@ Supply Chain Management

I’m about as far as anyone can get from the professed purpose of this blog i.e. Supply Chain Management. However, there is a method to this peripatetic diversion that is biased to anything but Supply Chain Management. The truth, according to me, is that it really doesn’t matter whether you’re sourcing in China or India, or whether faulty gas pedals are being found in the Lunar Rover now or how Cadmium and Miley Cyrus’s jewelry came together and made their way hand in hand onto Walmart’s shelves.

What does matter though is the fire that is being stoked in the world’s markets? And the world of the supply chain is very tightly linked to this world market but one link removed.

Think for a minute in the sense that the world financial markets didn’t exist and we only had the physical market at hand. It would be an easy tell about the interconnectedness of the supply chain and the physical exchange and transfer of goods over the counter. But back to the real world, the financial markets act as an intermediary in the financing of production and transportation of goods (and of late services) all over the world and their direction to markets all around the world, valuing everything from the debt of governments as well as the stability of firms engaged in the very production of goods and so on. And right now, there is an epic battle being waged as to the control of these markets. And not for one minute are the powerful parties in this struggle disinterested parties to the outcome. The three parties to this struggle are the financial firms and banks that control (at the behest of their clients of course) huge amounts of capital, governments that supposedly represent their citizenry and control enormous tax receipts and perpetual debts or the general public that have their retirements and houses on the line here. The truth is that only the last party to this struggle has but a squeaky voice in all of this and is also the weakest link.

Yet, in all our theoretical supply chain hokum, it is the consumer that is the main driver of everything – and here in lies the troubling dislocation. The consumer is in dire straits and without a rebounding job market or ever rising asset class that can spring some liquidity, there’s just not enough juice to keep all of the supply chain links functioning.

I’m laughing right now (false bravado, really) but I posted the below graph to the day (See my blog post on April 27th: Two conflicting reports: Who decides?) of what must have been the sunniest day this side of the great recession. Compare the two charts of volatility, one from the last post and one from today.

April 27th, 2010	May 20th, 2010

And a close up of what has transpired in the last thirty days set against the recent past, below is the VIX from the beginning of the year:

That is nothing short of an explosion of fear in the financial markets. Do you feel the fear yet in the supply chains? It is coming.

And a quote from the previous post:

“I’m certainly interested in spending now that the stock market seems so relaxed,” said Dan Schrenk, an information technology consultant, as he stood outside a Best Buy store in the Portland suburb of Beaverton.

I wonder how Dan Schrenk is feeling today?

And how does my consequent statement look like:

As the left side of the above chart shows, complacency can last quite a long time and so cannot be read to indicate that something altogether violent and volatile is impending.

Well, I was wrong because something violent and volatile was brewing and it just made a first visitation. Now, we get to see how those Animal spirits will hold up. We also get to see, what this administration has in store for us and also what their allies in power all over the globe as well. I can hazard a guess, they will double down, even triple down their reckless attempts to save us (and their ill-gotten and ill-deserved gains). But given how far they’ve held up the sun, you can almost be sure that they can hold up the moon for at least half as long.

Now as for supply chains, you can be sure that if you’re not tabling business continuity plans that take into account financing, transportation and manufacturing disruptions, political games, street riots, tariffs, protectionism and the like, you’re about to get a rude awakening. I thought I’d never say this but Inventory is about to be king and the customer, well, he’s a serf now.

Supply chains, especially those that have become enormously complex over long distances don’t have to exist – it is not an iron clad feature of human experience. In fact, it might even be a bug – it hasn’t existed in human history but for the brief blip that has been this three decade or so experiment as well as the Silk Road but that had quite a different structure altogether.

Say it aloud, these supply chains don’t have to exist. And that’s the truth. Maybe, a different sort of supply chain will spring up – local and short instead of global and long. Or something else entirely.

So in the big picture, this sophistication in supply chain structure, technology and management is relevant because the scale and scope has been expanding these last thirty years and at a tremendous pace. As the need to understand, manage and control has grown, so has the need been met in this particular fashion. The promise of future continuing growth in both scale and scope is premised on reaching the unwashed masses – or those who are yet to attain to our supposed state of development. Yet, there is not any universal law of progress that dictates that it should be so – we could head in the other direction i.e. devolve to the state of underdevelopment of those we planned to grown to envelop.

So this is very much like a locomotive that is running at break neck speed on a track that is only being laid as the engine rolls forward with a lever attached to the locomotive itself. What’s more, we find that the need for speed has been met only by burning up the coaches that were once attached to the locomotive. Very soon, there will only be an engine running on inertia towards a track that is at an end.

Adrian Gonzales ruminates on his eleven year stint at Arc Advisory in the post: The Accidental Analyst: My 11 years at ARC. It’s an interesting read about the progress of an analyst. Adrian talks about what has changed and what hasn’t changed in this arena:

[The dotcom era]. era served as a catalyst for companies to “think differently” about how they could leverage Internet technologies to transform their supply chain and logistics processes.

and,

Data quality remains a huge problem in the industry, and it’s only getting worse. Garbage still flows in, and garbage still flows out.

Companies still want their 3PLs to be more proactive, and 3PLs still want their customers to view them as partners instead of suppliers.

Everyone talks about collaboration, but when times get tough, as it did last year, it’s every company for itself.

Forecasts are always wrong.

It’s about people, processes, and technologies, but not necessarily in that order.

Data quality is never going to improve because data means different things to different people and so also the classification of what is garbage and what is not. The Internet is one big garbage dump but that’s no reason not to dive in – there’s a pony in there somewhere. Look at it this way, we’re in the stage of global search aka Google, Bing and what have you. Next, will come local search – simply because people will become attuned to the notion that they understand data better than some bot running on a google server in Sunnyvale, CA. And so on.

Forecasts are always wrong just as such statements that imply the same. Forecasts are mostly wrong because it is about the future. I’ve talked about that on my blog several times – there are two extremas to making forecasts – very detailed ones and a few milestones here and there. In my opinion, what is critical is not forecasting and its accuracy but execution and its implied capability. I’d focus more on short run forecasting with rapidly adaptable capability than the converse. When the converse is the case, people lament about the fact that “Forecasts are always wrong.” Yes, but that need not trouble anyone nor detain them.

Let me leave you with a sanguine observation about bubbles. The last bubble cannot be reflated because of the knowledge everyone has about it, especially about its bursting and the fact that a majority of the people are still vested in the last bubble and have yet to realize that it is not coming back. That implies that the mania of housing is over for a good while and that asset class has to go back to being a stodgy preserver of wealth (whatever little there is of it).

The consequence is that without an asset class so commonly found and the method of extracting value from it as the asset grew to bubble proportions, consumption cannot be financed at the previous pace. That has many implications for those who create goods for consumption and those who supply it (and transport it).

So all hail to the next bubble – contrary to the notion that the masters of our fate are pulling the strings that bind us; it is only that we’re so poor string pullers that we end up stringing ourselves up nice and dandy.

This has all the makings of a disaster and from the looks of it Toyota Corp has the deer in the headlights look. This has all the makings of a PR disaster minus the PR.

The driver of a Toyota Prius who called 911 on Monday to report his accelerator was stuck finally got the car stopped after about 20 minutes with the help of the California Highway Patrol, officers said.

"He was reaching speeds over 90 miles per hour," CHP Officer Larry Landeros said of the driver, James Sikes.
A Toyota spokesman said Monday evening that the company, which has recalled millions of vehicles because of reports of unintended acceleration, was sending a representative to investigate the cause of the incident.

Here’s the video of the story:

I think the situation is reaching the point of breaking and if Toyota designers cannot find the root cause quickly and/or implement a safe workaround until creating a final fix – It does look like Toyota’s reputation notwithstanding TPS is about to careen off a cliff.

But the company was unsure whether Sikes took his car into a Toyota dealer to comply with the recall, Lyons said.

Why? The driver may not have but the company is unsure?

Here’s wishing you and yours a Happy New Year ahead. It promises to be an interesting year indeed.

Cheers!!!

There are a select group of chosen companies that seem to go bankrupt again and again – they seem to have a bankruptcy addiction. They just can’t seem to help themselves – someone would think Airlines in this context. I am beginning to think that GM is going to join that select list if such buffoonery is going to be the norm.

What am I referring to?

GM board orders faster new vehicle rollout. A hundred thousand blistering barnacles – was that all there was to it? The woes of GM would be well past us if newer vehicles were to hit the streets faster.

He said the board’s involvement in product decisions seems to show that the new board intends to be more active than the previous one.

No kidding!!! I do hope that employees of GM have a role in this. Never mind.

Meanwhile, as you may very well observe that GM is preparing to fire off its silver bullet – in this case, the Chevy Volt. Observe,

The Volt, due in showrooms late next year, can go 40 miles on a single charge from a home electrical outlet. It has a small internal combustion engine on board to generate electricity for the car beyond that.

He called the Volt a "leap in technology" that no one else has, and said the country needs to move toward electric vehicles.

"I think it will be very successful," he said.

Can the Volt save the company? Maybe. But while its competitors thrive on Continuous Improvement or Kaizen, GM is betting its future on silver bullets. Wouldn’t you say?

Whitacre said the board was interested in pulling more fuel-efficient products forward.

"We’re certainly going that direction of more efficient models," he said. "We’re looking at reliability. We’re looking at efficiency. We certainly will make a major thrust in that direction, but that’s not the only direction we’re going."

The all important question assuming the spectacular success of the Chevy Volt (and that’s a big assumption), is whether the culture of the firm allows for incremental approach to improving their product or will they go back to looking for silver bullets. I’m thinking silver bullets and therefore I’m thinking yet another bankruptcy in the not so near future.

Or maybe it really is the influence of the board that shortens product development life cycles and not repeated (as in continuous) efforts to solving issues that require a company wide effort. Keep a look out for the kind of signals that emanate from GM about five to six months from now and then I think the dice will have been cast.

No, make that yesterday. By “you”, I mean any of us who are in the business of working to sell things – selling something either here or there. It’s an amazing circular world we live in where I’m working hard to sell you something which you either need or don’t need but which  you can only buy by working hard to return the favor.

Some of you have something to do with the supply chain and some of you don’t. So as someone close to the supply chain space, here is the absolute one thing that you should have done yesterday:

Is it better demand forecasting?

Is it investments in a better supply chain for the eventual uptick?

Is it becoming leaner and meaner?

Is it cutting your losses in earlier bright ideas?

Or something else on your long list that you had hidden away in the deep freeze.

In my opinion, the most important thing that you should be doing right now is getting to know your customer again. Again, as in Refresh.

Your customers are probably in a world of hurt right now and taking the effort to understand them and the value of plain ol’ vanilla, tried and true, is a very good idea. Now is the time to reevaluate the concept of value you provide because it is probably the only thing that you can take to the bank for whatever that’s worth.

Sometimes, I wonder if I am not a victim of my own “permabearishness” and that I’m mistaking the signs of improvement for the calm before the next storm. Perhaps it is the numbness to good news because we’ve been here before now haven’t we?

But I took notice of something: they don’t make good news like they used to. Now, that’s the poverty of it all.

Just who is buying this bullshit is another story. I am not one to use profanity lightly but the profane doesn’t do this latest piece of ludicrousness any justice. What drove me batty is this news item from Walmart: Wal-Mart exec foresees eco-ratings for all.

Among the many firms of this world, Walmart is perhaps one of the few who can really drive such a program and we all know that.

"We see this as a universal-this is not a U.S. standard," Wal-Mart Stores Inc. President and CEO Mike Duke told a gathering of more than 1,500 suppliers, nonprofit groups and company staffers at the giant retailer’s headquarters .

"Across the world, this standard would work across all retailers, all suppliers."

Some time ago, I had blogged on this very topic in Wal-Mart Boss says he will press suppliers in race to go green.

Fortunately for us, some research from AMR places an upper bound on the marginal cost we’re willing to pay for an eco-friendly product vs. a non eco-friendly product.

C. Britt Beemer, chairman of America’s Research Group, which surveys shoppers across the country, said shoppers won’t be willing to pay any more than 10 percent more for something that is eco-friendly.

One eye-brow raised so far. That was so last year dude. Here I’m paring my grocery bill down to the last penny. 10% – fat chance?

"Suppliers are going to have to absorb the cost increases," retail industry consultant Burt P Flickinger III said Wednesday.

Two eye-brow raised now. But not batty yet.

What drove me positively batty was this piece at the very end which was supposed to be an illustration of how a focus on the development of a sustainability program would ultimately result in greater production efficiency, actually lowering costs.

However, Wal-Mart focused Thursday on the possibility that development of the sustainability program would ultimately result in greater production efficiency, actually lowering costs.

One example provided was a private-label sour cream sold only at Wal-Mart. A video told of how electricity generated by burning methane from the manure of cows at a dairy farm in upstate New York was being used to reduce energy costs at the farm.

What an excellent idea – I mean who can find fault with reusing manure. Well, anyone thinking green might for one. For example,

Rearing cattle produces more greenhouse gases than driving cars, UN report warns

Some highlights from the report,

Cattle-rearing generates more global warming greenhouse gases, as measured in CO2 equivalent, than transportation

“The environmental costs per unit of livestock production must be cut by one half, just to avoid the level of damage worsening beyond its present level,” it warns.

When emissions from land use and land use change are included, the livestock sector accounts for 9 per cent of CO2 deriving from human-related activities, but produces a much larger share of even more harmful greenhouse gases. It generates 65 per cent of human-related nitrous oxide, which has 296 times the Global Warming Potential (GWP) of CO2. Most of this comes from manure.

Apparently, among the many ways a cow contributes to global warming – belching and not flatulence is the more important one.

Now, please calculate the marginal increase/decrease in cost of the end product (sour cream) given:

1. The number of cows on the dairy farm and carbon costs of the feed

2. Belching and flatulence (in litres) per cow per day converted into greenhouse gases emissions

3. Manure recycling that reduces electricity consumption

Is the savings from (3)*number of cows/day +(1)*consumption/per cow even remotely close to that from (2) recovered per cow? Does this even compute? This kind of hand waving is precisely what gets me batty. If you’re serious about solving a problem – full credit to you. It’s the “I’m also solving the problem in however miniscule a way” that gets my goat.

And to pick an example where in, the principal player i.e. a cow innocently belches to the low stratosphere greenhouse gases, the amount of which is comparable to our own transportation emissions and publicize the miniscule change denoted by a gain in self sufficiency at the production farm as proof of some concerted shift to sustainability is just downright goofy.

I suspect the green supply chain has entered the faltering stage. And I think that I know just know the stab in the back that will consign it into its casket – that’s yet another green thing – the greenback. As long as the dollar remained the undisputed reserve currency, Walmart (and likewise many firms here) possessed the leverage to force this on offshore suppliers. The dollar is in the process of being killed by the US government itself and with it will go much of the implicit leverage.

I find it all very ironic that on the one hand the government kills the greenback (this has been quite a consistent policy over the past few administrations) and on the other hand thinks that it can legislate sustainability dogma into practice.