Ebola, Halloween and Supply Chain Risks

chococalteWhile there is no comparison to the human suffering and tragedy, the Ebola crisis does have some lessons to be learned from a Supply Chain Risk Management perspective.  We discussed some of them as they relate to the “Ebola response” Supply Chain here and here but there is also the risk associated with Supply Chains that are supported in West Africa – a prime example being Cocoa.

 If you have not noticed, your favorite chocolate bar is already more expensive and cocoa contracts are at a three year high.  According to Jack Scoville, the spike is largely related to Ebola fears.  While cocoa is largely grown in the Ivory Coast and Ghana and the Ebola epidemic is in the neighboring countries of Liberia and Guinea, the fear is  that it will spread to the cocoa fields. Even just the perception that it might, had that perception taken hold, would have been enough to start driving farmers away from their crops.  The way that risk was mitigated was by closing the borders to human traffic.

 The resulting risk created though was that the entire migrant labor for cocoa harvesting comes from Liberia and Guinea.  The impact of this is totally un-predictable as the harvesting season is currently underway.  While the hope is that labor will be available from other sources, the potential impact of this will be significant on the cocoa crop and therefore chocolate prices.  Which is probably why the futures contracts on cocoa are baking that risk into their pricing.  And  by the way, the agronomists and economists, who would be visiting the cocoa fields to project this year’s crop, yield, quality etc. to price out cocoa futures cannot do so as they have not been willing to travel because of Ebola fears.  The level of uncertainty surrounding cocoa is probably unprecedented.

Now place yourself in the shoes of your peers who are in the Chocolate industry or just substitute cocoa with your critical commodities, and Ebola with any significant major disruption (another Ebola like event, terrorist event, natural disaster, etc.) for your suppliers or their suppliers.  Does your Supply Chain Risk Management process incorporate such events and know what to do when they occur?  Or, does it ignore the existence of such risks?  Have you checked with your key suppliers and asked them to share their risk process with you so you know how much “pass through” risk you have.  What if 75% of your key suppliers are dependent on a small region in China or India – is that too much portfolio risk for you to assume? And this risk is prevalent whether we are discussing products or services.  What if the risk (Ebola) was able to contaminate your supply chain and cross borders as an intrinsic part of your supply chain?

For living proof of this, all you have to do is to look at McDonald’s (and KFC, Burger King etc.) and the impact it has had on them – and they are a vaunted Supply Chain organization.  Tainted meat from a Chinese supplier has had a significant impact on their sales, market share, brand, earnings, stock price etc. and  they all are still a long way from recovering from.

Halloween is coming and while no one is predicting any impact on demand because of any connections between Ebola and chocolate, high prices will definitely mean a lot less chocolate for the kids in their bags.  And that also means a lot less chocolate for me to steal from those bags the next morning.

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Too Many Suppliers . . . Keep Looking!

connectedMost of us can look at anything we “buy” on behalf of our company and see that we have opportunity for improvement.  We may have too many suppliers, not enough suppliers or not the “right” suppliers.  Whatever the situation, as Sourcing professionals it is our job to ensure that we have the best set of suppliers that provide the most value to our business partners.

I recently read an article published in HBR from Michael Porter (remember Porters Five Forces Model) & James Heppelmann entitled “How Smart, Connected Products Are Transforming Competition”.   The article explores the introduction of smart, connected products as a game changer that is “ushering in a new era of competition”.  The article points out that information technology is revolutionizing products” (no surprise here) but the real point is the pace of change is such that we need to constantly keep a pulse on our supply markets to ensure that we understand how industry competition is being reshaped.  If our role is to ensure we have the best set of suppliers for our business then we must be on top of changes in our supply markets.

Periodic reviews of your supply markets are critical.  Here are the key questions you should be trying to answer as part of your supply market analysis:

  • What are the economics of the supply industry, i.e., what drives the market?
  • How important is brand value in our category?
  • What are the main quality issues?
  • How global is the supply industry (present and future)?
    1. Threat of foreign competition
    2. Degree of political and currency risk
  • What is the technological complexity of the goods/services?
    1. Proprietary nature
    2. Ease of duplication
    3. Product life cycle
  • What are the primary value-added activities associated with the category?

Opportunities to change the paradigm

  • What are the critical success factors in the supply market?
  • Can industry leaders sustain their advantage over the long-term?
  • Do any markets for similar goods/services (or substitutes) represent a potential competitive threat to this one?

One way to keep on top of the competitive landscape within the supply market is to use Porters Five Forces Model.  Here are the elements of Porter’s model: 

  • Bargaining Power of Customer (Buyers) – Competition is high when buyers (as a group) have many choices of whom to buy from or when there are few buyers in the market.
  •  Bargaining  Power of Suppliers  – Competition is high when suppliers can exert influence on the market,  i.e., on your suppliers 
  • Threat of Substitute Products or Services – Competition is high if there are current or potential alternatives to using the product or service.
  •  Threat of New Entrants – Competition is high when it is easy for new players to enter the market.
  •  Intensity of Rivalry Among Existing Competitors – Competition is high when the industry has many players, there is little differentiation between products, or there is a history of aggressive marketing.

The article referenced above has Porter applying his five forces to the Smart, Connected Products industry.  It is a great, current example (right from the Horses’ mouth) and illustrates the type of analysis we should be doing as a profession to keep on top of our game.  As illustrated, the pace of technology is shifting markets soooo rapidly, it is hard to keep up.  Understanding the shifts in our supply markets and sharing that insight with our internal business partners will help us be able to add value beyond “cost cutting”.  It will also help us to continuously review whether we have too many suppliers, not enough suppliers or not the “right” suppliers.

 Let us know what you think and join in the conversation . . . . . . . . 

 

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When Supply Chains Kill Thousands That Could Become Millions!! Part 2

ebola2We had recently written about the Ebola catastrophe and how it was poised to jump borders and go from an epidemic to a pandemic.  While not yet a pandemic (thank your favorite god), it has not yet been brought under control and continues to spread.  Spain just had their 1st case and the US just had its 1st casualty in Dallas.  News reports now indicate that there may be another case in Dallas and a police officer who was a first responder in Dallas may also have contracted it.  Spain (and Europe) are extremely concerned and now the concern has spread to dogs.  The pet dog of the nurse that contracted it was euthanized out of fear that it might have the virus and may spread it – without any actual proof that the dog had the virus or was capable of spreading it.

 Here is what we wrote a few weeks ago, “After scaling manufacturing, ensuring distribution is still a major challenge.  Transportation can only happen if the pilots/crews are willing to go to these areas.  That means they need to feel confident they will have access to the drugs, if they are infected.  That’s a totally different flavor of Supply Chain Risk Management than we are used to?  That logic extends to the distribution channel that actually delivers the drug to the patients (doctors and nurses) and there is a huge shortage of that currently in the infected areas and the supply continues to dwindle as medical professionals are leaving in droves for fear of infection.  That risk has to be mitigated for that channel immediately.” And this continues to be a major risk that has not yet been mitigated.  As mentioned above, the police officer in Dallas and the nurse in Spain are all part of the “Supply Chain” that is responding to the crisis and unless we are able to manage that risk – we cannot respond! 

Evidence of this can be found in the response by the U.S. Thousands of troops are being sent over to construct 17 field hospitals to provide immediate care in the infected countries.  But these hospitals are exclusively for the responders– because it is clearly recognized that this is the major Supply Chain risk facing the crisis.  Unless we can create a supply chain that can deliver what is needed, where it’s needed – we have no chance of containing this.  There are tons and tons of badly needed supplies and medicines that are wasting away in the ports of the infected countries because there is no “supply chain” that can deliver them to where they are actually needed and consumed.  The crisis will continue to worsen untill this risk is fixed – the people who dispose of those that died from the disease have recently gone on strike.  The impact of this could be catastrophic as disposing of the dead is the biggest threat.

While all this is going on, the U.S. has announced strict monitoring at the airports in the infected areas AND has recently announced similar measures at the U.S. based airports.  Every expert opines that these measures have very minimal impact, if any, on managing the actual risk.  If these measures had been in place, they would not have flagged the infected individual in Dallas.  Similar measures put in place for SARS had absolutely no impact in controlling the spread of that infection.  Yet, governments feel compelled to take these measures to satisfy the demands of the general public to do something – anything to control the problem.  All these measures do is to make people feel better.  If you have gone through the security process at any airport and felt safer – you will understand the dynamics at play here.  Every expert will tell you that these security measures at airports have minimal impact on actual safety – they are put in place to make the public feel better.

Supply Chains  have an integral part to play when disasters strike and the risk management around these supply chains are totally different.  We invite comments on this very critical issue facing us globally and what we can do as a professional community.

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Hire a Sales Person – Not a Lawyer

saleswomanI came across an article in Crain’s Chicago Business entitled  “Why law firms are turning to non-lawyers for sales help”  where they talk about law firms hiring sales/marketing professionals to develop business.  In a profession where advertising was once banned, this is considered a radical move.  According to the article “law firms are reacting to customers who have learned how to strip out components of legal work and value them accordingly, an unbundling of services that echoes what hit the computer industry decades ago” and “what’s happened is that the buyers have become smarter than the lawyers.”  Score one for Strategic Sourcing.
 
But law firms are fighting back.  Many have moved toward hiring business development professionals to sell their services while others have provided sales training to their lawyers.  Some firms are experiencing up to a 60% increase in client requests for proposals where that same work was automatically awarded in the past.  The economy and competition has forced law firms to think more like a business.  But getting a lawyer to think like a sales person is not without its challenges. Many feel that they didn’t go to law school to become a sales person.    “Traditionally, lawyers believed their knowledge and expertise spoke for itself, and it would be a sign of defeat to start marketing.” 
 
Another role has emerged as law firms fight against Strategic Sourcing – Pricing Director.  Two years ago there were only a few such roles and now there are over 300 across the industry.  The upsurge has been caused by pressure from clients.  Clients have adopted more savvy purchasing practices and law firms have been forced to react.  In 2013, two thirds of law firm revenue involved flat rates and other “alternative fee arrangements” such are pre-negotiated discounts to billable hours.”  The days of open ended agreements and highly paid lawyers billing for work that could be done by paralegals may be over.  Some law firms are starting to be more judicious (no pun intended :-D ) in pushing lower value added work down to paralegals, contract attorneys, document processors or to low cost countries (e.g. legal research in India) as a reaction to the market.
 
This shift has not happened without a great deal of pain. The long standing culture within many law firms can be a tough nut to crack. Business development professionals entering these firms, name decision making as the number one biggest issue they face.   Partners see the change as optional and need to be convinced that the shift is necessary.  In addition, sales cycles for professional services firms can take two years or longer which can be frustrating for both the sales person and the firm.  Like any change, it takes time and expectations need to be managed along the way to be successful.  
 
So what does this shift mean for Sourcing professionals?  Where legal services were once a sacred cow for strategic sourcing – that is changing.  Use this as a call to action to at least consider legal services as an opportunity.  This does not mean you need to switch to new outsides law firms but can be a way to add value to your internal legal group by helping them to buy smarter.  If law firms have recognized the market has changed by thinking more like sales people, then it’s time our internal business partners (legal) recognize that change and capitalize on it.
 
Let us know what you think and join the conversation . . . . . . 
 
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9 Tips for email from Eric Schmidt

emailI must admit that while emails are obviously phenomenally efficient and fast as a mode of communication, there are days when I dread opening up my email in the morning, only to  be faced with an avalanche of useless junk – I’m sure you’ve had days like that too?  I’ve seen these types of hints before but when  I saw the name behind this one, I was intrigued.  So here they are.  I would love to hear back from you to see if any of these make any sense.

 1.       Respond quickly: That’s obvious and his logic makes sense – especially from a stakeholder management perspective.  However, there are times when I need to let things percolate in my mind so I may deliberately want to slow down my response to send a subtle message.

  2.       Be crisp:  Yup – could not agree more and one that I struggle with.  He quotes Elmore Leonard, “I leave out the parts that people skip”.

  3.       Clean out your inbox: I  find this very ironic given the author of Google is probably responsible for half the email I get and regardless of how many filters I set up – I still get tons of email that I have no interest in. So Eric, you could do your part to help out here???

 4.       LIFO: Another obvious one but I have found relevant emails when I’ve gone through older emails in my humongous inbox looking for something else – I bet you have too?

 5.       Be a “Router”: This basically refers to forwarding information to others who will find it relevant.  The issue here is that you are defining what is relevant for someone else.  I know that being the recipient of many such forwards that a lot of them I really had no interest in but someone assumed that I did.

 6.       Don’t use bcc:  Hmmmmmm, Not sure I understand why or agree with it.  Do you?

  7.       Don’t YELL:  I’ll agree except when you are really frustrated with customer service reps who have screwed up your cigar order for the 5th time – then it’s time to YELL!!  Or when you are trying to get your kid’s attention.

 8.       Make it easy to follow up on requests – And when they don’t for the 5th time, then is it okay to YELL?

  9.       Help yourself to search:  I found this to be the most intriguing because a lot of time is wasted by all of us in searching for that one email that we know we got but cannot find right now and need it right away.  The Search function is the least utilized and one that could save a ton of time if we learned  how to do it better.  Using descriptive words and then knowing how to use them in your search is fairly obvious but one that we often ignore.

 What is you experience with email?  Any long term frustrations?  Helpful hints for the rest of us?  Would love to get an email back from you.  :-)

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