Daily Archives: July 5, 2011

Five Misconceptions That Increase the Likelihood of FCPA Violations

Not too long ago, Supply & Demand Chain ran a great article on 10 misconceptions that increase the likelihood of FCPA violations that every supply management organization involved in international business should review. The following five misconceptions in particular are dangerous to your average organization.

  • We are a private company so we don’t have to be concerned with the FCPA
    Government enforcement agencies will go after any company that they believe may have committed a FCPA violation. Given that a company can be criminally fined up to 2 Million per violation, it’s a safe bet that every whiff of a FCPA violation will be investigated.
  • Our employees know our position on ethics because our policies spell it out.
    Just because the organization has an employee manual, this doesn’t mean that the majority of the employees have read it. Or that they remember the policy. Or that they believe it has to be followed.
  • As long as employees and agents have certified that they have not paid bribes, we have done enough.
    A cursory certification will not hold up as a defensible position when a company needs to explain to regulators the actions taken to prevent bribery payments.
  • Our global whistleblower hotline is effective because no violations have been reported to date.
    Fewer than 3% of misconduct reports occur through a whistleblower hotline.
  • Since we don’t have a controlling interest in our overseas business partnership, we have no need or authority to extend our compliance program and policies.
    As the article notes, a company must protect themselves by ensuring that joint venture partners are conducting business in accordance with FCPA and local corruption laws, regardless of ongoing control.

Don’t get caught in violation of the Foreign Corrupt Practices Act. Make sure compliance and mitigation efforts are in place at all times.

Six Key Lessons for Sustainable Supply Management

A recent article over on the CPO Agenda on Platforms for Growth that discussed the challenges for Supply Management involved in procuring goods and services for decommissioning oil rigs had some great lessons for Supply Management professionals involved in projects in new or emerging areas of spend. While cost control is important, it’s even more important that Supply Management prevent their organization from becoming the subject of media headlines — as this is never a good thing. Plus, early approaches to category strategy can set a pattern within an organization and even drive market structures across the industry that, once established, become difficult to change. Thus, it’s important to get spending in new categories right.

Think Strategy
Supply Management needs to be a part of all of the strategic decisions of the organization as true commercial advantage can only be obtained if Supply Management is involved early enough in projects to influence raw material and service requirements. Not only does the design stage lock in up to 80% of the cost, but it can lock in up to 100% of the market risk. If the design locks in a raw material in tight supply as necessary, such as tantalum, instead of a more available material, such as aluminum (for capacitors), and unrest along the African coast suddenly makes 15% of the global supply unavailable, the organization will be in for a major price shock.

Influence the Plan
Not only does Supply Management need to be involved in all strategic decisions, but it has to come to the table with a good understanding of potential scenarios and a plan in mind. If, by working with marketing and external market research agencies, it understands that sales will be maximized at a certain price point, it can ensure that the selected design can be profitably produced for that price point.

Go for Global Category Scale
Even if the product must be customized for different regions, Supply Management should still attempt to aggregate global demand and award it to a small number of suppliers who are capable of producing variants for the global market to take advantage of economies of scale.

Build the Desired Marketplace
If the product or service being designed is (relatively) new, then Supply Management might be buying from an immature market. In this situation, the organization has the ability to influence market development, which occurs quickly once demand exceeds a critical mass. If Supply Management implements a category strategy that meets the objective of the organization, and it is the first major player in the market, the market will likely mould itself to that need. If the market strategy is low-cost, then the suppliers will focus on no-frill production and delivery. If the market strategy is the full service experience, suppliers will focus on creating end-to-end value added services. If the focus is on being the epitome of cool, then suppliers will focus on creating the most stylish and sleek product they can, with a price tag to match.

Do Your Homework
Market intelligence is the lifeblood of effective category management and the best way to influence the strategy, plan, and marketplace. Even if the organization does not agree with the proposed category strategy, it’s much harder to refute facts than opinions. Plus, it’s much harder for a supplier to exploit the organization in negotiations if Supply Management goes in armed with full knowledge about the current market state.

Examine New Buying (Structure) Options
Don’t limit your options to the current organizational buying strategy. Consider in-house, industry buying groups, vertical integration and even the creation of a Global Business Services organization. New markets sometimes offer new opportunities for doing things different. Take advantage of this.