Monthly Archives: September 2007

Sustainable Procurement Supply Management Style: Part I

In June, SupplyManagement.com ran a special supplement on Sustainable Procurement that had a number of good articles. In this post, I’m going to summarize a few of the more relevant points from some of the articles.

This is because sustainable procurement is part of corporate social responsibility – and corporate social responsibility (CSR) contributes positively to a company’s bottom line. According to a recent survey by Sirota Survey Intelligence, CSR is good for the bottom line, generates a greater sense of employee pride, enhances customer loyalty, attracts new customers, and minimizes the costs and consequences of regulatory activist pressures.

In “Break through the barriers”, Neil Jones points out some of the internal and external drivers for sustainable procurement as well as some of the internal and external barriers that need to be overcome for your firm to succeed.

External drivers include investors, industry performance, producers, standards, competitive advantage, reputation risk, supplier competence, customer requirements, and government policy. Internal drivers include buyer ability, leadership, cross-functional teams, company size, strategy, and other organizational factors.

External barriers include the volume of available information, language and cultural issues, lack of supplier commitment, and competitive pressures, including customer desire for continually lowering prices. Internal barriers include a lack of knowledge, resource limitations, weak processes, poor communication, lack of a strategy, organizational reluctance, management commitment, and purchaser’s abilities.

But these can be overcome. Knowledgeable consultants can make the volume of information manageable, language and culture can be learned, you can always find new committed suppliers, and good sustainable practices can actually give you an edge on your competition. Sustainable procurement can be learned, you have to do your homework anyway to make the right supply decision, sustainable policies can lead to improved processes, sustainable initiatives can provide a good foundation to improve communication, sustainable goals give you a strategy, sustainability provides a common goal that the organization can lobby around, and purchaser’s can be trained.

In “Power to change”, Kayzi Ambridge describes how E.ON UK, part of E.ON Group, incorporated sustainable procurement into part of their daily operations.

In the article, the author pointed out that when making decisions, you need to consider environmental factors, social factors, and economic factors and that it may take a few years to reach your goals, but there are always a few quick wins that you can use to get your started. You can green your supply chain by purchasing products with recycled content or, when this is not possible, purchasing products that can be broken down, partially recycled, and disposed of safely. You can also use renewable energy sources when they are available. In addition, you can choose venues that benefit an appropriate charity when holding off-site meetings.

The article also presents practical steps to get you through your first year of a sustainable procurement initiative. Start by finding out if there is support, researching the current state of sustainable procurement, and mapping out what you can measure. Then, create a baseline, determine which objectives sustainable procurement can support, and start on the business plan. Next, sometime in the second month, break down how procurement can tackle each objective on the social, economic, and environmental dimensions, start communicating with relevant internal and external stakeholders, and start tackling the small projects. Around the third or fourth month, work out what you expect from your suppliers and communicate these goals to them and implement tools to measure progress against your objectives. Throughout the year, measure your progress regularly and strive for continual improvement.

In “It’s all in the mix,” Faiza Rasheed overviewed a seven step program to introducing supplier diversity into your business. Supplier diversity can often lead to social and economic improvements and play a role as part of your broader sustainable development agenda and is thus worth considering.

The seven steps presented in the article are the following:

  • Establish Sponsorship and Governance
    A senior level sponsor to provide credibility and direction is key.
  • Create a Strategic Plan
    Define a clear scope and identify the diverse suppliers to be targeted. Then document a business case outlining the importance of the program and how it aligns with HR and existing diversity policies.
  • Design Standards, Processes, Tools, & Templates
    Establish a standard set of four to six supplier diversity standards that can be incorporated into contracts and then create processes, supported by tools and templates, which facilitate the application of these standards.
  • Execute the Implementation Plan
    Remember to work with the professionals who own the contracts to ensure supplier diversity requirements are applied. Formulate “best practices” and communicate them.
  • Train People and Communicate Internally
    Teach your suppliers about your program and use existing channels to raise awareness internally.
  • Engage Suppliers and Communicate Externally
    Publish your goals, policy, and requirements to demonstrate your organization’s commitment and generate positive PR.
  • Develop Systems and Monitor Progress
    Ideally, the system that captures the relevant information and measures the appropriate KPIs should be driven through the organization’s primarily enterprise system.

Maximize your Marketing with Sourcing Innovation Sponsorships

Are you an innovator in the sourcing, procurement, or related supply chain space? Do you want intelligent, progressive, and innovative practitioners to know it? Do you believe that end-user education is the best way to attract and retain customer focus? Are you ready for the social revolution?

If you answered yes to these questions, have a desire to be recognized by the sourcing and procurement leaders of today and tomorrow, and want to be associated with a site that gets regular, repeat, visitors on a daily basis, then a Sourcing Innovation sponsorship is for you!

Not only is the blog becoming mainstream – but it is becoming the news feed of choice of many Web 2.0 / social networking converts. More and more, people are checking the daily blogs first for up to date news, commentary, analysis, and education. They’re becoming so popular now that a significant number of online trade publications and vendors have recently started their own blogs to try and catch a piece of the wave.

However, very few of these blogs have the following of Sourcing Innovation or Spend Matters who figured out a while ago that the only way to grow AND retain readership is to have fresh, informative, provocative, analytical, useful, and, most importantly, independent content on a daily basis. Collectively, Sourcing Innovation and Spend Matters are the only two non-vendor or non-trade-publication independent blogs focussed on the sourcing and procurement space that have been around for over a year and publishing on a daily basis. Sourcing Innovation is proud to be one of them.

Besides brand recognition, respect, lots of goodwill, and assurances that the the blog will continue to churn out volumes of content, a purchase of one of the four available Sourcing Innovation Sponsorship will also net you:

  • a linked company logo on the topmost section of the right hand side-bar of the Sourcing Innovation blog
  • a “sponsor overview” post and one “sponsor insight” post in each subsequent quarter (the doctor’s choice)
  • unlimited permission to reproduce unedited blog content, with citation, for marketing initiatives during the sponsorship period
  • attendance, and blog coverage, of one sponsor event per year in Canada or the US
  • assistance with webcasts or podcasts (with a minimum sponsorship term)

In addition, a sponsor can also choose to upgrade sponsorship to the sponsor advisory program, which also nets you:

  • off-site advisory services on a monthly basis
  • free on-site advisory services (with a minimum term)
  • invitation to any private event sponsored or co-sponsored by Sourcing Innovation
  • an affiliate content link in addition to your logo
  • one original vendor-independent thought paper at a deep discount

For more information, drop us a line at the contact information in the FAQ. Sponsorships are on a first-come, first-serve basis and, as noted above, only four are available.

Furthermore, the sooner you make a decision, the sooner the slots fill, and the sooner we get back to our regularly scheduled programming. After all, don’t you want to find out if The Vendor in Black Comes Back?

The 3rd Wave

No, this post isn’t about molecular diagnostics, feminist activists, or Toffler’s vision, but instead about Blinco System’s (now called 3rdwave) Global Commerce Management (GCM) solution or, more precisely, their approach to Global Commerce Management.

Billed as a solution that seamlessly fills the gaps left by SAP, Oracle and other enterprise IT solutions, and allows companies to manage all their global processes surrounding their products or services from “procure-to-pay” or “cash-to-cash”, what it really is, or wants to be, is an ERP-for-Distribution solution.

Noting that traditional ERP systems like SAP and Oracle are not appropriate for non-asset-based distributors, in addition to being prohibitively expensive for small and medium sized companies, and that many companies also have to buy additional sourcing and procurement and supplier relationship management (SRM) and customer relationship management (CRM) solutions, which are also expensive for small and medium sized companies, Blinco decided to try and rectify the problem with a single approach that tackled the unique problems associated with non-asset based distributors.

The solution is built around a Global Data Repository that tracks all data associated with a product or service from the time of the first requisition through product delivery to final payment and accounting. It can track sourcing related RFX information and bids, procurement related purchase orders and invoices, and accounting information and payments. Whereas an ERP system is traditionally inward-centric, focussing on the data you need to run your manufacturing operations, what a global company needs, especially one that is focussed on distribution, is an outward-centric solution that is able to track all of the information associated with import and export – purchase orders, insurance information, financing, trade documents, shipment information, goods receipt, invoices, etc. (For more information on global trade, and the import and export cycle, see the Global Trade Primer over on the eSourcing Wiki [WayBackMachine]).

I’ve only begun to investigate Blinco System’s GCM solution, but the approach is intriguing – especially for a smaller, mid-size, company that needs the latest in ERP, sourcing, procurement, and supply chain technology, needs it all integrated, but at a budget. Most smaller mid-size companies have a much greater need for solutions that cover the various supply chain areas – sourcing, procurement, SRM, CRM, etc. – than they do for best of breed solutions, as most of their spends are not large enough to warrant the extra investment. Even though best of breed solutions typically save more than average solutions, the few extra percentage points may not make enough of a difference relative to the cost of such solutions for most categories procured by your average mid-size company. Thus, a specially integrated solution might be the way to go.

I’m not going to go so far as to recommend their solution at this point, as I have to learn more about it, and you won’t be able to maximize it’s potential until they correct for a few deficiencies (which they’re working on, but it will probably be nine months to a year before the next version that addresses them is released), but it’s certainly worth looking into if you are in the market for an ERP and a sourcing or procurement solution, as it may be able to fill both of those needs. Furthermore, since the due diligence required in the selection of an ERP system is not something that can be performed over night, by the time you made a selection, completed your implementation plan, and got started, they might be pretty close to what I’d like to see for the type of solution they are expanding. (Which, by the way, is proven with more than one multi-billion dollar company.)

The 2nd Sourcing Innovation Series: Trading on the Spot Market

Last summer, as part of the Sourcing Innovation sponsored cross-blog series on The Future of Sourcing, Jason Busch theorized over on Spend Matters (in Sourcing Innovation Securitizing Direct Materials) that securitizing direct materials and capacity was in sourcing’s future and that suppliers would benefit from the model as well as buyers.

Under the securitized capacity model, suppliers would be able to forward sell capacity and realize cash flow to fund investments in equipment and labor. They would also benefit through an improved understanding of market price for capacity. Buyers would benefit through an ability to balance reserved capacity and spot-buy capacity to handle demand spikes and to do so at true market prices. They could also take a more active role in acquiring the underlying commodities that go into finished parts from suppliers, reduce risk and variability of supply markets pricing, and avoiding escalation / de-escalation clauses entirely. In addition, if they were not happy with the current market price for capacity, they could try a direct negotiation technique, or they might hedge their bets by buying a “call” on future capacity rather than the underlying contract itself. And if they know the supply market well, perhaps they might even become a trading party, buying and selling capacity for profit based on their analysis of the market.

And now we have some proof that Jason might be right. According to a recent study by Haim Mendelson and Tunay Tunca at Stanford’s Graduate School of Business, “strategically using both fixed-price contracts and open market trading, supply chain participants can create greater efficiencies” (Business Wire). Furthermore, both consumers and supply chains as a whole will benefit from these efficiencies.

Given that availability, costs of raw materials, and consumer tastes fluctuate, shorter-term spot trading is appropriate to handle these fluctuations. Furthermore, just as the stock market summarizes many pieces of information about the performance of a company, business-to-business spot markets can provide up-to-date information about the availability of raw materials, the cost of production, and consumer demand for the end product. Because all of this happens much closer to the time that the end product ships to the consumer, supply chain participants can update their plans to take into account real-time information.

However, it’s important not to overuse the open market, as that can have its drawbacks. Haim and Tunay found that the more you trade, the more you drive the price against yourself. For example, a manufacturer may want to buy 10,000 computer chips at $1 per chip, but trying to buy twice that amount may force the manufacturer to pay twice that amount as cheaper suppliers become exhausted. Thus, buying only in the on-the-spot market raises the risk that you’re going to spend more than you would have in a fixed-price contract made six months ago. On the other hand, you have a better idea of actual need, and may end up spending less by not overbuying. Suppliers face similar risks and benefits, and so may also benefit from both early contracts and spot-market trading. Thus, the best balance between long-term contracting and the spot market depends on the liquidity of the spot-market in the industry a company is buying in.

A good spot market creates efficiencies not only in the spot market itself, but also reaching back to the long-term contract stage. Furthermore, suppliers will anticipate when a well-functioning spot market is rising – where information about supply and demand is current – and price will become competitive early on. This makes the supply chain more efficient and increases the total profit potential while also benefiting consumers, as a more efficient supply chain translates into lower retail prices.