Supply Chain Management: Lessons From The GoCaine Game
Richard Nguyen-Marshall
12 July 2023
Great East Japan Earthquake & Tsunami
11 March 2011: A 9.0 magnitude earthquake 130 km offshore of Japan lays waste to many parts of northeast Honshu, destroying buildings and severely damaging a considerable amount of industrial and transportation infrastructure. The earthquake triggers a 15 meter high tsunami which then pummels and floods the coast.
Almost 20,000 people are killed in the disaster and the tsunami disables the power supply and cooling systems of three nuclear reactors in Fukushima. Thankfully no deaths result from the Fukushima nuclear accident itself but 100,000 people are evacuated from their homes.
An economic disaster for Japan ensues, causing significant damage to trading partners throughout the world, particularly car manufacturers whose supply chains rely on components from Japan. Months pass before supply chains start to look somewhat normal again.
COVID-19 Pandemic
31 Dec 2019: China reports to WHO regarding cases of pneumonia-like illness in Wuhan. By the end of the first week of Jan 2020, China has identified a new coronavirus. Two weeks later, WHO reports cases in Japan, South Korea, and Thailand. Next day, the US reports its first case in Washington state.
We all know how things went from there. The lockdowns, the run on toilet paper and yeast, the backlog of ships in harbors unable to unload their cargo, major disruption to supply chains of almost every sort.
War in Ukraine
24 February 2022: As the world slowly emerges from the pandemic, with supply chains still backlogged, Vladimir Putin orders Russian troops into Ukraine. Ukrainian troops put up stiff resistance.
We are now well into July and unless Putin withdraws his forces, this will likely go on for some time. Even if Putin achieves a military victory and removes Ukrainian leadership, the brave Ukrainian people will be determined to make things extremely difficult for Russian occupying forces.
For those of us in North America, the war in Ukraine may not have had as extensive effects on our supply chains as the previous two examples, but you certainly feel it when you fill up your gas tank. Now imagine what it is like for Europeans, particularly those in eastern Europe. And what about all those who depend on wheat from Ukraine for something to eat? Ukraine supplies something in the neighbourhood 11% to 12% of the world’s wheat and 16% to 17% of the world’s export market of corn.
Risk Mitigation
Whether you are a home owner considering a new roof, a busy sole-proprietor, or a manager in a large international corporation, we all know it's a good idea to minimize the risk of things that can harm our interests. So, how did the recent crises in global supply chains occur? I mean, we know what happened, but why were supply chain systems caught so off guard?
When deciding how to mitigate risk one needs to answer a few questions:
1a. What are the risks?
1b. What is the potential monetary damage associated with each risk?
2b. What can be done to lessen those risks?
2c. How much will it cost to lessen those risks?
Having specific answers to all of these questions would be ideal, but sometimes we are dealing with cloudy and uncertain information.
In the words of the inimitable Donald Rumsfeld, “There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don't know. But there are also unknown unknowns. There are things we don't know we don't know.”
There have been enough catastrophes in the last few decades that supply chain managers should have been better prepared. They should have already learned the lessons and most certainly should have already made necessary changes to their supply network systems.
Problem in Corporate Culture
The problem is that in many corporate environments you are rewarded for minimizing costs and maximizing profits on the immediate time horizon even if, far too often, the short term benefits of such do not result in long term gains. In days gone past, I can only imagine how hard it would have been to convince those in certain C-suites to spend money diversifying supply sources, adding additional intermediate manufacturing centers, and expanding options in logistical routes.
Sometimes, particularly in a land of affluence, a history of past successes reinforces a mind-set that you are doing everything right when the reality might be that you’ve simply been lucky. The lack of experiencing catastrophe and crisis situations makes some managers complacent and not fully equipped to deal with such crises when they occur.
Using GoCaine to Strengthen Minds
Such managers would benefit greatly by playing GoCaine. You cannot play a game of GoCaine and fail to learn about the value of supply chain diversification, both in terms of sourcing zones and in terms of logistical routes.
GoCaine is a strategy board game in which 2-6 players compete to build the most lucrative cocaine trafficking network. The game utilizes mechanics from the ancient game of Go for its area control and is an economic engine-building game at its core. Whoever can move the most product the most efficiently and the most profitably will be victorious.
The playing board is a stylized map of North and South America, divided into zones, from the coca-producing regions of Bolivia, Peru, and Colombia, through the transit countries in Central America and the Caribbean, to the lucrative import markets in the US and Canada.
One of the first lessons a player learns is that it is dangerous having only one source of supply. Let's say you have a cell in Bolivia. Fantastic! From there, as you can see in the table below, you will be able to buy cocaine at the relatively inexpensive price of $2.5 million per metric ton.
Obviously, being able to buy at that price is a good thing, but if you have only one such cell then it is vulnerable. Such a supply source could be disrupted in primarily two ways:
It could be surrounded by opponents’ cells which would mean that you would lose that location altogether. You would then have no team present in Bolivia and therefore no way of buying cocaine at $2.5 million per mt.
The second way is that it could be targeted in an interdiction operation which could result in the seizure and loss of your product shipment.
Therefore, you should set up a second cell at another location in Bolivia, ideally with the operatives in each cell having minimal knowledge of the other cells' plans so that they cannot jeopardize the other cell in the event they are arrested or become subject to surveillance.
Lesson #1: Diversify Your Supply Centers Geographically
Expanding your network of cells in Bolivia is a good start, but what if there is a major crackdown by law enforcement agencies throughout Bolivia? That would be a problem if your only supply sources were in Bolivia. Thus, you should set up your network with alternate supply centers in Peru and/or Colombia. In fact, if you have the resources, establishing cells in all three countries would be ideal.
Now, let’s assume you’ve established several cells in Bolivia and Colombia to secure an ongoing supply of cocaine. In your efforts to move it to your lucrative northern markets you will again be best served over the long term if you can build several routes through various transit countries, using different ports, and ideally different modes of transportation. Let’s say you purchased 1 metric ton each from four suppliers. You now have 4 mt to move.
You could move each of those 1 ton shipments to Northern Colombia and then move the 4 tons together to the Caribbean, then onwards to the Southeast zone of the US where you could sell it at a decent profit.
Consolidating several shipments together that way is efficient, especially if you have limited transportation and smuggling resources. However while it is efficient, it also introduces more risk. In fact, it opens you up to a potentially devastating loss if it is subject to naval or coast guard interdiction and is seized.
Lesson #2: Diversify Your Logistical Operation
You can lessen the risk of such a devastating seizure by moving each shipment individually through each transit zone, never consolidating the shipments.
Each of these smaller shipments will have a lower probability of being seized. Maybe you'll lose one or two, but that would mean two or three are still getting through.
Of course the downside to this is that it will cost you more in terms of transportation fees and most likely will take longer. These are the things you must weigh before you make your decision.
Lesson#3: Diversify Ports of Entry and Modes of Transport
Great, you’ve sent your 4 mt through different routes to your reliable, long-established importer in Miami. But what if, after years of successful operation, your importer in Miami has now been compromised and is under close surveillance by the authorities? Or, maybe not the authorities. Maybe one of your competitors, someone with a serious grudge. Such a competitor may try to hurt your operation by targeting your importer.
The solution, again, is to diversify your entry points for importing. There are plenty of importing wholesalers in Texas and California for you to consider, so establish cells in the South Central and the Southwest zones. Look at how many route possibilities can open up with a few more strategically placed cells.
This is part of the reason why the DEA and other law enforcement agencies have such a hard time stopping the drug trade. It is often likened to playing Whack-a-Mole. A strategically designed network will always have a variety of routes available. Losing one such route is unfortunate from the cocaine trafficker's perspective, but the wiser ones realize it is part of the cost of doing business and plan accordingly.
And if it is going as containerized cargo on a large ship and the time it takes to get it to market is not of the essence, perhaps establishing an alternate route to a more northerly port, such as Halifax in Nova Scotia, would be a good solution. From there you can move it to Montreal and Toronto and then into the US.
Or if you have access to the Pacific routes, why not send it north to Vancouver? That would have the bonus benefit of having your importation sale happen in a money laundering haven. Casinos, the real estate market, banks, and luxury car dealers in Vancouver have a long history of turning a blind eye to money laundering.
Okay, let’s assume you’ve organized your supply network in accordance with the three lessons. You’ve diversified your supply, diversified your transit routes and transportation modes, and diversified your ports of entry. Well done! But what else could you be doing to mitigate risk and minimize the chances that unforeseen developments will jeopardize your supply chain?
In GoCaine you can further mitigate risk by investing in political influence. With each political asset you buy in a given country/zone, you effectively lower the chance that your product will be seized in any given interdiction operation. In the game, each political asset that you own in a particular zone gives +1 to your dice roll during a Task Force Interdiction action.
For example let's say you're moving a 4mt shipment through the Caribbean and you own two political assets there. A spiteful opponent launches a Task Force Interdiction action targeting the Caribbean. Your two political assets mean you get "+2" on your roll. Let's say you roll your two dice and get a "5". That would normally result in your shipment being seized (see above table regarding seizure probabilities). But with your "+2" your "5" becomes a "7" and that is outside the "2-6" result needed for the Task Force to seize your product. Your shipment slips through and continues along its merry way.
As you can see in the above table, buying political influence is not cheap. In the game it costs $20 million per asset and you are limited in that there are only three assets in each zone that can be bought. Of course, in real life, there is no such limit and that corruption is one of the factors that makes the war on drugs so frustrating and futile for those noble members of the law enforcement community who are trying their best to keep our communities safe.
Lesson #4: Regularly Undertake a PEST Analysis
Review the political & legal, economic, social, and technological environments. In addition, be sure to include an analysis of the physical environment and what impact climate change may have on your operations.
Buying and managing political puppets may not be part of your operation, but keeping your ear to the ground and knowing what the political winds have in store for your industry and for your company is always a good idea. When regulations change you need to know in advance and prepare.
What will inflation mean for your industry?
What about technological innovations?
What will the increasing size and frequency of hurricanes mean to your supply chain?
What if war breaks out and you rely on one of the belligerents for oil or wheat?
In all such things, the more proactive you can be, the better off you will be in the long term.
Conclusion
As I mentioned at the beginning, our recent history already has far too many examples of disruption to supply chains. You owe it to yourself to be prepared. You owe it to your shareholders to make sure your managers are prepared.
If the managers in your company seem at all complacent, it's time to change their mindset. Order them abox of GoCaineand after a few games they will have internalized the need to mitigate risk through diversification. They’ll be better managers because of it and they’ll have fun doing so. Okay, well, if they consistently lose, then maybe they won’t have as much fun, but let’s save that topic for another article. Thanks for reading. Cheers!
