Monthly Archives: November 2014

Key Priorities for Ethical Supply Chains – An Interesting Study

Software Advice, a software review company which covers the supply chain management space, recently posted the results of its Key Priorities for Ethical Supply Chains Industry View 2014 that discussed the results of two surveys distributed to over 1,100 consumers. The findings are interesting, generally indicative of the current state of affairs, but, as far as SI is concerned, specifically off, though not due to any fault of Software Advice or the methodology employed by the researcher. What do we mean? Read on.

In the first survey, the group of over 1,100 consumers was split into three and each group of consumers was asked how much more they would pay for a product, normally priced at $100, that was produced more ethically with respect to one of three ethical initiatives: ethically sourced materials, carbon emission offset, and good working conditions. The first group said they’d pay an average of $18.50 more if the raw materials were ethically sourced, the second group said they’d pay an average of $19.70 more if the product had its carbon emissions offset, and the third group said they’d pay as much as $27.60 more if the product was made by workers working in good working conditions. A deeper dive revealed that 35% of consumers would not pay a penny more for products made under these ethical initiatives. And while the second finding does not surprise the doctor, he does not believe the first finding in its entirety. But more on that later.

In the second survey, the respondents were asked which of the three broad ethical initiatives would make them more likely to purchase a company’s products: working conditions, reduced environmental impact, or community involvement. The results were more-or-less evenly split. This does no surprise the doctor either.

So why doesn’t the doctor believe the average consumer would pay considerably more (an average of 21.93% if the above survey is to be believed) for an ethically sourced product? Three reasons.

  1. In the vast majority of verticals, it is not the most socially responsible company that is the market leader.
  2. Fly Research’s recent survey, which attempted to determine what factors are really important to consumers in their purchasing decision, found that only 9% of UK and 16% of US consumers rank “ethical company/brand” in their top 3 attributes but the vast majority are more concerned with value for money (86%), price (76%), and quality (73%). (See SI’s recent post on Do As I Say, Don’t Do As I Do!
  3. The study did not take into account the inherent bias of the consumer. As a result of recent disasters and media storms — including the fire in Bangladesh, the BP oil spill, and underground sweatshops in Russia — not only is corporate ethics and supply chain sustainability on the mind of many caring consumers, but it is stirring up their emotions. And an emotional subject is not an unbiased one. While a consumer might try her best to be unbiased when responding to a survey, when all of the questions stir emotional responses, her responses are going to be skewed relative to what they would be compared to the situation where only a small portion of the survey contains questions or answers that stir emotions. So had these been just three factors in a pool of ten or more that she is asked to consider when defining what is most important to her when selecting a product for purchase, and the other seven plus do not stir any emotion, she will be able to better balance her emotion with her objectivity. And this is why when you compare the results of this survey with the Fly Research study, you find a discrepancy (that cannot be easily accounted for unless there is emotional bias in the consumer responding to the surveys). How else do you explain that a third of consumers expressed a wilingness to pay over 10% more (and up to 100% more) while another third expressed a willingness to pay up to 10% more when the Fly Research study found that less than 43% would pay more than 5% extra and the percentage of respondents who would pay more than 5% declined much faster than the percentage of respondents in the Software Advice Study.

In other words, consumers are starting to care, aren’t necessarily sure which issue they care about the most, will definitely choose a socially responsible product over one that is not socially responsible if all things are equal, but if the cost differential is too high, the average consumer will not be swayed to a more socially responsible product, despite their desire for social responsibility. So while the issues are likely spot on, the relative worth to the average consumer is still in question.

However, in addition to confirming our suspicions that there is no high level issue with respect to social and environmental responsibility that is considerably more important than the others, the study did reveal that if you drill down, there are some specific issues that concern consumers more than others. For example, where environmental responsibility is concerned, more consumers care about reduced water use and biodegradable packaging than reduced carbon emissions. Where community involvement is concerned, 43% believe that the best thing a company can do is to open a factory where jobs are needed (and not outsource to another country). And where working conditions are concerned, 45% believe workers should be paid a fair wage. This gives you starting points in your CSR efforts that will earn you brownie points and increase your brand’s reputation if appropriate initiatives are undertaken. It will be interesting to see how these trend over the coming year.

It’s Illegal to Burn Money, But Yet Your Organization Does It Every Day! (So Find Out How to Do Something About It!)

Title 18, Section 33 of the United States Code says you shall not mutilate, cut, disfigure, perforate, unite or cement together, or do any other thing to any bank bill, draft, note, or other evidence of debt issued by any national banking association, Federal Reserve Bank, or Federal Reserve System, with intent to render such item(s) unfit to be reissued and if you do, you can be fined or imprisoned for up to 6 months. But yet, every day, organizations everywhere collectively flush billions of dollars down the drain, overpaying suppliers, including foreign suppliers, millions of dollars that can not be recovered and reissued by the organization for other business purposes.

If it wasn’t for the fact that the vast majority of these organizations don’t intend to overpay and waste money, since this money (and evidence of debt) flows through the American banking system, I would otherwise be inclined to argue that, technically, this gross incompetence in management of corporate funds is criminal.

For proof that the average organization wastes money, we simply have to look to the audit recovery industry which recovers, on average 1% to 1.5% of annual spend. And, typically, this is just what they can find with a quick, mostly manual, review of the top n suppliers that account for 2/3rds (66%) to 3/4ths (75%) of external organizational spend using a very loose interpretation of the 80/20 rule. And that’s just overspend. What about spend that should never of happened in the first place (because it was off-contract and 15% higher than contracted rates)? Or unrecoverable losses due to a key supplier not having mandatory insurance policies in place? Or gross violations of the T&E (Travel & Expense) policy (that border on criminal malfeasance) where the VP of Sales decides that a dinner costing 2K / head at the local strip club is a valid use of the organization’s P-Card?

But most of these situations are easily preventable by a Procurement system that is designed to not only enforce compliance, but make it easy. To find out how, check out Sourcing Innovation’s New White Paper on The Procurement Marketplace and the Power of Compliance (registration), sponsored by Vinimaya.

Procurement Trend #18. Improved Supply Management Skill Set

Fifteen anti-trends still remain but today we can take solace in the fact that we have finally finished with the “old news” anti-trends and have reached the “ongoing” blues anti-trends. While these anti-trends are still “old news”, most are only a few decades old, as opposed to some of the earlier trends we debunked which described situations encountered by many business centuries ago (which is when globalization really began).

So why do the modern historians continue to peg an improved supply management skill set as a future trend? Maybe it’s because they’ve only recently been expelled from an old-school Procurement organization into this brave new world, and this is as far as they’ve made it in their readings, but three likely reasons are:

  • technology is progressing rapidly

    and much faster than the average person can be reasonably expected to keep up with

  • the breadth of supply management continues to expand

    and new categories and responsibilities are often added to Supply Management’s (shared) purview on a regular basis

  • processes aren’t keeping up

    and Supply Managers are getting buried under an avalanche of tactical demands

So what does this mean?

Rapid Technology Progression

Your organization, and in particular, your talent, needs to keep up. Regular training is going to be required for your talent, and thus your organization to keep up. You will have to fight for this though, because despite the fact that it has been among the top three or top five concerns of most CPOs and CXOs for the past five years, the training budget is always the first budget to get cut.

Expanding Supply Management Breadth

This is a good thing, but you your Supply Management organization needs to keep up, not fall behind. The tech progression is a good starting point, the training is a good continuation, but you need to also learn other areas of the business – their language, processes, and goals so that you can collaborate with them, learn their wisdom, and, if possible, share the workload.

Processes Need to Move Out of the Past

Processes need to continually progress forward — that’s why SI is all about Transition management and not just focussed on the classic people-product-technology triangle (as it’s actually talent-technology-transition management). You will have to conduct process reviews not only on all Procurement processes, but on all related operational processes to determine if they can be made more efficient, reliable, or better, identify what new processes would look like, determine if the current technology platforms can support these new processes or if new platforms are needed, and create, and then execute on, appropriate transition plans.

Procurement Trend #19. Service Providers Excel

Sixteen anti-trends still remain but we again assure you that we are getting to the end of the series and all is ok as LOLCat is still dreaming of his grandfather’s adventures as an archaeologist cat uncovering lost tombs, and waiting for this series that is regurgitating topics of his past lives to fade into history. We will continue to lay bare each and every one of the futurists’ lies, and when we’re done, you’ll be in a better position to learn the truth and seize upon the real trends that lie ahead and the opportunities they contain.

So why do the historians keep pegging service providers excelling as a future trend? Have they spent too much time in the janitors’ closets breathing paint fumes from improperly sealed paint cans while practicing their speeches that no one really wants to hear? Hard to say, but some of the reasons probably include:

  • Outsourced Services are still improving

    in both traditional Business Processing Outsourcing (BPO) and non-traditional service sectors.

  • Service Providers are mastering tech faster than their clients

    and often get a lot more experience with a platform in a shorter time frame as they are running projects for multiple clients on that platform.

  • Everything is going out

    because overpriced overly-optimistic consultants have strapped themselves to the outsourcing bandwagon in an effort to make sure that they never fall off.

So what does this mean?

Outsourced Services

Service Providers can often do things better than you, but if they do, you need to adapt or lose control. You don’t want to lose control, because one of your jobs is Supplier Relationship Management. However, at some point during the adaptation, you will, if you are doing it right, become better at managing the process than the outsourced provider, but you will still be locked into a multi-year service agreement. So you will have to transition from learning through managing through teaching. And once the service providers masters your teachings, as they will have more opportunity to practice and perfect, they will again get better than you and the cycle of the student becoming the master and the master becoming the student will continue.

Technology Progression in the Outside World

While this is one of the reasons that service providers outpace you, this is a great learning opportunity for you. Most companies don’t pick the right technology the first time around — and instead implement expensive systems in even more expensive projects that turn out to be massive failures. Then they learn from their mistakes, implement the right technology, and provide you a free lesson on what works if your processes match theirs if you choose to seek it out and learn from it.

Out, Out, and Away

Because your managers are still living two decades in the past where cost reduction was defined as outsourcing, you can, unfortunately, expect more pressure in the organization to not only outsource your tactical work, but to outsource as much tactical work for other departments in the organization as can possibly be outsourced. So you need to either prepare for this, or build the business case as to why the work should stay in and how keeping it in house will either deliver savings or add value.