Monthly Archives: June 2013

Is Your Supply Management Ethical?

Corporate Social Responsibility (CSR) and Corporate Ethics are becoming more important by the day. Just ask BP, the Gap, Chick Fillet, and Monsanto, who have all had to deal with Boycotts in recent years (for oil spills, supply chain factory fires resulting in worker death, stance on gay rights, and genetically modified food). You don’t want to get caught in the cross hairs of an organized activist group like PETA, GreenPeace, or Anonymous.

It only takes one slip up somewhere in your supply chain to become the target of globally organized boycott. Thus, you need to take a step back and ask if your supply management is ethical.

A code of Supply Management conduct, as described in The Procurement Game Plan, is a good start, but it’s not enough. You also need a supplier code of conduct, and you need to insure that not only do your suppliers honour the code of conduct they agree to, but themselves have a code of conduct for their suppliers. The buck stops with you, so you are responsible for making sure the buck is spent ethically. Turning down free World Cup tickets from a potential supplier is a good start, but making sure the supplier adopts a code of conduct that prohibits them from even offering such a wasteful, lavish gift in the first place is better — especially if that money is redirected to safety improvements and community programs for its workers.

Supply Management Ethics provide the foundation for CSR, so it’s important that your organization get them right. One of the experts on this topic is Stephen Guth, Chief Corporate Counsel and VP Vendor Operations for the National Rural Electric Cooperative Association and author of The Contract Negotiation Handbook, The Vendor Management Office, Hotel Contract Negotiation Tips, Tricks, and Traps, Project Procurement Management, and a set of free Procurement Contract Templates. This fall, Stephen is going to be giving a session on Building a Strong Foundation with Supply Management Ethics at the NLPA Conference where he will go beyond the usual horror stories of supply management professionals in jail jumpsuits and look at supply management ethics through the eyes of a forensic auditor. In this session, you will go beyond the process of learning how to put a code of conduct together and learn what investigators look for, who is most likely to violate supply management ethics, and why. You’ll learn how to identify potential problems and violators before they occur.

If you haven’t already, consider registering for the NLPA Conference today.

Who Is Your Vendor Really Working For?

SI has done a lot of posts on how to identify the right e-Sourcing/e-Procurement/e-Supply Chain vendor, over the years, but one question that is often overlooked, or left unstated, is “who is your vendor really working for“. You might expect, based upon their marketing and their business, that they are working for their customers who are paying them, but is this always the case?

To answer this question, we need to go back to the basics of how businesses are structured and funded.

A business is either public or private. A public business is funded entirely by revenue and has its performance judged by Shareholders and Wall Street. A private business is eventually funded by revenue but initially funded either by founders, third-party angels and/or VCs, or a private equity group. There are other business structures and funding arrangements, but these are the most common in our space. Let’s consider each of these.

Public

A public company will make an effort to work for you, but only so far as it does not hurt their Wall Street rating and does not cause the Shareholders to ask questions. They live and die by the stock price, so if the stock price falls, they will typically have to react by way of layoffs to meet whatever earnings number Wall Street has dictated, and probably layoff your account manager and the developer who was committed to your upgrades in the process. They work for you only so far as it doesn’t hurt them in the eyes of Wall Street which typically does not have the long term view you need as a Supply Manager. And while you’ll never get fired for buying from a big public company, you won’t be important to them, unless you’re a Fortune 100 and bringing them > 10% of their business. (And even then, you’re only important until they land someone bigger.)

Private – Angel & VC

Like a public company, a private company controlled by third party investors will make an effort to work for you, but only so far as it meets the objectives of the Angel and/or Venture Capitalists who are driving the board towards whatever vision for the company they believe will make them the most amount of money in the shortest time possible. And since Angels and Venture Capitalists are ultimately only concerned with the balance of their bank account, that vision will be whatever is sexy and likely to support a quick initial public offering (so they can get their return). If that means getting as many new customers in a year as possible to allow for a quick public exit, then all of the money and efforts will be directed towards sales and marketing and customer support and incremental product development and improvement will be an afterthought, if it is even given a thought at all!

Private – Founder Funded

A private company controlled by a founder, or a small group of founders, will be focussed on the objectives of the founder(s). If the goal of the founder(s) is to make money and grow the business organically, the company will have a razor-sharp focus on meeting each and every customer need that the customer is willing to pay for. If the focus of the founder(s) is to get Angel & VC funding as part of an ultimate goal to get the company to an initial public offering, because the founder(s) are vain and more concerned with public image and sex factor than quiet success, the company will work for you only so far as the founders feel it won’t make the company less attractive to the Angels & VCs that can help to take them public.

Private – Private Equity Group

A private company controlled by a private equity group will be razor-sharp focussed on the needs of the customer. Private Equity Groups exist to make money — and while they may sometimes take a company public, this is not their ultimate goal. They take a company public only when the opportunity is right and they’ve reached the point where they believe they can’t make more money growing the company organically over the long term. Generally speaking, private companies controlled by private equity groups will be boring as hell compared to the sexy companies driven by venture capitalists, but they will be the only companies that make you feel like you are the center of the business world, because, in the end, they need your money to pay the bills and keep the lights on. It’s their model, and the one model where you are always the center of attention.

So don’t forget to ask yourself “who is this vendor really working for” before signing on the dotted line. They won’t tell you (the truth), but if you look at their ownership structure (and the frequency of their press releases), you can figure it out.

As a final note, if you are still seeking spherical supply solutions (Part I, Part II, and Part III), you should take another look at the EU Supply Management software providers. Not only do they have more experience in international implementations, but most of their companies are controlled by private equity groups where as most of the North American companies are either funded by Angels and VCs or part of big public companies.

CPG: China Packaged Goods

It used to be just “Made in China”. Now it’s also “Shipped From China” and “Shipped to China”. No matter how you look at it, China’s almost always in the equation.

What is SI talking about? In addition to being the primary outsourcing destination for many North American & European MultiNational Organizations, and one of the biggest manufacturers in the world in many areas of CPG, China is now a major driving force behind the global shipping industry. As per this recent article over on the Economist on China’s Foreign Ports, China has a significant influence over sixteen (16) major ports all over the world.

In addition to the major ports of:

  • Shanghai
  • Hong Kong / Shenzhen

China also has a (mainland) stake in:

  • Singapore
  • Djibouti
  • Chittagong (India)
  • Kyaukpyu (Myanmar)
  • Hambantota (Sri Lanka)
  • Colombo (Sri Lanka)
  • Gwadar (Pakistan)
  • Karachi (Pakistan)
  • Tin Can (Nigeria)
  • Lome (Togo)
  • Piraeus (Greece)
  • Antwerp/Zeebrugge (Belgium)
  • Seattle (USA)
  • Los Angeles (USA)

Thus, in addition to being the world’s largest exporter and second-largest importer, in addition to controlling a fifth of the world’s container fleet through giant state-owned lines, and in addition to building 41% of the ships built in 2012, it’s going to control a significant percentage of the global shipping routes. Moreover, in addition to the mainland China stake in the above ports, privately owned conglomerates in China and Hong Kong – including Hutchison Whampoa, China Merchants Holdings, and China Shipping Terminal, are also buying stakes in global ports. These firms also own stakes in Suez, Terminal Link, and a forthcoming port in Tanzania.

In other words, at the end of the day, China will have a stake in every step of the global (Consumer Purchased Goods) supply chain. It will supply at least some of the raw materials (as it controls some global markets, such as rare earth metals where close to 90% come from China), make some of the parts, assemble one or more subcomponents, ship it from a port it controls, on a ship it built, to a port it controls — where the goods will be unloaded using equipment where components came from China, put on a truck where the steel came from China, and delivered to the store where a China Conglomerate owns a minority stake. We might as well just accept the reality and form the Alliance today. Why wait?

Twenty Five Years Ago, Nippon Made Air Travel Safer … For Birds!

Twenty five years ago today, Nippon Airways announced that it gave birds everywhere the clear message that jet planes taste bad. In an industry where birds caused over half a million dollars worth of damage to airplanes in 1985, Nippon Airways managed to come up with an innovative, cheap solution to keep birds away from its planes. They painted eyespots on the rotating fans of their jet engines.

An eyespot is an eye-like marking found on butterflies, moths, and certain other insects that taste bad to birds. After they painted the eyespots on their jet engines, in the following year, only one bird struck one of their engines. Nippon later announced that the eyespots cut mid-air bird collisions by 20%! Sometimes innovation is easier, and cheaper, than you think!


Engine Eyespot

Supply Chain Resiliency: More than Supplier Management!

We have a thorough supplier (performance) management program in place — all of our strategic suppliers are appropriately managed and monitored. We don’t have to worry about unexpected bankruptcies, lapses in quality, or shipment delays.

Falser words could not be spoken!

Just because your suppliers are well managed and not likely to be a source of risk unless an external event causes one or more of those suppliers to shutdown or become inaccessible, that doesn’t mean your supplier’s supplier is managed! According to the BCI 2012 Supply Chain Resilience Survey, 39% of analyzed disruptions originated below the immediate tier-one supplier! In other words, the best (tier one) supplier management program in the world is only going to mitigate 60% of supplier-based risks that can be mitigated! Given that, depending on the study, somewhere between 73% and 85% of companies experienced at least one disruption last year (with the average survey respondent experiencing an average of 5), and that 21% of companies suffered disruptions that cost more than 1 Million Euros, can you really rely on your world-class supplier (performance) management program?

So how do you identify and assess sub-tier risks? We’ll get to that in a series of posts on supply chain visibility that will begin this summer, but if you want a leg up on your competition, I would suggest that you strongly consider the forthcoming webinar on Assessing Sub-tier Risks by Resilinc, who will be doing a deep dive into a proper process, the benefits it will produce for your organization, and the high cost of doing nothing in today’s global economy.

You can Register for the webinar, which will take place on June 19, 2013 @ 11am PDT / @ 3 pm EDT, at your earliest opportunity.