Thursday, 23 April 2020

Quality and Price are not necessarily linked.

The School of Life is basically about the philosophy of living.  Now, you might think that many of us are too busy to even think about that - they have thoughts on that too.

I just came across an article of theirs that touches on that old problem for procurement - things that are more expensive are not necessarily better than things that are cheap.  My wittering about oil the past few days is a good example - the "free" oil is not inferior to the oil that was being sold for $70/barrel earlier in the year.

We do tend though to imbue more expensive things with more value, and value of course is often subjective rather than objective.

It is often difficult to work with our colleagues and make sure that we are getting the right specification, and not just using price as a proxy for Quality.

Anyway, the article is here - part of a much longer series.

Wednesday, 22 April 2020

Possible future course on Re-starting supply chains.

We are already running some courses online, and probably about to start re-working some for the middle east market.  Looking at the courses made me wonder if there might be interest in a new course....

When things do start getting back to "normal", it will not be like flicking a switch.  A lot will have changed in the supply market, and particularly in the demand market.  Supply chains take a lot of work to make them Efficient, i.e. Lean.  Which means that they will not be Resilient.  So, our lovely smooth Lean supply chains are going to splutter into life rather than spring back perfectly formed.  There will be lots of blockages, broken links and delays.
Some businesses will be out of business - others will have changed their mode of operation.
Should we still buy from China?  Or should we develop local suppliers (who may be more expensive at first).
What did our contracts say about Force Majeure and what should they say for the future?

If you think there would be interest in such as course, please do let me know.  I am particularly interested in what you think should be covered, and whether we can do it in 1 day or will need 2.

Take care of you and yours.

Tuesday, 21 April 2020

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.

CIPS Qualifications training and the Procurement Academy

CIPS are tentatively looking to restart the examination process in July, and then September.  Obviously there are a lot of hoops to jump through before then, but it means students can at least think about studying with purpose.  We do recognise that it is tricky (if useful) to study when you do not know when you will be tested - there is always the worry that you will forget everything.

So, we have started running our CIPS qualification training programmes using Zoom.  It seems to be working OK so far, but not so brilliantly that we won't go back to meeting face to face when we can.  I am working with a L4 group and an L5 group, nominally out of Leeds.  I have adapted to running half day sessions rather than full day sessions, so it takes 2 sessions to cover what we might have done in a single day.  We have other tutors who are still following the full day model - so you have a choice.

We are looking at when the exams are scheduled, and will be looking to support students with additional revision sessions for courses that were postponed in March (it is easy to forget...).  And one advantage of being online is that we can record each session and make them for delegates who would like to review them at leisure.

So, if you do have time on your hands and want to get something out of this lockdown, and are thinking that this is the year you finally tackle CIPS - then check out the Procurement Academy.  We will be delighted if you can join us.

Monday, 20 April 2020

Canadian oil price is negative!


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.

IChemE online - What Engineers Need to Know about Contracts - 10/11 June 2020

We hope to run the in person (face to face) event in Rugby 22/23 October 2020.

But additionally we are looking to run an online version 10/11 June 2020 - details here.

The online session will be shorter, as we find that people prefer shorter sessions.  The face to face event obviously gives more opportunity for people to interact and share there experiences, but we shall try to replicate the content as much as possible.  The material is being developed now, and will cover the same ground but in slightly different form.

This is different from the webinar content that IChemE present - those are recorded and available to purchase at any time.  This will be an actual online seminar and so questions will be welcomed (and answered I hope!)

I hope that you will join us.

Friday, 17 April 2020

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.

Thursday, 16 April 2020

HS2, Covid-19 and complexity

The news is that the government has given the go-ahead for construction work on Highspeed 2 to start, even though much of the country is still in lockdown.  There are a lot of people quite vociferous that this is not a good time to start, and some arguing that this is a good time to drop the whole HS2 project.

Well there is an argument for HS2 that it will free up more space for rail freight, which is a good thing.  And I'm more of a fan of HS3 (which if it ever happens, will be at such a future date that it will do me personally no good).  But those are discussions for another day.

What I wanted to do is discuss is why one factor in this decision is rather unexpected, and an example of the interconnectedness and complexity of our economy.  Yes, starting work keeps some people in jobs and keeps some money flowing in the economy and it is probably better to get some building done for that money rather than pay people 80% to be furloughed.  And yes, it is a big project so might as well get started.  And yes, having started people will be reluctant to stop because of the sunk cost fallacy.  But I'm not thinking of any of those.

Not starting HS2 now might have an impact on the NHS and our fight against Covid-19.  How so?
Well, when we start the construction work we will need concrete - which means that the cement kilns need to be kept going when otherwise they might shut down because of low demand.  And if you know about cement kilns, they are not as quick and easy to shut down and start up as a gas fire.  But we need to look further down the supply chain.  Cement kilns use a lot of fuel.  Where do they get it from?  They use a variety of sources, but one of them is re-processed chemicals that where originally used in the pharmaceutical industry as solvents.  These can be reprocessed to some extent but they can also be blended up as fuel for cement kilns.  What do we do with them if they aren't sent there?  There are only 3 choices - storage, incineration, and shutting the pharmaceutical production.  Storage capacity is not huge, there isn't enough incineration capacity, and it has to go somewhere if you produce it.  So, you say - build more storage.  Why?  We don't need it when the virus is over.  Burn it - well we'd love to have more incinerators, because we are already at maximum capacity, but do you want one in your backyard?  And building incinerators is quick and easy compared to the process for getting permits.  So, if there is nowhere to dispose of the waste (short term), the option left is to close pharmaceutical production - which is obviously not ideal during a pandemic.

So, starting work on HS2 keeps the kilns fired up using fuel from the pharmaceutical industries, which helps the NHS.  A complex web... isn't it?

Wednesday, 15 April 2020

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.

Wednesday, 8 April 2020

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.

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).

Monday, 6 April 2020

online training updates

Well, to be honest update is a little bit optimistic.  What I can tell you is that I shall be running two new online courses - one for CIPS, and one for IChemE - if all goes well in the development.  What I cannot tell you yet is the titles and timings, though we are hoping to run the IChemE course in early June.

More details as things develop - stay in, and stay safe.