Start Buying the Canned Goods and Bottled Water?

I've had some time this weekend to do some more research on the situation in Iran (scroll down for post), and the more I study the subject, the more I think that it's going to be the most important Spend Management issue in 2006. That's because we're not just talking about the potential for a relatively isolated conflict that will be over in a matter of weeks or months. Any military action in the region could set off a number of lasting aftershocks whose economic consequences are vast and global in nature (especially given Iran's supply relationships with China and Russia). If you have some time to spare, The Adventures of Chester, a military and geopolitical blog, has an absolutely exceptional string of analysis and comments on the situation. It's not Spend Management specific, but it is highly educational nonetheless. You can find it here.

Regardless of whether you're a card carrying conspiracy theorist or not, it's important to pay attention to the subject. In my view, operations, procurement, and supply chain leaders can do this by developing answers to the following types of questions in the coming weeks to better prepare for a clash (either military, economic, or both) that is looking more probable as every day goes by. With apologies to the McKinsey people that I've worked with over the years, the list is not completely MESE. But here goes anyway:

1) How can we design -- or redesign -- our overall Spend Management goals, objectives, and incentives in 2006 based on cost avoidance (e.g., by hedging prices, making the investment to develop alternative sources of supply, etc.)?

2) Have our Low Cost Country Sourcing (LCCS) initiatives made us more vulnerable to supply disruptions? What investments should we make to mitigate and manage global supply risk?

3) How dependent is our supply chain on Near East, Middle East, and Far East trading partners? What types of shipment delays, price fluctuations, and other types of supply risk are we willing to take on?

4) How dependent is our organization on petroleum, petroleum byproducts, and related categories (etc. foam, plastic resin, etc.)? What financial instruments and other activities can help us manage downside financial risk? Who are we working with (e.g., trading companies, consultants, investment banks) to advise us to make smart hedging decisions?

5) Along similar lines, for larger organizations, how integrated are our trading and procurement functions?

6) Have we quantified the cost of supply disruptions to specific categories? Should we change/increase buffer stock requirements and /or modify lean initiatives and other programs to reduce risk should disruptions occur?

7) How can we take advantage of the military's -- and related private sector's -- needs for global re-supply and re-building by developing a flexible Spend Management program that provides competitive advantage on the sales front for our organization?

8) What systems -- not IT systems! -- do we have in place to monitor news events and price fluctuations as they occur? Who is interpreting and analyzing this information for us?

9) Are there any technology specific or related investments that we can make in the near-term to better manage supply risk?

10) Does our procurement and supply chain organization have enough clout in the boardroom to proactively request funds and resources to proactively take action?

This list is just a start. While I'm not advocating that procurement organizations stock up on the metaphorical equivalent of canned goods and bottled water just yet, I believe that paying a bit more attention on a daily basis to the Iranian situation is a smart idea. If you disagree or you've got other ideas or questions based on your industry, categories, or other criteria, please post a comment or drop me a line.

Jason Busch

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