August 2023
It has been quite a long time since I wrote in this blog, specifically not since 2020/early 2021. We all remember what was happening at that time. Recall that 2020 was the year of Covid and no toilet paper, the year of the social uprisings and unrest from the killing of George Floyd and the shooting of Jacob Blake by police, the armed protests against Covid lockdowns and mandates, unemployment hitting 14.5%, remember the murder hornet scare? Biden wins the election (which sets off the January 6th storming of the Capitol in DC). No need for snarky political comments, please, I am just recounting events.
A personal anecdote. I opened my brand-new GYM on January 15th of 2020 and shut it down on March 14th. It would be nearly 9 months until we got a glimpse that we would ever reopen it. That sucked!
2021 wasn’t much better and provided more dark days as the whole of the Pacific Northwest was on fire. Being born and raised and currently living in the PNW this was a horrific event with a direct impact on friends and family and the places that I loved as a child being lost forever.
Fast forward to 2022 – War in Ukraine, skyrocketing inflation, tightening monetary policy, massive dislocations in currency rates (which continue into 2023), etc..etc..
OK, enough of the gloom and doom. This little recap does nothing to adequately portray the anxiety, fear, uncertainty, and apprehension that we felt, and may continue to feel, during this time, and the point of this is simply to keep things in perspective and understand that while it is so important to always look to the future, we should never lose sight of the past as it provides stark reminders of what lurks in the dark corners. Remember that “In the middle of chaos, there is an opportunity”. – Einstein said this
All of that being said, what is happening today that could present us with challenges and opportunities in the future?
· Once again, wildfires are happening all over the Northwest and British Columbia with 400 + fires burning.
· Hurricane Hilary slams into Baja Mexico and Southern California.
· Ongoing high energy costs in Europe directly impact households’ ability to spend and negatively impact those energy-intensive businesses – think Chemical production and heavy industry.
· High interest rates – not only does this make the cost of borrowing more expensive for consumers but countries whose debt is in US dollars, and who conduct trade in USD are struggling to keep up with the higher cost of money. Hence the ‘emerging’ trials of the BRICS currency.
· China’s economy still struggles to find its footing, post-pandemic. Looming defaults within its property sector, massive currency devaluation. China is actually now experiencing deflation. Some draw a parallel to the 20+ years of deflation in Japan. Bad thing.
· Reshoring to North America continues gaining traction with more manufacturers focusing on sourcing and operations within North America. (you’ve heard that China's loss is becoming Mexico’s gain)
Everything highlighted simply reinforces the need for preparation and understanding.
Ask yourself, or better yet, let me challenge you to think about how these current events, or similar events in the future disrupt supply chains and your business.
-January 2021
This time of year, we all tend to become optimistic. Optimistic about the year ahead, optimistic that the mistakes and challenges of the prior year will be washed away, optimistic of the promise granted us by the annual reset.
There is something innately cathartic in this. But why do we do it? Why do we look to a future simply bookended by the annual calendar, instead of embracing the now and extracting the most from every moment of every day? Look at the clock at any point of the day and it will always show the same thing; that the time is now. In fact, the time is always now
The point being, that procrastination, deferral, excessive planning, fear, and doubt [of rejection, failure, the unknown, embarrassment, etc.] doesn’t change the fundamental issue. The time is still now! There is no later, the time is always now.
The road ahead is long and fraught with challenges, setbacks, and dangers but the time to put our past mistakes, regrets, losses, fears, and doubts behind us, is now.
-November 2020
The future will be shaped by those organizations embedding Circular Economy principles (C.E) into the heart of corporate strategy and that commit to circular innovation.
Commercial management sits at a cross-road, somewhere between an organization’s defined corporate strategy and its execution and the realization of value. This represents a unique position to drive the adoption of C.E principles[1].
Namely to:
By promoting circularity within the supply chain and developing internal capacity, and adapting systems and processes across all business functions, organizations can embed the C.E principles into its commercial decision making.
Both a customer and supplier-facing “function”, Commercial Management can drive the adoption of C.E principles by weaving them into all of an organizations’ commercial objectives, strategies, evaluation and selection criteria, and commercial documents (contracts and such).
To that end, an organization’s processes should include a circular procurement framework that embodies each of the C.E principles and ensures they are integral to the business it conducts. The basics of circular procurement include:
We demonstrate our commitment to our principles daily through our actions, interactions, and decision making. An organization can demonstrate its commitment to all of its stakeholders by incorporating the Circular Economy Principles into its corporate lexicon and strategy and into its daily leadership and management decisions.
[1] https://www.ellenmacarthurfoundation.org
-November 2020
Considering the Value, a business or organization delivers to society at large has become more important in recent years. To this point, I espouse that Doing Good is Good Business and that community, society, and humanity are important stakeholders in the value creation equation. A responsive organization inherently understands this and considers these external stakeholders just as important as those directly involved in day to day activities.
Today (2020), the narrative calls for greater accountability, gender and race inclusion, fairness, and equality, and the calls are becoming louder than ever. Recent events have highlighted that government(s) the world over have largely failed to deliver on promises and campaign platforms. This presents an enormous opportunity for the private sectors, and businesses must answer the call to help address the problems the government is unable to solve, and in the process, create exceptional value for all.
As evidenced recently in 2019, The World Economic Forum reported, that the 181 Chief Executives comprising the Business Roundtable, [America’s most influential business lobby group], formally embraced the idea that companies must benefit all stakeholders including its customers, employees, suppliers, communities, and shareholders.
The private sector and its businesses are in a unique position, relative to Non-Government Organizations or Government agencies to positively affect the human condition and communities in which they operate by leveraging their financial and industry prowess and resources, their employee’s passions and desires, and proximity to local communities. Proactive organizations that address the growing demand for inclusive organizations, responsible products, supply chains, and environmental practices will reap the rewards, and those who fail to will suffer in the court of public opinion.
Free-market Capitalism is the great equalizer and if left unfettered, customers will vote with their dollars for businesses that behave in ways that are congruent with their beliefs, and for those that deliver them real Value. Alongside the responsibilities of organizations, consumers need to become better educated in the practices of companies that supply the products they buy.
We communicate our commitment to our principles daily through our actions, interactions, and decision making. Organizations can demonstrate their commitment to their stakeholders by incorporating shared Value creation into the corporate strategy, daily management, and corporate lexicon. By promoting continuous awareness and conveying their commitment to shared Value creation, it becomes just the way "we" do business.
This is not only a huge opportunity but represents a good defensive strategy. Broad-minded organizations will operate at a higher standard than simply what the law calls for. Business, generally speaking, is not a fan of regulation that impedes its ability to conduct business. Many regulations have been instituted as a result of poor historical practices and directed towards “solving” or “adjusting” to correct for bad behavior or address a social issue. Instead of waiting to be acted on, businesses of any and all size, need to pull up a seat at the table and work alongside all its stakeholders, to create shared Value and address the broader and important issues.
It takes time for reality to catch up with our ideals, and the future will be driven and shaped by those businesses that embrace the notion of creating shared value for all stakeholders and fully recognize that Doing Good is GOOD business.
-October 2020
KEY STRATEGY: KEEP YOUR PRESENCE OF MIND IN THE MIDST OF TURMOIL - While others rage, and panic, keep your mind attentive to the opportunities that will present themselves during this time. Focus on what you can control, turn off the outside noise and, realize that the universe is unfolding exactly as it should. Why? Because it is.
You are what you think about:
- It’s easy to spot a red truck when you are always thinking about a red truck.
- It’s easy to find reasons to be upset when you are always thinking about being upset.
- It’s easy to spot opportunities when you are always thinking of opportunities.
Always be prepared for when an opportunity presents itself. If you wait to get prepared until after the opportunity presents itself, it is way too late. Einstein is famous for stating "in the middle of difficulty, lies opportunity".
What are you doing to ensure your business not only survives but ends up thriving? Have you been able to find the opportunity in all of this?
To succeed in business and life requires the fortitude to persevere through challenges, the vision to inspire greatness, and the steadfastness to push the limits of innovative ideas.
- October 2020
A prolonged disruption to global economies will have catastrophic long-term effects and one can envision multiple potential scenarios that could unfold as the Covid-19 pandemic continues to negatively impact global economies and the social and political fabric.
Supply Chain professionals are typically geared to think about these sorts of possibilities and astute Supply Chain Managers have already or are taking steps, to mitigate the effects of disruption to their Supply Chains, as a result of Covid-19.
That said, most times, it’s difficult to plan for the future when we are in the living in the heat of the present. Nonetheless, it is prudent for all business leaders to contemplate the long-term effects of current events, and develop strategies to navigate the turmoil.
Perceptive leaders will realize, that during times of great uncertainty and turmoil tremendous gains can be realized. They need only frame the negative as a potential opportunity (much easier said than done). Opportunity and threat, are opposites sides of the same coin, and very often we can reframe a threat to give us a sense of the potential for that opportunity.
Just a few possible examples:
- Slackened demand for products will lead suppliers to offer concessions to earn new, or to maintain existing business.
- Conversely, more bankruptcies will reduce available supply and drive prices up.
- Weaker market participants will be acquired by stronger organizations.
- Currency exchange rates will negatively impact products from emerging markets
- Lower capital investment in new projects will limit the supply of key commodities, driving up prices in the future
Where in these examples, lies the opportunity for your organization?
To jump-start your thinking and planning, I have put forth 3 Key Strategies, that are central to the goal of ensuring an uninterrupted Supply Chain.
1. Physical Supply Chain Resiliency – Ensuring Supply Chain Resiliency requires a strategic investment on behalf of the organization. It requires an investment of time, money, and talent.
To begin to understand the complexities of an organizations Supply Chain, practitioners should develop comprehensive Supply Chain Map(s). An effective Supply Chain Map serves to illustrate all of the intricacies, dependencies, touchpoints, points of failure, and weak links within your Supply Chain(s). Supply Chain mapping can be performed at a high macro level, for families of products or at a micro-level for individual or discrete products. The key here is to distinguish which level gives you the appropriate amount of detail in order to fully understand the areas of vulnerability and opportunity and to prioritize the development of mitigation or exploitation plans.
For example, through the mapping process, you identify an intermediate staging or handling step, that is reliant on a particularly troublesome or financially shaky contractor, this would be an area that you would want to explore more fully. Perhaps, it is an opportunity to develop a secondary contractor, or form a joint venture to ensure the contractors financial stability or to outright acquire them in order to bring the process in house. Through the mapping process, you will very likely identify multiple possible solutions to evaluate.
For any organization, the importance of fully understanding its Supply Chain cannot be overstated. In this on-demand, everything now world, any disruption small or large, short or long has real implications. Developing truly robust Supply Chain maps and respective plans is difficult and time-consuming and in order to be effective should become a routine part of the business and a dynamic and integrated part of the overall Strategic Planning process.
Key take away:
- Organizations must recognize the strategic importance of developing robust Supply Chain maps and associated risk assessments and plans, and make the required strategic investment of time, money, and talent.
2. Strengthen Commercial Relationships – An organizations’ commercial relationships are very often an untapped area of value and surety to the Supply Chain, and savvy Commercial Managers will recognize this opportunity immediately. Commercial Managers should take a hard look at the provisions they negotiate and draft into their contracts. There is tremendous value to be gained by thinking strategically when drafting the obscure and very often overlooked contract provisions such as Force Majeure, Indemnity, and Assurance provisions. Understanding the interplays between various contract provisions is key to master level contract drafting; no single provision can be viewed in isolation, and when drafted well they build on, and support one another and serve as hooks.
Note: Take great care when drafting the Force Majeure provision. Very often an organization’s boilerplate contract language does not adequately contemplate the specific deal points or protect complex Supply Chain arrangements, failing to address accountability and responsibility during a force majeure event. Savvy Commercial Managers, know which levers to pull and how to solve for this inherent risk.
Below are a few examples of provisions I routinely negotiate into my supply contracts to strengthen the security of the Supply Chain and manage potential economic risk and volatility.
- Force Majeure (draft to ensure accountability for continuity of supply)
- Keep whole provisions
- Surety of supply provisions
- Price control provisions (defined mechanisms and/or methodologies)
- Performance and Correction provisions
- Cost equalization provisions
- Alternate supply provisions
- Value sharing provisions
Commercial Governance also represents an untapped opportunity and a robust governance process will assist you to keep a sharp eye on the horizon to help spot looming threats and potential opportunities. Far too many well negotiated and drafted commercial arrangements wilt away resting upon a shelf never to be reviewed or managed effectively. Those organizations that employ effective contract management and commercial governance processes will be in a much better position to realize the maximum value that was originally intended in the deal.
Often times suppliers have a view into areas of industry or markets that a buying organization does not. Your commercial relationships are a valuable source of intelligence and should be nurtured and leveraged to maximum benefit. There are several methods you could employ, from simple to more sophisticated.
Here are 3 that I am particularly fond of and have had great success with:
- Routine Business Review – Holding routine and formal strategic business reviews with key commercial partners will allow the Commercial Manager to keep abreast of changes in the industry or markets.
- Supplier Councils – Think of a Supplier Council as a sort of board, made up of leadership from multiple suppliers and the buying organization, who meet routinely to collaborate, share intelligence and strategize for the benefit of all.
- Supplier & Industry participant summits – Similar to the Supplier Council, a summit is an organized event [usually annually], where the buying organization brings its key commercial partners, industry participants, and other stakeholders together to discuss upcoming plans, requirements, state of the industry, markets and economy.
Key take away:
- An organization’s supply base represents a tremendous, often, untapped source of value. Take care of it, nurture it and maximize its full potential.
3. Maximizing Economic Value for all stakeholders – Ensure all key stakeholders benefit from the business and the commercial arrangements of the organization during the “good” times. This becomes especially important when times get tough. It’s during the tough times when the organization will be looking to cut costs, streamline operations, improve productivity, etc. If you have developed equitable relationships with ALL of the organization’s key stakeholders, this becomes much easier than if you have contentious or exploitative relationships with them. True equitable relationships take time to develop and require Commercial Managers to engage stakeholders with a completely different mindset than what has traditionally been employed.
Similar to how we approach Supply Chain mapping, developing a Stakeholder Map is a powerful process that helps bring to light all of the interplays, intricacies, and impacts an organization has on its entire ecosphere.
Very often this mapping process identifies stakeholders with whom we don’t often engage with or consider, but yet are vital to maintaining our “Social license” to operate. For example, through the mapping process, a resource company identifies an opportunity to strengthen a relationship with a key local city council or community group that views its operations as highly disruptive. It is now able to prioritize its planning and investment into enhancing this key stakeholder relationship.
Key take away:
- No organization exists in isolation. Its impacts are felt far and wide. Like the supply base, take care of all your stakeholders and they in turn will help take care of you.
I am keenly aware of the complexities and challenges, especially, mid-sized and large organizations face with their extended and complex Supply Chains and the sheer amount of commercial arrangements under management, and while these 3 key strategies are intended to give you a basis from which to bolster your Supply Chain and Commercial Management operations, they are certainly not all-inclusive.
Every organization, industry and market, are unique and each with its own idiosyncrasies, and there is certainly no one way to manage or mitigate Supply Chain disruption or to maximize the effectiveness of its commercial arrangements. Every industry is susceptible to competition, innovation, disruption, and unforeseen risks (potential Black Swan events). Business leaders must diligently monitor the landscape and be mindful of the risks and possible disruptions they may encounter.
- September 2020
As a recipient of our tax dollars, our local and regional government has a responsibility and obligation to act as a strategic value-adding partner and vested stakeholder to Northwest business.
Aside from government support and stimulus, which only provides an immediate and temporary lifeline, but doesn’t work to solve systemic issues or promote small business growth; our state governments, working collaboratively with our business community, need to develop strategies to promote small business development. Small business needs to have a seat at the table.
During the time of COVID, we should take this as an opportunity to reframe how local and regional governments can assist its businesses. Instead of an often-antagonistic relationship, it needs to be framed as a strategic cooperative relationship and for the benefits of all stakeholders.
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