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Challenges & Opportunities Driving Supply Chain Strategy’’ in PSA BDP International 2022 Supply Chain Summit in İstanbul

It was a privilege to speak at the panel of’’ Challenges & Opportunities Driving Supply Chain Strategy’’ in PSA BDP International 2022 Supply Chain Summit in İstanbul. We discussed about Supply Chain Resiliency, sustainability, digitalization, Risks and solutions for Emerging Countries, Chip Crises, future of logistics and Electronification for cars focused in Automotive Vertical. #IstanbulSCS2022
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Commercial Contracts Checklist

I am managing supply chain, procurement and logistics operations of multinational companies in Europe and Middle East Africa Region for more than 10 years. During this period I finalized more than 500 million euro worth of contracts (logistics, raw materials, service, products,..). While negotiating contracts I have observed, experienced many points which are not given enough attention and created significant problems later on. So here is the checklist I created for commercial contracts:

  1. Clear Definition of Service/Product: Contracts should have clear specification and definitions of the service or product to be received and key performance indicators yet in many contract these are not well defined. Mostly there are either no KPI or insufficient KPI no procedure or penalty in case of poor results in KPI’s.
  2. Liability & Insurance Articles: Direct / Indirect losses (profit losses, damages to the goods, penalty and claims from 3rd parties due to problems in service, goods…) can cause significant losses if enough attention is not given during contract process.
  3. Payment Term: There are many examples of very profitable but bankrupt companies due to poor cash management. Like in the famous slogan: “Cash is the King”. In many contract negotiation process main focus is given to price and payment term is overlooked, which negatively effects working capital. Payment terms need to be written very clearly in the contracts. Another key point is when the payment term will start (invoice date, beginning of the next month after invoice date,…). In general bigger/stronger party makes purchases on long payment terms but sells on short terms and generates positive cash flow as it grows
  4. Starting with Own Draft: It is always more advantageous to send the first draft. With this, all the preferred points, articles exist in the first draft and the other party has tendency to make not so many changes / rejections not to be perceived as negative. Yet so many company does not have their own draft contracts. Ideally companies should have general contract drafts to be used for all types of commercial agreements and special drafts for major spend areas.
  5. General Purchase Conditions: This type of generic documents can be used for the cases where contract cannot be made due to time pressure or other reasons. It can also be attached to the end of purchase orders. General purchase conditions should be designed to cover all types of purchases, agreements.
  6. Purchase Orders: When contracts are not made, purchase orders define and clarify key conditions like price, payment term and quantity. Some companies make purchase orders obligatory even if there is a contract. One reason for that is to inform and get approval of all related departments (finance, accounting, cost center owner,…) and proper management of the budget, expenses.
  7. Binding Commitments: Utmost importance should be given to the binding commitments like: quantity, time, payments even if there is no purchase. Naturally, buyers want to get minimum binding commitment and seller wants to add maximum binding commitment.
  8. Yearly Productivity, Efficiency and Price Reduction Commitments: For long term contracts, it is advantageous for both parties to have yearly price reduction commitments based on productivity and efficiency improvement targets. Suppliers should continuously try to make improvements, be efficient and by acting proactively on buyer’s cost reduction demands, which is now a common practice, they can have more chances of long term business with their customers.
  9. Early Termination and Extension Options: Early termination or extension rights are critical points of contracts. Both parties try to get maximum flexibility on their sides and  in case of early termination or extension which conditions to be valid and what actions to be taken should be clearly written.
  10. Internal Consensus, Alignment: Contract processes in general includes related business unit, legal, sales/purchasing departments as a team. Before discussing with the other party, it is vital to get consensus and internal alignment for the success of the process.
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Notes on Turkish Economy

Here are some brief notes & statistics on some aspects of Turkish economy & business:

Wealth Inequality:

86 thousand, 0.13 % of the bank accounts in Turkey has 51% of the all the deposits.   Number of millionaires increased by %12 in the first half of 2015.

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Another statistics in wealth inequality area is from Research Institute on Turkey. In 2014, richest 1% has 54.5 % of the total wealth in Turkey.

Taxes:

2014 total tax income of the government was 401.6 billion TL,   below there is the breakdown by the sources:

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http://www.gib.gov.tr/sites/default/files/fileadmin/user_upload/VI/CVI/Tablo_63.xls.htm

2013 full year income tax by professions who pays taxes by declaration (self-employed):

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http://www.gib.gov.tr/sites/default/files/fileadmin/user_upload/VI/FGGOVB/faaliyetgrp2013GV.xls.htm

*Minimum wage workers paid ~1600 TL tax in 2013.

Consumer Credit:

As of Sept 2015, consumer credit in Turkey is 280 billion TL.  Out of this number 129 billion real estate, 144 billion is consumer loan and 5 billion is for vehicles.

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Housing Sector

Housing is probably most important investment or cost item for most families. Prices are going up significantly for many years and many wonder if it will continue or not. Here are some figures:

  • In the first 9 months of the 2015, house sales were 13% more than same period in 2014 (936,615 v.s. 831.287).
  • 45% of sales in 2015 were new houses, rest second-hand.
  • 36% were sold with a collateral.
  • In the first 6 months of 2015, 351 K occupancy permit (municipal permission to allow living in a new building) is given. However sales of new housing was only 283 K. So demand for new housing is %17 below the supply.

TL v.s. Foreign Currency Bank Accounts:

Due to high historical inflation rates, Turks are accustomed to hold foreign currencies. At the moment, total value of foreign currency account deposits (185 billion $) in Turkey is %44 of all the deposits, one year before it was % 37.

Uncovered Cheques:

In the first 8 months of 2015, 15 million cheques with total value of 429 billion TL presented to the banks. Among them 490 K was uncovered, with a value of 17.6 billion TL.

Unemployment:

As of July 2015, there are 2.91 million unemployed in Turkey according to Turkish Statistics Institute. Among this number 718 K is university graduate and within that 502 K is younger than 30 years old. There is total of 6.27 million university graduate in Turkey, so unemployment with university graduates is %11.4 (gender-wise men 7.7%, women 17%)

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History of Modern Economic Thought

Starting from ancient times there were many thinkers and theories in the history of economic thought. The first modern school of economic thought is generally considered as Classical Economy (1776 – 1870). Starting with Adam Smith main founders of classical economy are Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill.

Free markets regulating themselves without any intervention by an “invisible hand” was the basis of classical economics. On the eve of the industrial revolution, Adam Smith’s book The Wealth of Nations, 1776, is usually considered the beginning of classical economics. Land, Labor and Capital, so called factors of production, were among the main discussions of classical economists.

In the classical economics, value of a product was thought to depend on the costs involved in producing that product. Then some economists began to emphasize the perceived value of a good to the consumer, which was the beginning of a new era, Neoclassical Economics (1870 -1940).  Change to neoclassical economics can be called as “marginal revolution”, rise of the “economic man”. People having rational preferences, maximizing utility are main pillars of it.

 Keynes & Friedman

Then, Keynesian Economics (1940 – 1960), supporting interventionist government fiscal policies (government investment in infrastructure) and central bank monetary policies (reduction in interest rates) to stimulate economic demand and growth, led by John Maynard Keynes, become mainstream economic thought. Neoclassical economics dominates microeconomics, and together with Keynesian economics forms the neoclassical synthesis which dominates mainstream economics today.

Milton Friedman advocated an alternative macroeconomic policy called as Monetarism, which become prevalent around 1960’s. Contrary to the Keynesian policies, Friedman argued that laissez-faire (free from restrictions) government policy is more appropriate than government intervention in the economy. Neutral monetary policy oriented toward long-run economic growth with gradual expansion of the money supply was the other main argument.

There are many other theories, schools of thoughts and great names in the history of modern economics. Paul Samuelson, Friedrich Hayek, Joseph Schumpeter, John Galbraith, Thorstein Veblen, James Tobin, Irving Fisher, Robert Solow, John Nash are among the other great names. Paul Krugman, Greg Mankiw, Daron Acemoglu, Steve Levitt will probably be shown in future lists. Finally, here are some quotes from Keynes & Friedman:

John Maynard Keynes:

“The long run is a misleading guide to current affairs. In the long run we are all dead.”

“If you owe your bank a hundred pounds, you have a problem. But if you owe a million, it has.”

“Markets can remain irrational longer than you can remain solvent.”

Milton Friedman:

“Many people want the government to protect the consumer. A much more urgent problem is to protect the consumer from the government.”

“Nothing is so permanent as a temporary government program.”

“I am favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible.”

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Turkish Economy: Biggest 500 Companies & 2015 Outlook

Monthly Turkish business magazine Capital’s published its Turkey’s Biggest 500 companies list (for 2013) couple of months ago. Here are some of my findings out of that list:

  • Companies in this list had 8% real growth, while Turkish Economy as a whole grow by 4% in 2013. However average real profit of the 500 list went down by 18%
  • 257 out of 500 had growths in double digits. Only 47 of them made loss.
  • Biggest 10 company had 24% of the total turnover of 500 list
  • Minimum turnover to be in the 500 list is 174 M$
  • 59 cities (out of total 81 in Turkey) has no company in the biggest 500 list.
  • 67% of the turnover is created in Istanbul. Then Ankara, İzmir, Bursa and Kocaeli follows

Turkey Sector Analysis of 500 Biggest Companies

Turkish Economy is forecasted to grow 3% for 2015 (IMF, World Economic Outlook). This is the same as current forecast for 2014 while global economy is forecasted to grow 3.3 % for 2014 and 3.8 % for 2015. As an emerging market with a young population it needs to grow faster.

Below there are the key factors that will effect Turkish Economy’s 2015 performance:

  • General elections: It will be held in June 2015. It will be the most important factor effecting Turkish Economy in 2015: Uncertainties till the elections, new government structure and its economic program after elections…
  • Monetary policies of US and EU: With its 6% current account deficit Turkey needs each year ~ 50 billion dollar. FED’s expected monetary policy would have a negative impact for Turkish Economy yet European Central Bank’s expected monetary policy would have a positive impact
  • Slow Global Growth & Recession in Europe: Global growth is mediocre. Europe is Turkey’s main export market and its recession will have major negative impact for Turkish Economy for 2015. IMF forecasts growth for Eurozone in 2015 as 1.3 %. Only UK is expected to grow fairly well, 2.7 %.
  • Problems in the Neighboring Countries: Middle East and Russia are Turkey’s strong trade partners and outlook for them in 2015 is not bright.
  • Reduction in Commodity Prices: Like for most of the world, this is a positive factor for Turkey. Especially reduction in Petroleum prices could have a major positive impact in inflation.
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The Four Agreements – Don Miguel Ruiz

Thousands of years ago, the Toltec were known throughout Southern Mexico as “women and men of knowledge”. They were scientists and artists who formed a society to explore and conserve the spiritual knowledge and practices of the ancient ones.

Don Miguel Ruiz is a Mexican a surgeon who dedicated his life to sharing the wisdom of the ancient Toltec. The Four Agreements, his most successful book, was published in 1997 and sold around 5 million copies and translated into many languages.

The main idea of the book is, by utilizing the four agreements, freeing ourselves from beliefs and promises that we made with ourselves and others which are creating needless suffering and limiting us.

The Four Agreements

The back cover of the book provides a short summary:

  1. Be impeccable with your word: Speak with integrity. Say only what you mean. Avoid using the word to speak against yourself or to gossip about others. Use the power of your word in the direction of truth and love.
  1. Don’t take anything personally: Nothing others do is because of you. What others say and do is a projection of their own reality, their own dream. When you are immune to the opinions and actions of others, you won’t be the victim of needless suffering.
  1. Don’t make assumptions: Find the courage to ask questions and to express what you really want. Communicate with others as clearly as you can to avoid misunderstandings, sadness, and drama. With just this one agreement, you can completely transform your life.
  1. Always do your best: Your best is going to change from moment to moment; it will be different when you are healthy as opposed to sick. Under any circumstance, simply do your best, and you will avoid self-judgment, self-abuse, and regret.

The book is quite short and easy to read. I actually got it from colleague in the office and read in one night. The concepts and ideas of the book will sound similar to what you already know, nothing really surprising or new. Nevertheless, these four points are really key advises that we should all remind ourselves from time to time. Think about your work environment: Does everyone you interact, also yourself, behave in line with these four simple points? How much more efficient & effective your organization would be if everyone simply internalized these points?

So overall, I consider this book worth reading for presenting these four simple yet powerful points in a short and pleasant way.

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Outliers: The Story of Success – by Malcolm Gladwell

“Success is a combination of ability, opportunity, time, luck, effort, family background and network.” This is would I say about this book if asked to summarize in one sentence.  Outliers is a popular book written by Malcolm Gladwell in 2008. It was listed in the 1st place in bestseller lists in New York Times and a couple of other journals and in 2014, its Turkish translation listed as bestseller in popular D&R list.

We tend to believe that successful people (like Bill Gates, the Beatles,..) are all “self-made-men” and made it into the top with incredibly special abilities. This is partially true but it also depends on factors that are mostly beyond our control like being in the right time, place, having the right opportunities, having the right family and practicing a lot. The thing that is totally within our control is how much effort we put in, and the more effort we put in, the more likely that we will be successful. Throughout the book, Gladwell repeatedly mentions the “10,000-Hour Rule” that is practicing a specific task for a total of around 10,000 hours.

Outliers

Some critics argue that the book is demoralizing and dispiriting due to linking success largely to factors outside our control yet what I took away from this book is mainly the concept of practicing “10,000-Hour Rule”.  This is mainly because I found more similarities in my life story with that: Practicing hard, continuous effort for improvement in all aspects of my life, setting targets and trying strongly to reach them. Here are some of the inspiring lines that I highlighted while reading the book:

  • The people at the very top don’t work just harder … than everyone else. They work much, much harder.
  • The idea that excellence at performing a complex task requires a critical minimum level of practice surfaces again and again in studies of expertise. In fact, researchers have settled on what they believe is the magic number for true expertise: ten thousand hours.
  • Success is a function of persistence and the willingness to work hard for twenty-two minutes to make sense of something that most people would give up on after thirty seconds.
  • To become a chess grandmaster also seems to take about ten years. And what’s ten years? Well, it’s roughly how long it takes to put in ten thousand hours of hard practice.
  • No one who can rise before dawn three hundred sixty days a year fails to make his family rich.

Outliers has plenty of striking examples of success stories and Gladwell’s explanations about them. In the end, it is the personal experiences and thinking mentalities of the readers that will shape what they will take away from this book.

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Happiness

In all of human history, there may never have been a better time to be alive. Worldwide, the average life expectancy is 71 years, more than double what it was in 1900. The material and cultural wealth we now have is unparalleled in the human history. We are, by historical standards, rich. But are we getting happier as we are getting richer?

One of the posts that I wrote earlier this year was named “Living in the Present Moment”. It was mainly a summary of the book named “Power of Now”, written by Eckhart Tolle, who is considered as one the most spiritually influential person in the world. “A new Earth”, based on which I will try to elaborate on happiness, is together with “Power of Now” his most popular book. (I would also advise watching his sessions with Oprah, simply write Oprah and Eckhart Tolle in google to find)

Eckhart Tolle - A New Earth

Here is a common concern for human beings (I personally think about and ask this question to myself from time to time):

 “I don’t know exactly what it is, but I want some change in my life. I want expansion; I want to be doing something meaningful, something significant, something that makes a difference in the world. My fear is that I will remain stuck with doing little things for the rest of my life, things that are of no consequence. I am afraid of never rising above mediocrity, never daring to achieve anything great, not fulfilling my potential. What is my life’s purpose?”

“Making it” in whatever field is only meaningful as long as there are thousands or millions of others who don’t make it. The primary cause of unhappiness is never the situation but our thoughts about it. Thinking creates emotions, rather than being thoughts and emotions, be the awareness behind them. Happiness, cannot come through any form, possession, achievement, person, or event – through anything that happens.

People believe themselves to be dependent on what happens for their happiness. They don’t realize that what happens is the most unstable thing in the universe, it changes constantly. Internal align with what happens, not label them as good or bad, but let them be as they are. Only if you resist to what happens you are at the mercy of what happens, and the world will determine your happiness and unhappiness.

A powerful spiritual practice is consciously to allow the diminishment of ego when it happens without attempting to restore it. When someone criticizes you, blames you, or calls you names, instead of immediately retaliating or defending yourself – do nothing. Allow the self-image to diminish. Then you may feel intensely alive. You haven’t diminished at all. Through becoming “less” you become “more”.

True happiness is often found in the simple, seemingly unremarkable things. Most people, in their restless search for something significant to happen to them, continuously miss the insignificant, which may not be insignificant at all. As Nietzsche says “for happiness, how little suffices for happiness!”