@ Supply Chain Management

Periodically, I revisit the Baltic Dry Index (BDI) from time to time to get a read on economic activity as read from the volume of shipping contracted across the world. The following is a 3-year chart from 2009 onwards.

As you can see, the stimulus lead spurt of activity also reflected in the economy starting in early 2009 that began to peter out at the beginning of 2011. Then starting from August 2011, the index records a slight improvement in activity but nothing to write home about. While it is early to rule in an oncoming recession, it would take only the slightest worsening of the crisis in Europe to send all the economies of the world reeling once again.

No good news here. But as long as there’s no terrible news either, we slink on.

Steve Jobs has passed on. Now the vagaries of time lay siege to those he pulled together. Now cometh the Apple test. To me, he has been an immense source of inspiration (and his pithy quotes only fuel the fire). My response to such inspiration is to be an entrepreneur and it is coming…

Diagnosis is a word that you and I are probably quite familiar with – the words come together from two words: “Dia” which means through/across and “gnosis” which means knowledge. In my daily work life, I depend on carrying out diagnosis as defined,

thorough analysis of facts or problems in order to gain understanding and aid future planning

However for me, diagnosis is implemented in a curious form that I often call dialogue-gnosis which simply means that a great deal of my knowledge and understanding is gained through dialogue with others. Now, nowhere in my education or work life was I ever taught how to carry out diagnosis or dialogue-gnosis; I just picked it up along the way. And I have no way of knowing whether my method of gnosis generation is any good (Except perhaps that it seems to work…sometimes?). And the critical aspect of dialogue-gnosis is that it is essentially about:

1) Asking the correct (or almost always somewhat-correct) and more importantly timely question

2) Taking the answers and filing it away as reportage to be verified independently

Some make dialogue-gnosis and diagnosis out into a process but my intuition suggests that it is not about the process but the processor – the processor is the key. While a well thought out process aids the processor (i.e. the investigator) and in that sense it is useful, an enthusiastic and curious processor is a must and there is a subset of people who are good at this. And there is a majority that are not. These processors actually want to engage in dialogue-gnosis over the appearance of diagnosis. The distinction is important because the majority that are not interested in dialogue-gnosis, they are interested in something else. Dialogue-gnosis is processor heavy and process-aided.

There is another class of gnosis operation which I’d like to call Solgnosis (Solution-Gnosis) which can be best described as bending reality to fit the existing solution. Solgnosis is like the phrase – “When all you have is a hammer, everything looks like a nail…” Bang away. Solngnosis is process heavy but processor lite, the process dwarves the processor and the processor is not expected to bring much to the process – “Just follow the instructions and that is all that is required.”

Solngnosis is essentially about using what has already been figured out repeatedly because it has worked before or is setup by those who have some success on their hands.

I am involved in a lot of modeling (Er – no, not the shirtless kind) – optimization modeling and there is an incredible degree of engineering that is required to get it right. Well, to be honest – somewhat right is more apt. Solgnosis is quite useless to me because even in the same industry, things can be radically different especially in the way that human beings interact with the model of their world. Some call it culture or whatever. In reality, it is the continuous spectrum between Dialogue-gnosis and Solngnosis that exists within the firm and where some of the key drivers (people) are along that spectrum.

Of course, to reduce the firm to this single dimension is rather foolish but over time the precipitate of repeated actions tends to dictate what kind of results can be expected from a firm. Or from a  nation. And from the world.

Take a look around you – what do you see? Do you see the imprints and effects of dialogue-gnosis or solution-gnosis?

In an earlier post, I blogged about the Baltic Dry Index as a good indicator of economic activity (Read it here: Ready for a recession?)

Even if we were to magically start moving in the Baltic Dry Index in a positive direction which would be a tremendous relief for everyone (but remember – *magically*), the US treasury and the Federal Reserve would continue to devalue the US dollar for two practical reasons:

1) Repay outstanding debts with a depreciated currency. This is really quid pro quo with some of the trading partners of the US against whom the US has been running trade deficits for the better part of a decade. The whole point of trade is not for one side of the equation to accumulate a lot of paper currency but to reciprocate in buying the origin country’s exports.

2) Make US exports competitive with other countries and reignite production/manufacturing stateside.

In fact, if the US (and World) economy were to recover some what, the above two agencies would devalue the US dollar with a vengeance.

This sort of policy, if successful, would mean a repatriation of some of the manufacturing that went overseas. Going further, when US firms look at the scenario (albeit a few years down the line) and see that the assets created overseas for manufacturing whatever widgets were outsourced have depreciated or is in need of upgrades to remain viable, that would be the decision point for deciding where the next generation of manufacturing will be located.

Much of the trajectory of what we see taking place goes to answering that question of the future and the above two agencies are hell bent on creating conditions that  answer this question of manufacturing in the positive.

Or so I believe.

In such a scenario, what I believe to be key to long term competitive manufacturing is the ability to be smart about manufacturing – it means being able to operate using a very thin buffer for error because American firms will be competing with overseas firms (firm benefiting from their own countries’ competitive devaluation) that will continue to compete on large volumes and scale.

So what is Smarter Manufacturing?

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!!

Do you know that this is the most frequently searched Google phrase that drives people to my site (and I’m sure very many other sites in this space as well)? Ah, this is easy enough to answer and so I posed the question to myself : What exactly is the Supply Chain?

I must confess that I really couldn’t come up with an answer that didn’t suffer from some rebuttal or the other. So I pose it to you as well – What is the Supply Chain?

Now some may hearken to the introduction that most have of the supply chain that usually have the neat diagrams that connect material flow from neat boxes of producers, intermediaries etc and information flow in the reverse direction. But is that what it is? In the sense, does the activity of material and information flow define Supply Chain Management? In other words, is Supply Chain Management just an activity descriptor?

Well, if it is not just an activity descriptor – then you can safely put away transportation, warehouse and all sorts of other management. Inventory Management?

So let’s move up that chain to see whether it is about the customer? Forecasting? S&OP? In other words, is it about getting an analytical feel for the way demand is going to be or a structured process about marshalling a firm’s resources and fulfilling that demand whatever that might be? Again, how is this different from some definite activity?

Alright, maybe it is not one activity but a rhythm of many activities that must be more or less in harmony. So how is that different from just Operations Management with a new focus on getting all the links functioning together?

You see where I’m going…

Perhaps we take the easy route and point to an activity (or activities) or point to a piece of software (ERP, MRP, SCM, TMS, WMS etc)?

If someone came to you and asked you – “What is Supply Chain Management?” , what would you say?

Now, that’s a proper way to start the year off!!