Monthly Archives: September 2009

Precedent Sets a Standard

Editor’s Note: This post is from regular contributor Norman Katz, Sourcing Innovation’s resident expert on supply chain fraud and supply chain risk. Catch up on his column in the archive.

As a long-time and avid newspaper reader I keep up-to-date with what’s going on locally and nationally, even if I find out the day after. I can’t imagine starting my day without enjoying a healthy breakfast while reading the newspaper. I read through all sections, though I may not thoroughly read each and every article. I also make sure to read through the letters to the editor, not just to find out about goings-on I might have missed, but to gauge outrage or support for a particular topic.

The wife of the Fort Lauderdale (FL) chief of police fired a gun at her husband while in their home and then proceeded to fire off two more shots outside the home as she was chasing him. The police chief’s wife was apparently quite distraught over his suspected cheating which, to my knowledge, has not been proven or disproven. Fortunately no one was injured as she missed not only her husband but also any innocent bystanders. In statements she informed that she did not mean to specifically put a bullet in her husband, but was distraught and looking to get his attention or something to this effect.

During her recent court hearing, the gun charge was thrown out as if no gun was used at all, and the wife was charged with lesser offenses.

Based on the letters to the editor, there is considerable outrage that — it would seem once again — money and political connections favor those who have them in what should be courts of law that are supposed to be neutral ground where only the law should be discussed. This is — from my understanding — especially true in criminal cases where laws are written down and are relatively “fixed”, as opposed to civil cases where precedent (prior case outcomes) sometimes set a standard. The newspaper’s own “news columnist” was also quite direct in his criticism of how this case was handled, and asked whether regular folk in the same situation would have been treated the same.

But there is a bigger issue in here in how this particular courtroom drama is playing out: how the precedent of this case will set a standard for future cases. There is no disagreement that she fired three times from a gun while aiming in the direction of her husband, who has not pressed any charges against her. The outrage from the community is that someone with lesser political connections and financial resources would have been treated much differently — and more harshly sentenced — by the court. With full admission that she did fire a gun three times, how is it possible for this fact to be simply omitted by the court when considering her punishment for breaking the law? Based on quotes in the newspaper from legal experts, quite a few people are wondering about this.

Organizations must set clear rules on how it stands for fraudulent behavior, and must definitively abide by its own rules in administering actions against employees, customers, or suppliers who perpetrate fraud.

To fail to create and publicize clear rules may make it difficult for the organization to punish fraudsters, especially when it’s their own employees. Organizations should not be complacent in believing that all employees understand what constitutes correct behavior, and an employee’s status has shown to not be a good indicator of such knowledge.

To fail to adhere to policies in terms of actions — which may include and require termination — against employees who are found to have committed fraud sends a clear signal to everyone else that the organization lacks the fortitude to follow through and make the hard — yet necessary — decisions. This could easily serve to actually encourage more bad behavior because employees who were possibly on the fence about committing fraud now know that there is no punishment if they get caught.

If your organization does not have policies for behavior and procedures for violations of behavioral standards, there is a risk of allowing bad behavior to be conducted, if not also condoned, and being left with few repercussions to deal with the source of the problem.

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Norman Katz, Katzscan

Service Leaders Speak: Ashton Udall of Global Sourcing Specialists on “Supply Chain Sustainability and Transparency”

Today’s post is from Ashton Udall, a Global Sourcing Specialist (and author of the GSS Blog).

As optimism returns and some of the challenges of the downturn begin to recede, we are quickly reminded that many challenges and trends which played at the forefront of business concerns, prior to the economic fallout of 2008, will return. How are sourcing organizations evolving to meet customer needs in the next decade? Surely, strategic sourcing, spend management, and risk assessment and mitigation will see continued development and increased sophistication. But there is another trend that has come to the fore in the last few years; a trend that requires many sourcing and procurement organizations to stretch outside their traditional bounds because of its interdisciplinary and cross-functional nature. Whether one likes it or not, for reasons of consumer demand, cost reduction and risk, and good ol’ conservationism, environmental sustainability will grow in importance and the supply chain will increasingly be dragged into the limelight on this topic.

Companies will face a demand for greater transparency as a result of growing consumer awareness and changing priorities, the continued spread of technology — cell phones, video, and internet access, and executive leadership. Authenticity and transparency will become greater drivers of brand loyalty, and companies will be expected to do as they claim, and show what they do.

Waving the green flag of sustainability is not enough. Smart companies, those who are ahead of the curve, will assume greater market leadership in years to come. These companies are working hard to find win-win situations in which both the financial and environmental bottom line benefit. Walmart is leading the charge, in one recent example, recently reporting that adherence to its sustainability goals has led to a reduction in toy packaging, saving the company 727 shipping containers and 1,300 barrels of oil in comparison to the previous year, which adds up to an impactful $3.5 million.

Packaging reduction is considered a low hanging fruit of environmental initiatives, but a survey of topics to be covered at the 3rd SustainableSupply Chain Summit (North America, 2009), includes issues such as carbon footprint, ROI on green initiatives, supplier collaboration and partnerships to attain greater efficiency, and the emergence of the Chief Sustainability Officer. Packaging reduction is only the beginning.

Design and product development teams will hand over greater requirements in the realms of sustainable packaging, sustainable materials, lower carbon footprint, and certified labor conditions to the sourcing and procurement departments, and it will be up to sourcing and procurement to provide solutions to meet these needs. Smart companies will get out in front of these issues and not remain in a reactionary state. Sourcing leaders will need to develop greater sophistication in assessing supplier operations and risk. Specifically, sourcing leaders will require more robust methods of identifying and calculating risk to CSR and marketing programs that emphasize the social and environmental perspective, vendor monitoring and compliance, and supplier capacity development. Opportunities will not be limited to finding ways to reduce environmental footprint and informing consumers. Creating and capturing value will entail sourcing professionals to develop the ability to create scenarios in which cost is continually reduced in the supply chain by reducing energy inputs, material waste, and operational inefficiencies, while simultaneously fulfilling CSR goals that build brand loyalty. Inorder for this to occur, compliance, procurement, and brand management will need to act cross-functionally, and in concert, to drive optimal results.

Sourcing solutions providers which continually investing in their staff to understand this new and rapidly evolving field, building relationships with service providers that specialize in compliance and capacity building programs, and expand and refine their network of suppliers that meet higher requirements, will be in a strong position to increasingly add value to customers’ top and bottom lines as we enter the next decade of transparency and sustainability in supply chains.

Thanks, Ashton.

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Is China Starting to Clean Up its Act?

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

There’s an interesting discussion going on over on Spend Matters about whether or not China is manipulating its currency. Well, I think it’s interesting because I’m participating. I don’t believe pegging a currency to the US dollar meets a normal definition of “currency manipulation.” Your mileage may vary, of course. The discussion can be found in last Friday’s Rant.

One of the other participants brought up the issue of China’s poor environmental standards. That’s true, as has been true of all developing countries. Back in the late 60s, Tokyo was one of the more polluted cities on earth. Traffic police wore oxygen masks. Electronic signs in Ueno and other places posted the CO and CO2 levels in the air. By the mid 80s the place was pristine. No outside pressure was brought to bear. The Japanese just got fed up and fixed the problem. It usually takes some degree of economic development before this starts to happen.

I’ve always hoped the same thing would happen in China. It looks like it’s starting to happen. I’m glad, because China is too big for the environment to continue to accept their volume of pollution. Most importantly, it’s happening because of internal Chinese policies, not foreign pressure. Thomas Friedman has a column in today’s New York Times titled “The New Sputnik“. It’s about Red China becoming Green China. (You can read the opinion for yourself.) Friedman is less than totally optimistic, saying pollution is going to continue in parallel with development with solar and wind industries. He also points out that the US seems to be missing this market and most solar cells are coming from China already.

Dick Locke, Global Procurement Group.

Service Leaders Speak: Ben Scott of The Claro Group on “The Opportunities Provided by The Great Recession”

Today’s post is from Ben Scott, a manager with The Claro Group.

As the country and economy slowly awaken from what some experts have called ‘The Great Recession‘, procurement managers are presented with a unique opportunity to take advantage of the changes to their suppliers’ landscapes. Undoubtedly, many suppliers have felt the pinch from the last few years but yet are beginning to see a light at the end of the tunnel. Nonetheless, as many suppliers look around today, these suppliers notice that the competitive landscape that used to exist has been dramatically altered. Bankruptcies, mergers, acquisitions and continued globalization have played a part in changing the supplier landscape both domestically and internationally. However, now that a turn-around appears to be underway, supply management professionals should review their supplier agreements, research the supplier marketplace and determine what categories are ripe for sourcing.

One such category that has seen its economics change, while being prevalent at many companies, is temporary labor. Over the past two years as unemployment has increased, the temporary labor talent pool has improved proportionally. As a buyer of temporary labor, an increased supply yields two distinct benefits. The first is courtesy of Adam Smith’s invisible hand where supply and demand has depressed wages. The second is that more capable workers are readily available and eager to prove themselves.

Once it is clear that there are benefits to be captured, the supply management professional should determine the most effective sourcing approach. Through a well thought out approach, a supply management professional can capture significant benefits. A supply management professional can choose from techniques such as incumbent negotiation, request for proposal or reverse auction. From recent history we have found that incumbent negotiations coupled with an RFP to gauge the marketplace is a very effective method for capturing savings. Regardless of the sourcing method you choose, keep your eyes on the pay rates and mark ups. Also keep in mind non-price savings mechanisms such as a volume based rebate program. In addition to hard cost savings, the supply management professional can capture more talented temporary help. The cumulative result is paying less on a per hour basis while getting greater efficiency out of the temporary labor that is brought in.

A second category that has become more prevalent over the past few years is corporate cards (“p-cards” or “T&E” cards). Traditionally p-cards were not thought of as a category that was “sourceable”. However, as supply management professionals have searched for additional areas in which to create value for their organizations, p-card negotiations have become more popular. At first glance it seems counterintuitive to think that banks and financial service companies would be willing to “come to the table”, however, our recent experience tells a different story. Banks are looking to rebuild their client portfolio with companies that have a proven track record of earning profits and generating cash. Therefore, if your company has a healthy balance sheet, this is a good time to place your p-card business into a competitive environment. Once again the recession and nascent turnaround has played a role here. The federal government has pumped billions of dollars into the financial system with the instructions to begin lending that cash out to businesses to restart the engines of the economy.

If you believe your company can stand to improve its corporate card agreement, the first step is to begin discussions with your current incumbent. However, often times an incumbent won’t really offer much value until there is the threat, real or perceived, that it stands to lose the business. That is why, unless extraordinary conditions exist, executing a RFx and entertaining bids from other suppliers is recommended.

The two examples used in this article are just the tip of the iceberg. Nearly every supply management professional will have responsibility for categories that have seen dramatic shifts similar to those illustrated here. The first, and arguably the most important, step in capturing savings is to understand the dynamics in the supplier marketplace. Constant monitoring of supplier marketplaces is a best practice that all supply management professionals should practice, but the benefits of such activities can be magnified in times such as these. By staying in tune with changes to your suppliers’ landscape, supply management professionals will be able to act quickly when opportunities such as these present themselves.

Thanks, Ben.

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New and Upcoming Events from the #1 Supply Chain Resource Site

The Sourcing Innovation Resource Site, always immediately accessible from the link under the “Free Resources” section of the sidebar, continues to add new content on a weekly, and often daily, basis — and it will continue to do so.

The following is a short selection of upcoming webinars and events that you might want to check out in the coming weeks:

Date & Time Webcast

14:00 GMT-04:00/AST/EDT

The 18th Annual Masters of Logistics

Sponsor: CRST International


11:00 GMT-07:00/MST/PDT

Effective and Efficient Contracting Processes for Complex Sourcing Transactions

Sponsor: SIG


14:00 GMT-04:00/AST/EDT

What Makes a Supply Chain Leader?

Sponsor: SCMR


11:00 GMT-04:00/AST/EDT

BPO Index Webcast

Sponsor: Nelson Hall


9:00 GMT-04:00/AST/EDT

Supply Chain Excellence (SCE) for ERP

Sponsor: SCC


1:00 GMT-04:00/AST/EDT

Tackling Services Spend: The Next Frontier of Cost Savings

Sponsor: Fieldglass

Dates Roundtable Sponsor
2009-Oct-4 to


CAPS Best Practices Workshop

Scottsdale, AZ, USA (North-America)

2009-Oct-12 to


Roundtable in the High Desert

Tucson, Arizona, USA (North-America)

Expansion Management
2009-Oct-12 to


Supply Chain Planning & Forecasting Conference w/ Executive Forum

Lake Buena Vista, Florida, USA (North-America)

2009-Oct-14 to


Procurement Leaders Forum

Amsterdam, North Holland, Netherlands (Europe)

Procurement Leaders
2009-Oct-30 to


Gaining a Voice in the Boardroom

Oak Brook, Illinois, USA (North-America)

Best Practices Xchange

They are all readily searchable from the comprehensive Site-Search page. So don’t forget to review the resource site on a weekly basis. You just might find what you didn’t even know you were looking for!

And continue to keep a sharp eye out for new additions!