individuals (who may not be deserving of the role when all other considerations [education, experience, ethics, etc.] are otherwise equal),
  2. have a politically correction reason to discriminate against certain minorities who were not classified as a recognized minority (especially religious minority — if you define minority by race, it often becomes easy to discriminate against certain religions), or
  3. target a market that likes a “diversity” brand
    and focus their marketing around their diversity efforts; where these marketing efforts worked, they are doubling down on that marketing — and their efforts to maintain diversity “in the supply base”.

So while many companies will silently abandon DEI in their own four walls (to deal with / prevent lawsuits and increase performance), they will double down on their DEI requirement for their suppliers. And this, as has been noted, can be extremely problematic.

Not only is it setting your suppliers up for the same problems as they succumb to mandates from big US and EU customers to diversify or die, especially in countries that are slowly catching up on anti-discrimination laws, but it’s setting them up for different problems as well.

First of all, if they’re so dependent on DEI-mandating customers that they have to fill quotas, they definitely don’t have the bank account to survive even a big government fine, yet alone a lawsuit. Secondly, if they are staffing up will less competent workers in a jurisdiction where the average worker is likely less educated and experienced in modern processes and technology as it is (as it wouldn’t be a low-cost country otherwise, which is where big US and EU companies still predominantly source from), they may not have enough competence to make the reliable, environmentally friendly, and safe products you need, with a big emphasis on safety. Reliability problems will just cost you a big repair bill or the cost of a replacement, but safety problems where an unsafe product results in permanent disability or death will cost you a massive lawsuit.

Moreover, you can’t just eliminate all suppliers that might be going overboard on DEI when your options are limited, because chances are they are all serving bigger customers than you whose business they rely on. If there’s only half a dozen factories that can make your stuff, what do you do?

You will need to spend time educating your suppliers on what DEI is supposed to be (and not how it’s being implemented in America and other countries that are misusing it). That it’s not arbitrary mandates or quotas, it’s non-discrimination and equal chances for all. That no applicant is turned away based on race, religion, etc.; that all of the best applicants from an education and experience get an interview, and that, if there truly are 2 or 3 candidates with equal education, experience, ethics and overall ability to do the job, only then will the minority/diversity factor enter the equation in the award of the job.

You will also need to favour suppliers who don’t set arbitrary quotas, especially ill-informed ones around some hypothetical, non-realistic, idea of equality. For example, 50% women in STEM jobs in many countries is just not realizable. When only 20% to 25% of graduates in STEM are women, you’re not going to get a 1:1 ratio; and if you do, then a lot of companies are not going to be at the 3:1 ratio they should be at, which is going to lead to even more women spurning STEM when they see the all male work places that result when companies with deeper pockets hire all the women and prevent them from hiring any. It’s not quotas. It’s not arbitrary definitions of racial or religious minority. It’s who do you have and who don’t you have. If you’re 75% old white male, guess what?, you need women, youth and people who aren’t white for diversity. And if you’re 75% young black female, which is very possible in many African countries, then you probably want some older individuals who are not women and not black (but not necessarily white, remember, all races, religions, and colours should be equally considered). That’s the tie-breaker at the end of the day — what you’re missing. But ONLY when all other things are equal.

Now, when the intolerant tolerant like to define arbitrary buckets, it will be hard to get this message across, but you have to educate, explain, and persevere — or else your suppliers’ DEI will be your downfall.

The Prophet‘s 2024 Procurement Prediction Number 1

A Supply Chain Black Swan in 2024 A-

A major terrorist (or asymmetric military) threat incident in 2024.”

Very likely. As well as:

  • one or more elections of a populist dictator-want-to-be in one or more significant “democratic” countries/blocs with an election this year (including the four largest: India, the European Union, the United States, and Indonesia) and/or insurrections when they lose.
  • significantly more unrest and attacks in the Red Sea and more slowdowns/shutdowns in the Panama Canal due to lack of rain/water (thanks to the US deciding to “fight back” and bomb Yemen)
  • scarcity of capacity due to longer transit times as ships have to navigate the dangerous capes (Agulhas and Horn)
  • unavailability of raw materials as a result of military actions in the Congo, increased sanctions on Russia, and increased crime or political unrest in Brazil (which are 3 of the top 5 countries with the most rare earth metals / reserves)
  • etc.

In other words, this is not the year we’re not going to see another black swan. This is the year we’re going to see a full flight of black swans! (Which is a sight we never hoped to see!)

As The Prophet has noted, you’re going to have to split your business and geographically diversify your supply base (down to the source), but with respect to the recommendation of “at least one supplier with localized production / inventory“, it’s not enough if it’s the 20 in a 60/20/20 and definitely not enough if it’s the 10 in a 80 / 10 / 10. You can’t always produce enough locally, which is why, as SI has been saying for almost a decade and a half, you need to nearshore (not just friend-shore). If you can’t get the majority of the products you need on a truck crossing friendly, or at least not unfriendly, borders, you’re at risk of a significant supply chain disruption.

The other recommendations are right on the money:

  • overweight supply chain risk and visibility investments, and remember they are not the same — you need supply chain visibility down to the source of every raw material as well as transportation visibility of all of your orders, including materials you source on behalf of suppliers/assemblers/distributors, from the source to your warehouses to your customers; these capabilities are generally not always found in the same solutions
  • hedge with additional safety stock/inventory — JIT (just in time) is great until it breaks; and with every single disruption, you always lose more than you save with JIT; and if demand is spike and trough, you can’t always ramp up and ramp down fast enough, so inventory is being built up somewhere … and is that somewhere best in an insecure manufacturer’s warehouse half a world away, or a secure warehouse close to your customer base when release day rolls around? (moreover, you always save more with good demand planning than trying to optimize JIT)
  • conduct scenario planning and war gaming exercises especially for critical products or services that could destroy your business
  • cross-train for strategic roles not just to remove risk of personnel departure or insufficient staff for an emergency scenario, but so you can create better strategies that are not only more sounds but easier for all parties to understand and implement
  • automate everything that can be automated by removing UNNECESSARY human touch-points … as noted, a lot of AP, AR, transactional procurement, and tail spend can be automated … including POs, invoice processing, repeat purchasing, but so can contract drafting, regular analysis, sourcing planning, inventory and demand forecasting adjustments, etc. … the key is to make sure checks and balances are in place before something is automated and if a spend amount is too high, an invoice doesn’t match a PO, something is removed in a contract draft, etc. one or more humans are included in the loop to deal with the exceptions (which cannot be auto-resolved — for example, if an invoice doesn’t match a PO, the system can auto-notify the supplier of the discrepancy, auto-suggest a correction for automatic acceptance, etc. but should not automatically accept an uncorrected discrepancy, no matter how small)
  • insure every new hire you make is someone you would trust to save the business

And, even more importantly, with respect to the last recommendation, make sure these new hires get all the training they need and tools they need to actually save the business when one or more of the black swans break formation and barrel dive towards your business!

Grading The Prophet on His Supply Chain Predictions …

Hopefully you’ve been paying attention over on LinkedIn as The Prophet has been sharing his predictions for the Procurement and Supply Chain space for the coming year as the vast majority are right on the money.

When the series is done, the doctor will discuss each prediction in more detail, but for now, he’ll just direct you to the articles so you can catch up before The Prophet completes the series and you miss possibly the best intelligence on what is coming your way in 2024 (and what you need to consider if you are going to be anywhere near prepared for it):

Current Grade: A!