WEF summit to look for answers to major global challenges.
Water crises, interstate conflict and climate change number among the top risks that the world will face over the next twelve months. This is according to the Global Risks 2015 report that the World Economic Forum has readied ahead of its summit on 20 Jan.
Emerging technologies were also cited in the forward-looking document, an area that’s come under considerable scrutiny of late owing to the numerous cyber attacks (hacks) made against major organisations.
The report was put together (in part) by Marsh & McLennan Companies – a representative commented: “As a company you are not protected [against cyber attacks] unless your supply chain is protected.”
We’ve compiled a collection of tweets around the highlighted issues (as well as some educated guesses) that are all expected to come out of the 2015 discussions.
I’m sure like me, most of you have watched with interest the price of oil plummet from well over $100 a barrel to below $50 a barrel in the space of just a few months. I’m quite sure that, like me, most of you have been in the dark as to why this is the case. So I thought I’d do some research into the matter and try to uncover what is driving this price collapse, and what it means for you as an individual as well as a procurement professional.
While fluctuations in the price of oil are not particularly rare, ones as significant and unpredicted as this certainly are. We’re talking about the largest fall in the price of oil ever, and one that, even as it was beginning, was discarded by most analysts as a small correction ahead of yet another uptick. Even when the price of oil was in the 80’s in October, analysts at Barclays noted, “It seems extremely unlikely that oil prices will remain below $100 for very long.”
So why has everybody been so wrong about predicting the price of oil, and why has it continued to fall while most analysts have continued to remain bullish on the price of Brent (the global oil benchmark)? If there’s one short answer to this – it’s OPEC – but more on that later. Instead we’ll begin by looking at two strong causes behind the slump.
Cause Number 1: US Oil Production
With rapid advances in drilling technology (particularly in extracting from shale), oil production in the US has increased by more than 50 percent in the last 2 years. For anyone who’s done Year 7 economics, you’ll know that when supply increases and demand remains steady, prices come down.
Cause Number 2: A lack of intervention from OPEC.
Traditionally, when there’s a slump in the price of Brent, OPEC (Organisation of Petroleum Exporting Countries – fundamentally an oil cartel) bands together to cut supply and therefore prop up the price of oil. In this case, for whatever reason, they decided not to step in.
The technological advances that I mentioned earlier don’t come without a cost, so by deciding to let things play out, OPEC basically condemned a lot of new shale explorers to bankruptcy, as their production cost per barrel sits at anywhere between $50-$70. With the Brent Crude Oil rate sitting below this, it has become no longer financially viable for these ventures to continue exploring and drilling new wells .
Why hasn’t OPEC stepped in?
Well basically they’re driving all of this new shale competition out of the market. This reduces total global oil production temporarily, and when they’ve effectively bankrupted all the new kids on the block, OPEC can start manipulating the price back up to historical levels.
How long until they decide to intervene? Suhail al-Mazrouei, The UAE’s Energy Minister, said a few weeks ago that OPEC would wait “at least three months before considering an emergency meeting”. Good news – you can expect some very cheap petrol at the pump for at least the next few months. (You might even get some cheap flights in too, although the aviation industry strongly hedges their AVGAS purchases, so it might just be a pipedream)
So what does this mean for you?
I’m going to come at this very simplistically and from the point of view of someone in a developed country. It’s a good thing. Consumer spending accounts for approximately 60 percent of GDP in most western countries, and cheap oil means two things. First of all, you’ll have more disposable income as a result of a decreased cost of transportation – and secondly you can buy more with this disposable income, as the cost of goods is likely to fall. On the other hand, if you live in a country that is heavily reliant on oil production, like Russia or Venezuela, it’s not good news.
As a Procurement & Supply Chain professional, I won’t go out on a limb and give you an unequivocal answer as to the impact this will have on your job – I’m certainly not qualified enough to answer this – but I think some of the articles mentioned in this Procurious post might give you a good idea.
I hope this gives you a better understanding of the situation, and if you have any comments or thoughts on the matter (or if you think I’ve got it completely wrong) please comment below!
Looking ahead to 2015, KPMG’s global head of post and express predicts that the New Year will be about co-operation and relationship building. Not only that but understanding and utilising big data; drone and driverless deliveries and creating marketplaces to sell last mile solutions.
Justin Zatouroff begins: “Co-operation is likely to be a critical feature for successful supply chains in 2015. Logistics companies and retailers, both on the high street and on the web, will have to develop close relationships so that they don’t keep repeating the annual trauma of delivering the Christmas peak.
Those that haven’t developed relationships and are only after lowest cost solutions may face opportunist pricing or even find that they can’t access any additional capacity as they try to manage during peak periods. The challenge is to create robust networks that have flexible cost bases and capacity that can be enhanced to manage varying loads.”
Zatouroff continues: “Technology will also be key. Reliable forecasting from e-tailers including demand planning will focus attention on big data and the power of real time data analytics. Better understanding of available information and utilising data analytics tools will increase the efficiency of parcel networks and in turn improve the capacity issues faced in the system.”
And what about the role of technology… How much of an impact will new solutions (such as drones) have on the network?
Zatouroff offers: “Much has been made of the impact of the recent EU changes to HGV driver training but as only 1% of drivers are under the age of 25 this is clearly a problem that has been building for many years. In the long term, technology may help solve this problem too.
Whilst drones are unlikely to be part of the solution in urban areas, they will be effective in less industrialised landscapes and in areas with less developed infrastructure. We’ve already seen DHL use a ‘parcelcopter’ to deliver pharmaceuticals to a German Island to become independent from weather and ferry schedules.”
Elsewhere, another innovative use of technology commanded column-inches in 2014… Will driverless cars roar onto our roads and highways during 2015? Zatouroff thinks not:
“We’re also likely to see developments in driverless deliveries. In the UK, manufacturers have been given the green light by the Government for testing driverless cars as early as January 2015. Bristol, Greenwich, Coventry and Milton Keynes will all host autonomous driving projects that will run for between 18 and 36 months starting. It shouldn’t be too long for lorries and trucks to join the party.
Self-driving vehicles will have the ability not just to transport goods but also to combine other process steps such as loading and unloading in order to increase efficiency of processes. In addition to providing efficiency gains, self-driving vehicles can also significantly increase safety in transport and loading processes.
Finally, how disruptive can the small innovative tech solutions be to the established logistics industry? Zatouroff can only ponder:
“Will we see more players join the disintermediation of big parcel companies by creating innovative web based companies, like Uber and Shutl, creating a market place style websites linking the provision of last mile solutions direct to the retailer?”
Operation Santa Claus: the results from 2014’s Unbelievable Challenge are in!
The Unbelievable Challenge is an open architectural design competition open to young architects and designers to find the best idea for a logistics centre for Santa Claus.
The competition was organized jointly by Ruukki Construction, the City of Oulu, Helsinki Design Week and the architecture and design office Snøhetta.
The competition sought unique, innovative ideas and solutions for a logistics centre for Santa Claus, who was the competition’s imaginary investor. It was his wish to find from among the competition entries a functioning centre to meet his growing logistics needs and increase the attraction of the area.
Evaluation criteria included energy efficiency, sustainable, values, usability, architectural values, suitability to the given surroundings and an ability to enhance the attractiveness of the area.
The competition attracted a total of 243 entries from 59 different countries (that’s almost as far-reaching as Procurious!)
And why is a new logistics solution so important? Well as per Morgan McKinley hypothesis “with today’s global population clocking in at 7.125 billion people, we can estimate that there are approximately 2.375 billion children currently at present receiving age. Given that the Christian population of the world works out at 32 per cent, that’s approximately 760,000,000 children.”
The winning project was titled “Nothing is impossible”, from an idea by Alexandru Oprita, Romania and Laurentiu Constantin.
The judges’ commented: “It is feasible and innovative but not futuristic. It is also well thought through – from land use all the way to detailing.
The entry presents an idea of making the most visible façade and the front of the building a magical element that could both integrate the building into its surroundings, and highlight whatever aspects of the building or its functions are desired.”
They continued: “The idea could be realised without sacrificing any of the practical or economic aspects of the logistics centre. It provides understandable solutions for energy efficiency and attempts to introduce a lot of good thinking about how to utilise this within the building. It also has a good understanding of the local situation. The entry seeks to embrace and enhance the function of the building as a hub for new technology in addition to the logistics centre – it connects well with Oulu as a city.”
Here’s a couple of the runner-up entries:
Think you could do better? Put your thinking cap on, and keep an eye on unbelievablechallenge.com for a chance to enter next year.
Father Christmas is looking for logistic professionals who want to help out with Santa’s substantial delivery backlog.
Despite what fable tells us, Father Christmas/Santa/St. Nick is secretly a long-haul truck driver. The reindeer and sleigh are just a cover… sshh let’s keep this between us eh?
Now you can make like Santa and get in on the logistics game from the comfort of your own home with Euro Truck Simulator 2.
The wildly popular truck simulator has just been gifted a sizeable update in time for Christmas – the Polar Express 2014 event adds a selection of icy new truck designs to proceedings, unlockable through completion of a festive-themed challenge. The challenge? Ferrying the pallet of ‘Christmas Gifts’ across Europe (or more specifically, the distance between the game developer’s offices and The North Pole).
The robots are coming… and they’re bringing Christmas presents!
In its latest bid to boost productivity and expedite delivery, Internet retailer Amazon is deploying a robot army – yep, just in time for Christmas.
Various sources are reporting that squat, orange, robots have entered several of its U.S. warehouses. The addition of these wheeled droids will save workers having to traipse the factory floor and scour long aisles chockful of Amazon goodies (sometimes up to 20 miles a day).
The addition of the robots is expected to bring in an impressive productivity boost – making picking and scanning 300+ items an hour a reality (compared to 100 previously).
Amazon founder Jeff Bezos told investors earlier this year that in total the company hoped to move 10,000 robots onto the factory floor. Such a move was only made possible after Amazon bought Kiva Systems’ material handling solution in 2012.
Tsu (pronounced ‘sue’) is a social network and payment platform that shares up to 90 per cent of its revenues with users. With a $7 million investment behind it (led by Sancus Capital Prive), Tsu has already attracted the gaze of 50 Cent, Timbaland, and NBA’s Carmelo Anthony – but sadly no sign of a Kardashian or Grumpy Cat yet…
What is Tsu?
So by now you’re probably wondering just what is this Tsu that I’m hearing so much about?
It’s a new type of social network (hang on, we’ve heard that one before… ello, Ello?), but this one’s differential lies in its modus operandi. You see, you (the member) own the content you post, not only that but Tsu will pay you for the privilege.
Get paid to use social network(s)
Yup, that’s the jist. While it’s something of an incendiary headline, the New York Times led with “The Social Network That Pays You To Friend”.
The more people looking at your content, the more sales revenue Tsu makes from ads served. If this were Facebook or Twitter any wealth generated would only serve to line their pockets – Tsu will instead give back a slice of the pie.
It’s a ballsy business model that’s for sure.
Too much information? Tsu also provides detailed analytics to its users, so they can chart follower count, views, likes, and comments on posts made. This is in stark contrast to the news that a researcher from University of Illinois has created a browser plug-in that removes all trace of numbers (or metrics) from Facebook. Why? To show (or perhaps prove) that when not hell-bent on seeking others approval, the quality of posts and comments improved, as did enjoyment levels.
Tsu does move to ban users who spam in order to preserve the community, and that stretches to invites too. Don’t go thinking you can bombard your Facebook, Twitter, or LinkedIn friends with your member short code (required to sign-up and access the community), Tsu wants you to instead nurture ‘meaningful’ relationships through the network proper.
The game (available on PC via Steam) sees you progress through various timed-based scenarios to move goods around a supermarket, warehouse and production facility.
But this isn’t just any old logistics simulator, oh no. The official website makes a big deal of the Jungheinrich affiliation – that’s an actual Jungheinrich forklift truck you’re controlling. The company is based in Hamburg, Germany and one of the leading international companies in the material handling equipment, warehousing and material flow engineering sectors.
The game offers would-be forklift operators a variety of quests, different game modes, and realistic physics. A handful of comments from YouTubers come from those within the forklift industry itself – complete with lighthearted observations… The simulator is presumably designed to train-up new operators right?
Over the last few months, there have been a number of topics and themes within our Discussion forum.
We don’t want this information to go to waste, so we have pulled together the key points from some of the most popular discussions that we have seen so far.
What do you say when a supplier (existing or potential) asks you: “What budget do you have in mind?”
There were a number of different answers from the community, ranging from a response of “why do you want to know that?, where the buyer elicits more information from the supplier, before asking for a firm price quotation, to no suppliers would ask that because they know that they need to quote best price or the existing relationship is critical to both parties.
A number of key points were brought up in the answers. The response to the question being asked depended on:
The relationship with the supplier
What commodity is being purchased – a key commodity might have more of a discussion around a price that worked for both parties, than one that is a best price discussion
What quality is expected
When the question is being asked – is it during a negotiation, or as part of a tendering process
There was agreement in that most people wouldn’t reveal the budget, would give a figure that was a percentage of the total budget or wouldn’t answer the question, either at all or without more explanation from the supplier.
Links were given for further information reading on suppliers combating the response to this question:
Trying to improve how we do contract management at CnES. Where should I start?
There were a few answers to this question, but some that got a few of the members commenting about the quality.
Consensus was to design a framework both for the management of the contract but also the KPIs to be involved in the contract itself. The most highly rated response was Cristian Martin:
Agree how to categorize your contracts/suppliers so you maintain focus on the most important ones. (Krajic, ABC or both).
Agree the method of contract management and standardize it so that you can compare supplier performance (under performing contracts can be seen and understood across the business when the process is standardized. e.g. use only 10 KPIs on all contracts and all KPIs are marked 0-5 (a score of 30 means the contract is performing to specification, Higher recognizes excellence and lower means there are issues that need to be resolved.)
Standardize the reporting and ensure it is seen at senior level on a regular basis. (Provide a quarterly report along with your savings report and get the recognition for your hard work).
Provide the tools to contract managers for lower value/risk contracts to give contract managers practice and improve their skills in Contract Management so that when you work on contracts together, you can focus on the contract and not in their CPD.
Cristian went on to recommend that only 10 KPIs were used in his contracts. Not the same every time, but a maximum number of 10.
He also asked his suppliers as part of the tender process to suggest KPIs for the contract to establish a starting point for discussion.
How sustainable procurement can be best defined?
This is common question across the profession at the moment and one that there is no real defined answer for. The top definitions given were:
To ensure that all procurement includes a requirement to maximise the benefits to the Outer Hebrides and the wider world that may arise from the purchase.
Preserving and cultivating the human resource of relationships
A process whereby organisations meet their needs for goods, services, works and utilities in a way that achieves value for money on a whole life basis in terms of generating benefits not only to the organisation, but also to society and the economy
A key learning point given from the theoretical side of the debate was the concept of the Triple Bottom Line. This breaks Procurement activities into three distinct areas, all of which should be considered by buyers:
Sustainable Procurement is seen as a common buzzword, but not so common in practice, but there is evidence that it can provide value. Another point raised was why should there be a separate name for these activities – shouldn’t they just fall under the normal daily activities of procurement? What do you think?