@ Supply Chain Management

Earlier this year in Feb 2013, I had made my prediction for the Supply Chain of 2013 – You can read it here in : Predictions for the Supply Chain in 2013.

In that post,

Well, I have my prediction too for the supply chain of 2013 (and 14 and 15 too). If anything I’d call it the rise of the Supply Chain Currency Wars. The first shot of this new phase of global currency wars was launched by Japan a week or two ago. While it will start slowly, over the next few years, this sort of tit-for-tat devaluation will play havoc with global supply chains especially the one’s with finely tuned cost calculations justifying the location of factories and/or distribution centers.

Devaluation of currencies over a matter of couple of quarters and in-kind retaliation is going to drive up financing risk in the supply chain. Were such a scenario to come to pass, then supply chain operators need to nail down some other variables so as not to have all the variables in a supply chain in a volatile flux.

Big Data – Nyet. Bigger and Badder visualization – Not a chance.

Increased volatility, upset cost calculations – Yes, sir – that’s for breakfast, lunch and dinner around the corner. Almost all the Emerging Market countries (such as BRIC) have entered a period of flux, not unlike what the Nutty Market countries at the periphery (Egypt, Syria etc) entered into roughly 2 years ago. This flux in the Emerging Markets – both China and India have received a lot of foreign investment in the past years.

So take one scenario : As projected growth and real growth decline, these countries will be subject to capital outflows. This is why, devaluation of the currency is the only way out for countries that constitute the manufacturing base of the world – the hope would be that devaluing their currency makes their exports cheaper and thus keeping the growth engine going. However, this is a problem for all other developed countries other than the US.

Capital outflows from emerging markets need to go somewhere. Where? You have only two choices – Bonds or Equities (well, there’s a third – Dollars). As the Fed ramped up talk about tapering the Quantitative Easing, yields have spiked for US Treasuries. Remember that if the yields spike too much, governments at all levels in the US (local, state and federal) will essentially stop functioning as they have promised to i.e. the inability to finance and roll over maturing debts at spiking rates. Equities have doddering at ever higher and higher valuations – buying into the markets at these levels is asking for trouble.

If it is bonds that these capital outflows crowd into – yields come down and everything is kicked down the road for a few more years. If it equities that these capital outflows crowd into – the markets are buoyed for a little longer with the attendant desire for the wealth effect that the Fed has been hell bent on creating.

Then the cycle reverses again intolerable equity valuations or dampened yields force capital outflows from the US back outwards in search of return.’

So what do Currency Wars mean for the supply chain? Take your pick: Disruptions, Volatility, Uncertainty, Wild swings in valuations and costing, Sourcing variations that inevitably lead to quality variations.

In one word : Variability. That’s the bane of any operation.

Sometimes (nay more often than not), you’re treated to such deep and profound stupidity that it can only be located from the collective machinations of the board of directors. Apple board worried about ‘pace of innovation’. No kidding.

Gasparino, citing unnamed sources, said there is pressure on Chief Executive Tim Cook “to innovate, do something fast.”

“What have they had lately? They had the iPad. They had a few other things,” he said on a Fox Business broadcast on Friday. “But they don’t have anything innovating from what came from Steve Jobs.”

Set aside the fact that Steve Jobs had a knack for feeling the pulse of the intangible, to make visible what was only hinted at by the people at large – there’s simply no way to reproduce or latch on to what is ineffable. However that will never dissuade a bunch of board bound fools from demanding that it be done.

All around me and you,

Are those in chains.

Trapped from the last revolution

Set them free, sets them free…

So it is with the work of man – we use chains to break chains. And this is also how one differentiates the Vertical from the Horizontal.

If you remember Lt. Gen. Russel Honoré (Ret.) from the Katrina disaster, you might also remember his admonition to the press swarm of that time – “You’re stuck on stupid”. You can of course watch that video here.

Well, no point letting that well worn phrase go to waste, here he is again talking about a rather related issue in Leaders stuck on stupid.

Are you a-buck-stops-here leader? Do you secretly look forward to making the call when a crisis has stakeholders demanding action? If so, then please be advised that some of the world’s toughest leaders are not at all impressed. In fact, as far as Lt. Gen. Russel Honoré (Ret.) is concerned, you don’t have the right stuff to lead any organization in today’s complex world.

and

He thinks, for example, that most organizations need to tear up their crisis plans. Simply put, if you are not prepared for a total loss of power and communications, not to mention a scenario that involves body bags and the need to break a few laws, then you are not thinking bad enough. To really prepare for a crisis, Honoré, who recalls having to order airline authorities to forget about screening procedures while evacuating New Orleans, insists you must seriously imagine your worst nightmare. And then you must prepare for your plan to fail, “because the first casualty in any emergency is the disaster plan.”

Having been part of a few Disaster Recovery Plans which were nothing short of disasters in and of themselves, I can say this that we do pay excessive lip service to “disasteration” or disaster preparation. However, what I took away from all of this was – do we need a disaster plan to be able and willing to do the following.

According to Gerard Seijts, executive director of Ivey’s Ian O. Ihnatowycz Institute for Leadership, the general’s message is simple. “The U.S. Army revolutionized how it makes decisions because technology-enabled collaboration is superior to centralized decision making in today’s complex world of interconnected risks, opportunities and challenges. And other organizations, including corporations, should do the same because collaboration across boundaries leads to bottom-up information flow, which may have saved a few U.S. banks during the financial crisis.”

Why not make it the norm?

Oh yes, today is Friday. Not TGIF but TGIWTF – Thank God It’s Wishful Thinking Friday.

WTG is hosting a free webinar : Plan for profit in real time with Supply Chain Optimisation (sic) which is presented by Shaun Phillips from Infor.

Hopefully it’s as interesting as it sounds… Check it out.

Real-time anything is really hard to achieve – so it would be interesting to see whether it is really real-time or near real-time or as real-time as you should expect it to be and no more.

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.

SC Digest has posted a round up of Supply Chain Predictions for 2013 :

Part 1: Predictions from Supply Chain Gurus for 2013 – 1

Part 2: Predictions from Supply Chain Gurus for 2013 – 2

The predictions from supply chain gurus span the gamut from Big Data, Analytics, Dealing with longer lead times, Talent, South America and Africa. And e-tailers?

Well, I have my prediction too for the supply chain of 2013 (and 14 and 15 too). If anything I’d call it the rise of the Supply Chain Currency Wars. The first shot of this new phase of global currency wars was launched by Japan a week or two ago. While it will start slowly, over the next few years, this sort of tit-for-tat devaluation will play havoc with global supply chains especially the one’s with finely tuned cost calculations justifying the location of factories and/or distribution centers.

Devaluation of currencies over a matter of couple of quarters and in-kind retaliation is going to drive up financing risk in the supply chain. Were such a scenario to come to pass, then supply chain operators need to nail down some other variables so as not to have all the variables in a supply chain in a volatile flux.

In summary, while global supply chains can tolerate some uncertainty, it isn’t quite clear to me whether it can tolerate the sort of volatility that global currency wars entail. The Gold standard of Supply chains might mean something entirely different in a couple of years time.