Alexander Pope tells us as early as 1712 that British ships have to round the world four times before a well born English woman can have her breakfast. Globalization has been growing headlong since about 1492*. The last few centuries have succeeded in driving the impacts of globalization even into the lowest economic strata of society. All this seemed perfectly normal and desirable—until supply chains began snapping and snarling around the globe and vital supplies of parts and food became scarce at various times and places.
The good people at McKinsey & Company have put together a very helpful collection of their recent research on globalization and the worldwide supply chain web in one on-line resource. If you have been tasked with helping to rethink your company’s global sourcing risk structure, some of these articles may be helpful as idea generators and doors into additional research. We especially liked the articles titled “It’s not your father’s globalization anymore” and “Globalization in transition: The future of trade and value chains.”
Obviously, we all got to where we are in terms of outsourcing and offshoring for our own unique reasons and there is no one recipe for what to do now, whether to bring it all home or make minimal adjustments to current arrangements. Our advice is to study widely and cast your net for ideas and examples well outside your own vertical(s). Every outsource/insource decision has deep and complex risk implications. This may be the right time to rethink how you use risk implements. For example, might a shorter critical supply chain allow you to use a parametric approach if you will have fewer links and a smaller set of performance parameters? We’ve discussed The Great Resignation and The Great Reset recently in these pages. Is it time for The Great Rethink as well?
We had our own brush with a global sourcing snafu recently. After almost four months waiting for a critical part for our touring motorcycle, we went outside the normal lines and contacted corporate headquarters. There’s a little lesson here in that the nice folks in the front office had no idea how profoundly their own supply chain had failed. They thought finding the part would be quick and simple. It was anything but. It ultimately required the equivalent of an all-points bulletin which uncovered the fact that their entire organization, from manufacturing to regional service centers in the US and Canada, had exactly ONE of these unique parts available. The squeaky wheel (your correspondent) got it. Seems to have caused something of a firestorm in their parts management operation.
We include this little story because that normally well-run company had a serious risk under their noses that they had no idea of until a customer made some pointed inquiries. Could that be you next month?
*Even earlier if you include the re-opening of the Silk Road under Kublai Khan.
Not Yet, John Maynard
In 1930 the economist John Maynard Keynes wrote an essay which is best remembered for one then startling observation. Keynes predicted that by the time his grandchildren were in the workforce, the basic workweek would be down to fifteen hours. Machines would take care of the rest and mankind would be faced with a serious leisure problem—what to do with all that free time. True, predictions are hard to make, especially about the future, but the father of so much of modern economic theory would appear to have been well off the mark on this one.
Or was he? Chew on this:
[California] introduced a new bill [AB 2932] that would make the official workweek 32 hours and no longer 40 hours for companies with 500 employees or more, giving higher raises and time-and-a-half pay to any worker who surpasses that cutoff.
While the current forty-hour week has a long history, most labor historians look to the Fair Labor Standards Act of 1940 as the foundation of the forty-hour expectation. So, after 82 years of the forty-hour week and 92 years after Keynes’ prediction, one state is starting to look at a thirty two hour week. Adds a whole new dimension to the idea of incremental progress.
As you might guess, this push in California is another child of COVID and the wholesale re-evaluation of how we work, right along with working from home, hybrid work, the four-day week, and so forth. Japan is now looking at the four-day week as its new standard and Iceland has adopted it by law. Many jobs in the EU have been based on something between forty and thirty-two hours for the last few decades and much the same is true here in the US on a case by case basis, but making an across the board change of this magnitude could be very disruptive.
The California Chamber of Commerce has called the new bill a “job killer” and it is certainly not without serious opposition. The risk component that we see here and now is beginning the process of thinking through how you might handle this change, should it happen. It’s a good guess that, if the measure passes in California, it won’t stop there. American workers put in the longest hours of employees in any OECD nation*—and we have the lowest number of paid vacation days.
As we’ve pointed out in many other contexts, serious changes in working conditions are not strictly an HR issue. Any change in the standard workweek will have ripple effects throughout your organization, including such matters as staffing adequacy for critical operations or the need to rapidly expand automation as staffing becomes more expensive relative to throughput units. Many of the basics of American business have gone through more changes in the last two years than in most decades. How would a new workweek standard change the face of your organization?
*The Organization for Economic Co-operation and Development has 38 member states, essentially all the more “advanced” economies around the globe. Comparing American stats with OECD stats is usually a valid analysis.
Everyone thinks their workweek is the roughest.
Quick Take 1:
You Can Run, But Can You Hide?
We like to keep track of what we call “retail risk management” (see below for another example). That is, what are ordinary people doing in their private lives to minimize perceived risks, how are those risk ideas changing and what perspective might this offer for those of us who handle risk professionally? If you believe in the wisdom of crowds*, how your friends and neighbors are managing their exposures bears watching.
A new article in Wired, “As Climate Fears Mount, Some Are Relocating Within the US” focuses on this very topic. Some of our fellow citizens are making major moves across the nation to get away from perceived high-risk areas and resettle in more placid parts of the country. One example detailed in the article is a couple who fled the drought-stricken west after losing everything in a brush fire and settled in New Hampshire—a far cry from the crisp tinder surroundings they had in Oregon. Any number of experts—some real and some self-appointed—are pointing out any number of what appear to be irreversible changes—ongoing drought, sea-levels rising, new storm tracks—which appear to be laying siege to certain parts of our country.
Reading the article tells us that, at some level, we are all risk managers. Some of us do it professionally and tap into a deep infrastructure of consultants, brokers, and carriers as well as the aggregate wisdom of our fellow risk professionals. Others, anxious parents perhaps, study the information they can, read the hydrologic maps for their present homes and perhaps their planned new homes, prowl the depths of Google, look up ratings of school districts, and then try to decide how best to protect their families. This, after all, is how risk management started—assessing our exposure to risks like saber-toothed cats or dwindling herds of mammoths or those growing glaciers looming over the far end of the valley.
We humbly suggest that you give this short article a quick read and then ask yourself whether there might be any useful ideas in it. Are the families described being alarmists or are their friends and neighbors who are sitting on their hands merely complacent? A tip from the late Andy Grove**: “Success breeds complacency. Complacency breeds failure. Only the paranoid survive.”
*The idea’s dead simple: large groups of people are smarter than an elite few, no matter how brilliant–better at solving problems, fostering innovation, coming to wise decisions, even predicting the future. Check out "The Wisdom of Crowds" by James Surowiecki at goodreads.com.
**Long time CEO of Intel. Left Hungary in the 1956 Revolution and moved to the US. Attended CCoNY, and UC Berkeley. Now that’s risk management in action.
Early risk discussions
Quick Take 2:
Let's Talk About Power
We’re looking at the power that you find in your standard 110-volt wall socket—and whether or not it’ll be there when you need it. We’ve commented on the growing risk of power failures before, but a brand new analysis of government data sources by the Associated Press brings the matter into a sharper and more urgent focus, as did the series of ferocious storms sweeping the country and snapping power lines a couple of weeks ago.
The AP report begins with this subtle hint: “Power outages from severe weather across the U.S. have doubled over the past two decades, as a warming climate stirs more destructive storms that cripple broad segments of the nation’s aging electrical grid,...” Doubled, eh? Gets our attention. Ah, but there’s more. Power outage events are getting longer all the time. The weather issues differ from region to region, from blizzards to hurricanes, but the increasing ferocity of the weather is everywhere. The AP report takes a closer look at a selection of states—Maine, Louisiana, and California—with different issues which all have the same upshot: frequent and long duration outages.
The AP looks especially at what we might call the retail side of the story, how power failures impact ordinary citizens, but we see this as a reminder for all risk professionals to continue to revisit the provisions you make to offset outages with alternative power sources and to mitigate business interruption losses with various risk instruments.
Maybe you had more urgent matters to take care of last time we raised this topic. Yes, we know that no risk professional has had time to get bored recently. But every month the ongoing viability of your organization becomes just a little more dependent on the juice in those big industrial three phase wires. We’re all trying to minimize our reliance on fossil fuels, after all, but every success in that realm means we’re that much more vulnerable to glitches in the power grid.
Out here in the rolling hills of Bucks County, we have a wicked huge Generac tucked in between a holly bush and a stand of lilacs in the garden and we’ve used it quite a lot in the last few years. For almost a quarter of a century we had no tornadoes in our valley. Now they come around like ne’er-do-well in laws and hang out. The late George Carlin pointed out that electricity is really just organized lightening. Do what you can to keep yours organized.
So - are your staff prepared in case the power goes out?
Say It Isn't So...
As T.S. Eliot told us, April is the cruelest month*. It brings tax deadlines, solemn anniversaries**, and the first predictions for the coming hurricane season. The team of researchers from the Tropical Meteorology Project at Colorado State University (CSU) reported a week ago that the next hurricane season will be a doozy*** with a total of 19 tropical storms with winds of 63 kph, and 9 hurricanes with winds of 119 kph (or higher).
Just think of the blessings of the 21st Century. Now we know what to worry about well before it looms on the horizon. Of course, what we don’t know is whether any one of those storms will be another Katrina or an Andrew, will we clean up with a broom or a bulldozer?
You check, naturally, that all your policies and procedures are up to date, that pumps and backup circuits are tested and so forth. Now we wait and hope that all of our hard work in developing resilience and recovery in depth was a total waste of time for another year.
We may be the only professionals who don’t want to find out just how good we really are.
*The Waste Land, 1922
**The Titanic, Lincoln’s assassination, the Bataan Death March among others
***Doozy, short for Duesenberg, one of the most extravagant automobile marques in American history, therefore anything truly over the top.
A real Doozy, a car you'll never forget
Words to Remember
Frost is the silent ministry of ice.
It kills discreetly in the night.
First frost ends the old and tired,
Done with their riot of summer, ready to go.
Last frost murders the young and hopeful,
Seeking the sun of spring and finding only cold.
Last frost has no ceremonies, no Halloween.
Only terrible dead realities,
And the deep ache of spiteful winter.
We till the blackened buds back into earth
And do what life always does—push on.
Last frost dates for spring planting. Bonne chance.