IChemE - Restarting Supply Chains - 5th August 2020

Whatever we think about the current pandemic  - whether concerns are overblown, whether it will be over soon, or whether it is serious and we are stuck with it for months - it is clear that there has been major disruption to supply chains.   We can hope that everything will very quickly get back to normal - but there is an element of wishful thinking there.

You might think that this is a great chance to restructure your supply chains - or that things will quickly revert to exactly what they were before.

With IChemE we are running an online seminar that helps to cover all of these topics, and will help you to think through your options and choices.  And we hope to cover the possible disruptions caused by the UK leaving the EU REACH regime a bit too.

As with any disruption, you can wish and hope - or you can plan and organise.  We hope to help you with your planning.

There is a guest speaker that we are not quite able to announce - watch this space.

Full details and booking arrangements are here.

Webinar - Advanced Purchasing and Covid-19 27 May 2020

I am running a webinar for EuroMaTech on Wednesday 27th May 2020, at 9:30am UK (12:30 Dubai).  Details are here.  This is a brief taster for two courses we are running in June - Restarting your Supply Chain, and Advanced Purchasing Management.  I have re-worked some of the sample content so that it works as a standalone (I hope).

I may be biased but having tried the webinar software today, I like it.  Same sort of flexibility as Adobe Connect, but much simpler to use.

Hope you can join us.

cash

One thing that just occurred to me is that thanks to the Covid-19 crisis, I haven't touched a coin for maybe two months.  When I shop I use contactless cards (my wife uses Applepay and is quite annoyed when stores don't accept it).  I DO use bank notes - these are handed to my son to go and buy odds and ends from the shops.  Oddly enough there never seems to be any change...

So, we have been getting used to the concept of a cashless society for half a decade.  Sweden is often seen as being at the front of that trend (see picture).  I just wonder if this crisis is going to accelerate that process?  

Now there are advantages and disadvantages of a cashless society (is it a good or bad thing that all of your spending can be tracked?), but as is often the case - there may be no going back.

Wow 2!

Further to yesterday's blog about Canadian oil, during the evening the price of WTI plummeted well into negative figures.  Most of this is actually a technical issue - yesterday was the day for completion of futures contracts and when people had to take actual possession of the oil (rather than just trading it).  The problem is that there is not sufficient oil storage, and so people with a contract where they had agreed to take oil had nowhere to put it - so they needed to dump it on people who could take it.  At any price.

Hence the collapse.  And why Brent crude did not collapse in the same manner - people have sufficient storage.  For now.

The market is still in Contago - where the price for future product is higher than the price for immediate delivery.  Normally this leads to people buying ahead of need and storing - which both drives up the price today, and lowers the price in future.  For now the future oil price still seems to be somewhere in the $20s.  Storage is getting very full.  We don't have any real clarity on when things will get back to "normal".

So, expect more fun and games in future.  Realistically, expect oil producers to start shuttering facilities that they think can be (more) easily shut down and then re-started.  I expect that to mean shale oil and fracking rather than offshore, but I'm not an expert.

Canadian oil price is negative!

Wow!
https://oilprice.com/Energy/Oil-Prices/0-Oil-Forces-Canada-To-Shut-Down-Crude-Production.html

Ok, so Brent Crude is still $26, WTI is $10.  Those are amazingly low prices as it is.
But negative?  Oil they will pay you to take away?  Wow.

The last time it was that low?  About 25 years ago, 1998.  But of course that doesn't take account of inflation, and $11 in 1998 is $19 now. (details here)  In real money it is the lowest since 1946 - maybe ever (here).

If you are a Brit of course, this matters because we are still an oil producing nation, and in fact it is our 5th biggest export (after equipment, cars, pharmaceuticals, electrical equipment - and we aren't exporting many cars at the moment either).  Not good for our economy in that sense - but obviously cheaper fuel has other benefits.  Fuel is our 3rd biggest import, so the imports will be cheaper.  And we import more than we export - so it is a net gain on our trade balance.  But the low price may make some fields less profitable, and indeed unstainable if the price stays low for long - which will hasten the end of the UK oil industry, leaving us with a gap in our exports.

Covid-19 and the economy - it could be worse

Ok, I admit I might just be trying to keep my own spirits up, but the OBR (Office of Budget Responsibility) scenario review that says that the UK economy will shrink by 35% in Q2 (compared to Q2 last year) could be worse.

Think about it - it means that nearly two thirds of the economy is still functioning.  Now, in economic terms a 2% change is seen as significant and 10% is huge, but let's try and be positive.  The impact is of course very different in different industry sectors.  There seems to be a 90% reduction in Education (which I suppose we should expect given schools and universities are closed).  Similarly for hotels.
But manufacturing is only down 55% (only!) and utilities by 20%.  There is still some activity going on during lockdown.

So, what will it mean for procurement when lockdown ends?  Well, obviously there will still be considerable disruption to supply chains - there will be shortages, and delays - but also temporary gluts.  There will be an opportunity for some suppliers to temporarily charge premium prices until the market normalises.  There will also be opportunities for some canny buyers to get some bargain prices - but we shall have to be careful that we do not force too many suppliers out of business by insisting on prices that allow them only to liquidate stock and not to rebuild.

Being selfish, I hope that the crisis does lead to people having greater awareness and consideration of their supply chains.  Beyond that, I just want to try and keep my spirits up.  Hope you can too.

COVID-19 and the complexity of supply chains.

It is a rather unpopular point of view these days, but the world is rather complex.  Things seem very simple on the surface, but rather like a swimming swan, there is a lot going on under the water line.

Our supply chains - basically - just work.  It no longer seems miraculous to us that we have strawberries in January, and can order a coffee spoon from around the world for 90p  (I did.  It came from China via Guadalcanal).

The current lockdown has made us all more aware - many of us can barely remember shortages, let alone for multiple products at the same time (toilet paper, pasta, flour....)  Our supermarket supply chains are so optimised that a relatively small increase in demand (from both panic buying, and an increased demand now that more of us are eating 3 meals per day at home instead of only 2 or even 1) has meant empty shelves.  In classic Inventory Bullwhip fashion, this has lead to people increasing order quantities (as we supply chain folk like to call panic buying) and increased stockholding (aka hording) leading to even more shortages.

The supply chain IS reacting.  But having optimised for efficiency it is difficult to reformulate for effectiveness.  So we have people like the wholesale suppliers (no longer able to supply restaurants) being willing to supply the public - but only providing flour in 12kg sacks.  It will get there.  And may be people may be just a little bit more aware of what a miracle it is.

But a word of warning - you can hardly buy a webcam for love nor money.  And they mostly come from China, and are not likely to be the number one priority as things normalise there.  So, some shortages will continue for quite some time.  Sorry if you intended starting a podcast.

some links on Force Majeure

Force Majeure is a pretty common discussion point at the moment thanks to Covid19.
The folks over at Supply Management magazine, the magazine for CIPS members, has run a number of useful articles that may be helpful.  In particular they point out that the doctrine of frustration may apply if you don't have a Force Majeure clause - or don't have a clause in it that specifically applies to Pandemics.

https://www.cips.org/supply-management/analysis/2020/march/coronavirus-what-you-need-to-know-about-force-majeure/

https://www.cips.org/supply-management/analysis/2020/march/coronavirus-ending-contracts-without-force-majeure/

If in doubt, have a look at your contracts - then talk to your Procurement Manager and lawyer  (I'd suggest that way round - it might be cheaper).

Force Majeure and Covid-19

One of the things that I say in my courses on contracts is that it is only when things we go wrong that we actually look at the fine print in the contract.  Well the Corvid 19 situation is definitely a time when people go and look up what their contract actually says, particularly the Force Majeure clause - if there is one.

Force Majeure is a well known phrase that means different things to different people.  In fact some legal commentators state that there is really no such thing as a Force Majeure clause, and that everything could be covered by the doctrine of frustration or other legal principles.

The general idea of Force Majeure is a clause to deal with events that are outside the control of the relevant party, were irresistible (an Act of God) and unforeseeable.  Now that seems easy to understand, until you start delving into it.  The recent floods were irresistible, but were they unforeseeable? If they were now, would they be unforeseeable if they happened in the same places next year?

In standard contracts we may have a Force Majeure clause (or may not) which states what is covered.  Surely the Covid 19 epidemic is the sort of event that is covered?  Well, I was recently comparing standard Force Majeure clauses from standard forms of contract from IChemE and LOGIC.  One explicitly identified pandemic as covered - the other didn't.  Which was which?  And what do your contracts say?  Well this is the point where I suggest you go and have a look for yourself and check.  Hopefully, before it is too late.


Lawyer and legal commentator David Allen Green had a useful analysis on his twitter feed, here.

Procurement webinars and on line training

With in person training off the agenda for the foreseeable future then I am looking at running some on-line webinars and training programmes.

Anyone interested please let me know what you are interested in, and what would best meet your needs.

Thanks.  Now I'll go back to looking at all the technology (simple) and hosting options (not so much)

Covid-19 and UK Public Procurement regulations

The UK Government has issued a new PPN (Procurement Policy Note) about public procurement in the time of the Coronavirus.  Information is here.

Some commentary can be found at Telles.eu