@ Supply Chain Management

First Ms. Lagarde and now Mr. Bernanke (in the recent testimony on Capitol Hill) assure us that there is no currency war happening. Well, that’s true on the face of it.

However, why do currency wars begin? Because they work. Initially. Unless you’re willing to say the following that the populace of an advanced economy is going to sit back and watch their exports and by implication their jobs affected. But you might say – China has been manipulating their currency for at least a decade.

However, I think the issue with China is that it serves primarily as a low cost manufacturer by default for most of the advanced economies. While each developed economy didn’t particularly like the idea of currency manipulation by China, it affected each equally, more or less. This is quite different when each developed economy is trying to jumpstart their economies and boost exports by devaluing their currencies. The first few actors will benefit from this practice and the longer that these activities persist, the effects die down.

But please be under no illusions – these are desperate measures that have pricing volatility effects on every supply chain.

NOT!!!

However, here’s Ms. Lagarde of IMF : Lagarde sees Currency Worries, Not ‘War’.

"There’s been lots of talk of currency wars, and we have not seen any such thing as a currency war. We’ve heard currency worries, not currency wars," said Lagarde. "We’ve not seen confrontation but deliberation, dialogue, discussions and clearly this G-20 meeting has been extremely helpful and productive."

Lagarde’s comments echoed those of the G-20 nations on Saturday, who declared that there would be no currency war. This has taken the heat off Japan, which has been criticized for its expansive policies that have driven down the yen following the election of Prime Minister Shinzo Abe.

We’re all diplomats for now. Like I said in my prediction, we’ll first take the time to get this wrong to the fullest extent possible before we admit to the possibility that it was a war all along. So far we have no confrontations but deliberation, dialogue and discussions only. But confrontations arise from accusations – so until we see all sorts of accusations thrown about, it’s quite alright to be in the mode of Supply Chain worries.

Like this kind:

Bank of Korea Governor Kim Choong-soo told the Wall Street Journal on Sunday that he was concerned over the weakening yen’s impact on his country’s economy. The governor stressed the importance of strengthening financial safety nets to give smaller nations the confidence to not have to stockpile currency reserves.

However, be not alarmed when such protestations erupt from the smaller economies. When you sniff the first wave of accusations between the larger economies, you’d do well to have already taken a long hard look at every and any extended supply chain and start diversifying options – especially options that have a strong currency component to it.

As widely expected, GM is suspending the production of the Volt for five weeks as reported here : General Motors suspends Volt production.

General Motors Co. is suspending production of its Chevrolet Volt electric car for five weeks amid disappointing sales.

A GM spokesman said Friday that the company will shut down production of the Volt from March 19 until April 23, idling 1,300 workers at the Detroit-Hamtramck assembly plant.

The Volt was rolled out with great fanfare in late 2010 but has since hit bumps in the road.

and

GM sold 7,671 Volts last year, below its original goal of 10,000 cars. The company stopped publicly announcing sales targets last year. It sold 1,023 Volts in February and 603 in January.

"The fact that GM is now facing an oversupply of Volts suggests that consumer demand is just not that strong for these vehicles," said Lacey Plache, chief economist for auto information site Edmunds.com.

GM spokesman Chris Lee said the company was "taking a temporary shutdown" of the assembly line.

"We’re doing it to maintain our proper inventory levels as we align production with demand," he said.

Yup, align production with demand.

Now, here’s my good ol’ post about GM’s woes : Will GM go bankrupt again?

Its been a few months of good (or rather better) news on the employment front – the employment situation being a lagging indicator implies that the economy is on the mend and has been so for a few months. So what is the divergence then? See here below:

This is the Baltic Dry Index (BDI). You can see the steady build up that kicks off in August 2011 and continues till about Nov 2011. After that, it drops precipitously going into 2012. Now isn’t that a puzzling divergence? Well, it isn’t if you think that the general economy is going to tank again but can you really say that with today’s picture, today’s expectation – rosy getting rosier?

Well, at the very least I get to check whether the BDI is any good as an indicator?

Are you ready for the coming Recession? “Why, when did the last one end”, you may ask me. And the truth is that it never ended. The below chart captures it quite well – this is a 1 year chart of the Baltic Dry Index (never heard of it? Well, now you have)

The Baltic Dry Index is best described as (Baltic Dry Index: BALDRY):

The Baltic Dry Index is a daily average of prices to ship raw materials. It represents the cost paid by an end customer to have a shipping company transport raw materials across seas on the Baltic Exchange, the global marketplace for brokering shipping contracts.

and

The BDI is one of the purest leading indicators of economic activity. It measures the demand to move raw materials and precursors to production, as well as the supply of ships available to move this cargo. Consumer spending and other economic indicators are backward looking, meaning they examine what has already occurred. The BDI offers a real time glimpse at global raw material and infrastructure demand. Unlike stock and commodities markets, the Baltic Dry Index is totally devoid of speculative players. The trading is limited only to the member companies, and the only relevant parties securing contracts are those who have actual cargo to move and those who have the ships to move it.

However, if you want to place in context the fluff about the US (or World) economy floated by your “favorite” news agency or administration spokesman – just pull up the 5 year chart of the Baltic Dry Index.

The aftermath of the Great Recession and consequent efforts to revive the US (and worldwide) economy is reflected in the period of mid-2009 to mid-2011. All that stimulus and confidence measures have largely achieved naught.

If the Baltic Dry Index meanders at the bottom of the chart above on a go forward basis – then there is a great likelihood that the Great Recession from 2009 will resume with all its consequent effects.

Sorry folks – this is terrible news but forewarned is forearmed.

At the rate at which I’m going – I’m posting one a month. And between my last post and this – It does seem that the world has gone mad. Or rather, very many maddening things are afoot that threaten to undo our current global project. It does seem to me that the “International” has begun to parlay into the “national” in a rather conspicuous way.

Be it the Earthquale-Tsunami-Nuclear Disaster than befell the Japanese or the popular uprisings and its very many diverse consequences in the Middle East or the non-existent economic recoveries in the developed world, I see a vortex into which everyone and everything will be dragged down for awhile. When everything is connected (and don’t we as those Supply Chain aficionados and evangelists bear some responsibility?), the perturbations and volatilities in the system threaten to drag everyone into it.

It is at this juncture that I happened to read two different same articles that morphed into the headline of this post – “Let them eat cake..”

So here they are:

Article 1: Wal-Mart CEO Bill Simon expects inflation

From the article, a few salient points:

U.S. consumers face "serious" inflation in the months ahead for clothing, food and other products, the head of Wal-Mart’s U.S. operations warned Wednesday.

and

Along with steep increases in raw material costs, John Long, a retail strategist at Kurt Salmon, says labor costs in China and fuel costs for transportation are weighing heavily on retailers. He predicts prices will start increasing at all retailers in June.

"Every single retailer has and is paying more for the items they sell, and retailers will be passing some of these costs along," Long says. "Except for fuel costs, U.S. consumers haven’t seen much in the way of inflation for almost a decade, so a broad-based increase in prices will be unprecedented in recent memory."

Article 2: Why Sustainability Is Winning Over CEOs

From the article,

Potatoes are 80 percent water, most of which is lost as steam when 350,000 tons of spuds are sliced and fried annually at the factory. Seal hopes to condense the steam, possibly with a system of cooling tubes, and reuse the captured H2O to clean equipment, help wash potatoes along manufacturing lines, and even irrigate the shrubs outside. The method could save the plant $1 million a year.

and

Executives are trying to realize meaningful cost savings by coming up with innovative ways to go easier on the environment.

Recent volatile price swings in plastic packaging, fuel, cotton, food ingredients such as corn, and a host of other raw materials have added urgency to businesses’ efforts to shave costs to keep prices competitive and protect margins.

To make matters worse, the water that would have run-off in the potato processing would have returned to the “environment” – How this goes easier on the environment is beyond me? Further in the article, there is talk about savings from reduced packaging and conversion of transportation options to electric vehicles.

Why do I say that this is the “Let them eat cake…” moment? In the offing, is an unprecedented wave of cost increases across the board because of the Federal Reserve (working in concert with other Central Banks) engineered inflation. And in the face of it, are we to sit back happy that the captain’s of industry are enamored of cost-savings through sustainability.

The Fed has won in the sense that it is on the verge of getting what it engineered – inflation.

What my reader has to do is to connect the dots. Because you see, the people in the Middle-East are not up in arms because they’ve been living under dictatorships but because living under a dictator has become intolerable of late. But why has life under dictatorships become intolerable for them? Too often, when you see the alphabet soup news media (ABC, CBS, CNN, NBC, FOX et al), you don’t get the whole picture. Life is intolerable because the ordinary man can’t afford the price of food (let alone anything else) there.

The following chart can be found : Egypt Inflation data

The real challenge of the coming years is not Sustainability or saving the planet – It will be saving the globalization project itself. And our own projects of the supply chain are quite inextricably linked with that globalization project.

USA Inc. is a fascinating report that looks at the financials of the US federal government. This report created by Kleiner Perkins Caufield & Byers, a venture capital firm, treats the federal government as if it were a business. I’ve just started digging into it – a change from an unbelievably difficult two months both on the personal as well as work front.

USA Inc report from Kleiner Perkins Caufield & Byers.

I’ll have some thoughts on it after I’m done with the 266 pages.

Enjoy!!