@ Supply Chain Management

If we can get through these pressing times, we might have some time left over to read The smarter supply chain of the future (courtesy of IBM supply chain management). Or is that pouring new wine into old wineskins? Or is it the same old wine with a dash of vinegar mixed in?

The executive summary reads from the first line:

Volatile. That’s perhaps the best word to describe today’s global marketplace.Like economies and financial markets, as supply chains have grown more global and interconnected, they’ve also increased their exposure to shocks and disruptions. Supply chain speed only exacerbates the problem.Even minor missteps and miscalculations can have major consequences as their impacts spread like viruses throughout complex supply chain networks.

Silly me – supply chains were forced to grow global because of various actions taken by firms, first as a trickle and then enmasse which had the entirely unanticipated (I’ve been anticipating this for some time now) consequence of exposing the firms to the risk of very long supply chains. To give a different analogy, this is what Napoleon did too in his disastrous Russian campaign – he overextended his supply lines and continued his campaign into the brutal Russian winter. As we stand now, we risk a brutal global economic winter of proportions we have never witnessed (when I say "we", I mean most of us didn’t grow up in the great depression or something like it) all the while our supply chains are long and fraught with risks that are just becoming apparent. So tell me, what new problems await us? Plenty aplenty.

Nevertheless the discussion of the report focuses on:

Cost containment – Rapid, constant change is rocking this traditional area of strength and outstripping supply chain executives’ ability to adapt.

Rapid and constant change have always existed, no? One would think that while one would have been patting oneself on the back about engaging in globalization as rapid change but you can’t stop there. You’ve entered the whirlpool now – this is no time for smooth sailing.

Visibility – Flooded with more information than ever, supply chain executives still struggle to

We’re in the show your cards stage of the shell game that we’ve been playing for a while – the greater part of more than a decade. It feels like we’ve been played but that’s only because we’re not really the players – we’re the pawns in a high stakes game.

Consider one of the players – China. Now, note how the headlines changed in a matter of weeks:

Jan 8, 2009 – U.S. debt is losing its appeal in China

At first glance, the declining Chinese appetite for U.S. debt -apparent in a series of hints from Chinese policy makers over the past two weeks, with official statistics due for release in the next few days – comes at an inopportune time. On Tuesday, the U.S.president-elect, Barack Obama, said Americans should get used to the prospect of "trillion-dollar deficits for years to come" as he seeks to finance an $800 billion economic stimulus package.

Feb 11, 2009 – China to stick with US bonds

Mr Luo, speaking at the Global Association of Risk Management’s 10th Annual Risk Management Convention, said:

For what it’s worth – Exactly what I predicted in previous posts… Geithner Unveils New Plan To Bail Out US Banks

House Democrats have been pushing for stronger lending conditions-as well a crackdown on executive pay-in the wake of criticism of former Treasury Secretary Henry Paulson’s administration of the TARP. That was seen as both too lenient on and too generous to financial firms, which critics allege were hoarding capital instead of lending it.

The new Treasury plan will “require banks to show how government assistance will expand lending and how they intend to use taxpayer dollars, which is similar in the tone and design of the House Democrat’s proposal.

Heh! The new Treasury plan will “require banks to show how government assistance will expand lending and how they intend to use taxpayer dollars… In other words, lend or bust. Now there will be two sets of bankers – one set who are cozying up with the government to swallow up the other set. But both are pondering, “If I’m forced to lend, I’ll go bust anyway. So what’s the point?”

To which any government official would reply, “And your point being?”

And that is how you and I become serfs. No matter what the actual creditworthiness of the recipient, the government intends to appropriate your future work to make bets on how the future should look like by saving house values, saving retirements, saving any and everything they see fit to save. Why do we allow them to do it? Well, that’s because we’re fully vested in our house value, in our retirement – in the way the world ought to be i.e for our benefit. Now, that is the root of entitlement.

In plain speak – no matter how “uninspired” your financial actions may have been, the government has got your back. And they intend to ride it for all that it’s worth to them. And then some.

For us in the supply chain, it means the following – The government is going to be a player in your supply chain (You don’t really see any graphic on any supply chain concept diagram that is titled – Govt., change it – now your task is how to coopt the government into your plans before the competition does) be it in the financial supply chain by guaranteeing letters of credit, imposing restrictions (either outright or through penalties) on types of materials or manufacturing processes you can use for the good of the planet/future etc, if it comes to protectionism then securing your channels through the layers of protectionism will be an imperative, price and wage controls to secure full employment, losing the investment in manufacturing assets overseas because of the governmental actions there – that would be called nationalization… the list is endless. It centers on the dynamics of currying governmental favor and how effective your firm or your industry’s organization is in making your voice heard.

But isn’t this just paranoia? Absolutely, completely true paranoia. If this is the way the government intends to play in finance, I am only looking ahead to see how it might play in the auto world for example (I hope we haven’t forgotten about that sorry set yet) because that is really where the template of governmental action in the supply chain will get its opening credits. We shall have to see.

Tags: The Bank Bailout, Directing the banks, Entitlements, The effect of government in the Supply Chain

A glimmer of sense starts filtering through… Banks still tightening loan standards

The article suggests

Many banks have made it harder for borrowers to obtain all kinds of loans over the last three months despite a $700 billion federal bailout program and a flurry of other bold moves to stem the worst financial crisis to hit the country since the 1930s.

yet brimming within you had to have detected the hardly restrained despair over the perceived double cross – It reads, “They (banks) take our money and refuse to lend it out…”. Expect the nonsense to get a whole lot more shrill just as sense was beginning to take hold.

This vindicates the following: Sense is as delicate as nonsense is compelling.

As bankers return to the norm (after that last mania has died), the question that remains really is what is the norm for a politician? Draw that norm and you have made some distance in setting the expectation of how bad this mess is going to get. There is a plethora of danged and damned danged stuff out there that form the repertoire of a seasoned interventionist (You might appreciate that the US government, and every other government in the world as well, is in full interventionist mode) – Price controls, wage controls, nationalization, funky money, funkier money, generic stimulus, targeted stimulus, “Dang, I hope this works” stimulus, quotas, protectionism, tariffs, Buy American – (What is American anymore?), unemployment, adjusted unemployment, severely one time adjusted unemployment, “we just stopped counting” – unemployment, war, senseless wars, senseless wars made sensible… In short, there is nothing sensible when it comes to politicians or the government.

So what does that mean to the supply chain at large. I can think of two possible impacts immediately.

1. Increased pace (perhaps tending to the frenetic) of lobbying efforts – When the government enters the playing field (and as of now, it is hovering and peddling influence at the periphery) as I expect that it will, firms up and down the supply chain will have to expend considerable lobbying influence to either keep the playing field as is or towards favorable terms. Naturally, the firms with deep pockets will benefits immensely from this whereas the smaller players in the supply chain (be it services such as 3PLs or carriers or actual suppliers of raw materials or intermediary products) will lose out unless they get their collective pockets together. Of course, frantic money encircling government begets not efficiency of investment (perish the thought) but beggars scandal – expectation of many money scandals is now firmly on my screen.

2. Stimuli – Can anyone put forth the reasoning behind the stimulus? Why stimulate anything in the first place and why does the government have to do the stimulating? The second part first – only the government has the “magical ability” to create something out of nothing – in other words, when the government says, “Let there be money.” Poof!! “And there was money.” Let