Monthly Archives: February 2015

Supplier Risk: The Tip of the Iceberg

Today’s guest post is from Nick Ford, Director of Customer Service & Delivery, EMEA, Xchanging (which also owns MM4 and Spikes Cavell and which has built up a fairly extensive S2P suite over the past couple of years).

Titanic, the ship not the film, has more in common with your business than you probably realise. Both are massive entities, run by people with years of experience, moving full steam ahead, in a sea of risk, assuming that they’ll be able to see and manoeuvre around any danger that presents itself. The problem, with both your business and Titanic, is the unseen danger — the risks below the surface. Titanic, as we all know, was taken down by an iceberg — sliced open along the hull by the ice beneath the surface of the ocean. If your business isn’t careful, the same thing could happen. I’m talking about supplier risk.

Supplier risk is an iceberg. The tip of the iceberg, that visible 10%, is the financial risk. A supplier’s financial performance is well documented and publicly available. It’s easy to understand their financial position, to monitor their reports and turnover and make an assessment on their viability. Traditionally, this has been the primary way organisations have measured supplier risk but it’s not the whole picture. Underneath the surface lies an absolute plethora of ‘other’ risks that need to be monitored and measured — just like an iceberg — and, just like and iceberg they have the potential to sink your business.

There are three main categories of supplier risk: financial, supply chain and corporate social responsibility — and then there are multiple tiers within each of those categories, across multiple dimensions. It’s those multiple levels, as you move further and further down the supply chain, where the bulk of risk sits. When you consider executive changes, geographical risks, political risks, disaster planning, and stress testing, to name just a few factors, you begin to see supplier risk as an enormous subject.

What some of the more progressive organisations are doing now, is looking at the next 4 or 5 levels of supplier risk. They’re doing this via a structured process in order to understand what their true supplier risk profiles are and to be able to measure and monitor them on a quarterly basis. Procurement should be about managing risk proactively rather than just protecting the suppliers and services that come into your organisation.

Currently, however, most organisations aren’t doing a sufficient amount of supplier risk management, they’re just doing the basics. What’s happening in procurement departments is they are doing what is appropriate to the risk appetite of the organisation. If there’s a very strong appetite within the organisation to manage operational risk, then you’ll tend to find that risk is also higher up the agenda for the CPO or Procurement Director. It’s very high on the agenda in financial services and the oil and gas industry for example, less so in retail and manufacturing. Supplier risk management is reactive at the moment, but I think that will change over the next 5-10 years. It has to.

Along with increased appetite for risk, I think there will be a lot more investment in technology in this area over the next 5-10 years. There’s been a lot of investment in the area of supplier relationship management over the past few years. Going forward, I can see those tools extending dramatically into the risk area. There will be a proliferation of supply risk management tools that come onto the market which bring together the more basic areas of risk, like financial performance and revenue, with all of these other, deeper areas of risk, creating a dashboard that allows you to see your complete risk position — the whole iceberg — at any point in time. Currently, outside of the oil and gas sector, there isn’t really a demand for this type of tool but as risk moves up the procurement agenda, CPOs will reach a point where they’ll need this level of in-depth supplier visibility.

You can find very good data now on the financial risk of suppliers. Executive changes, stock holding changes and financial performance, are all public knowledge and very binary — you either have it or you don’t. The tip of the iceberg is pretty much under control for most procurement departments. When you move below the surface and begin to look at the more strategic and proactive areas of supplier risk, that’s where organisations are currently leaving themselves open to damage. Effective risk management requires creativity. It means stress-testing your supply chain, assessing your suppliers’ suppliers, executing scenario and what-if planning. Unfortunately, it will probably take a few disasters to truly move risk higher up the corporate agenda — it took the sinking of the Titanic to make supplying enough lifeboats for everyone on board law — but if procurement wants to be seen as a strategic function, they’ll need to start addressing the rest of the iceberg.

CPO: Are You Ready to get Mean and Lean to the Power of Six!

Do you think that Lean is just for Manufacturing and Six Sigma is just for manufacturing process improvement? That it’s only relevant if you are making automobiles (like Toyota) or consumer electronics (like FoxConn)? If so, then maybe you need to get out of the eighties and back to the future (no flux capacitor needed). (After all, remember what happened to That Guy?)

Because the reality is that lean and six sigma is not just for all types of manufacturing processes, but operational processes in general, including supply chain — and supply management — processes. The whole point of six sigma is to improve the process in a way that reduces defects and errors. And when it comes to savings, the best savings are process savings as those recur year over year over year while negotiated savings are one-time and generally not repeatable (as inflation and continued depletion of natural resources generally ensures that production costs rise every year and that costs will go back up).

And, most importantly, the core DMAIC process of Six Sigma, where DMAIC stands for Define, Measure, Analyze, Improve, and Control, is easily adapted to Supply Management as the doctor and the maverick point out in our new series on The CPO’s Guide to Lean and Six Sigma airing over at the new Chief Procurement Officer where we are collaborating on a number of ground-breaking series over the next few months. These series, which include a massive 20-part series on The CPO’s Agenda, an upcoming series on tearing apart the CPO job description, and a deep dive into spend control, will go beyond the news and high-level puff pieces proffered up by other sites that care about your clicks more than your success to give you the information you need to succeed as a new (candidate for the) CPO (role).

So click on over to the The CPO’s Guide to Lean and Six Sigma and find out why you can use DMAIC 2.0 to Blow Up the N-step Procurement Process and find value that you never knew existing in your supply management processes. The bottom line (and even the CFO) will thank you for it.

Shubenacadie Sam, For Your Own Good, Stay in Hiding!

Two weeks ago, we told Shubenacadie Sam to be afraid because LOLCat was waiting to have a few choice words with him.

Let’s just say LOLCats across the province, who are still trying to find his hidey-hole, are still not very pleased with Shubenacadie Sam. Case in point:


While most of Atlantic Canada has not reached record setting levels of snowfall yet (unlike Halifax’s good friend Boston), LOLCats across the Atlantic Provinces are having to dig their way out of the house like poor Rudiger (and they are not happy about it).

Nova Scotia is the Greatest Nearshore Location of All and Halifax is Still the Best Place to Do International Business in North America

And if you haven’t caught on to this profitable little secret yet, you should!

What is the doctor referring to?

Way back (but no so far back that one requires the wayback machine) in the beginning, the doctor penned a post informing you that the best place to do international business in Canada is Halifax, Nova Scotia (which he remind you of six years later). The reasons for this were many and included (compared to other major Canadian cities) low operating cost, low cost of living index, low crime rate, low unemployment, an award winning international airport, the Port of Halifax, a perfect time-zone (4 hours ahead of Los Angeles and 4 hours behind London), a lot of culture, even more education, and a plethora of leading and innovating companies to help you get to where you want to go. Moreover, a study a few years ago found that Halifax offers a company the cheapest headquarters location in North America in addition to all of these other benefits (with an average cost 8% below the US low point in the Indianapolis-Carmel-Fishers area and 30% less than one of the the US high points in New York City).

But now it seems that the secret is coming out of the bag, as per this recent post over on the industry leading outsourcing blog Horses for Sources (HfS) that recently publicized that Nova Scotia is the greatest nearshore location of all. (Which means that you’re running out of time to act ahead of your peers and take advantage of all of Halifax has to offer at incredible savings that will go straight to your company’s bottom line.)

According to HfS’ post, Halifax, which exists in a region with 10 universities and 13 community college campuses producing over 10,000 graduates a year, presents a great opportunity for outsourced IT and BPO services (and that’s why IBM hosts its service centre, specializing in data analytics, in Halifax). (And despite the comment, you don’t need a canoe to get around. We have a good transportation infrastructure, but you can keep the canoe if you really want to.)

For cost reductions and efficiency improvements across the board, maybe you should look to the North.

Infographics 101

There are a lot of different ideas out there on what makes a good infographic. However, regardless of what philosophy you ascribe too, there are a few key points that should always be kept in mind if the goal of the infographic is to sell something.

1) Focus on the core points you want to make

The goal of an inforgraphic is to distill a significant amount of information into a simple visual that allows the viewer to quickly understand your intent and the key takeaway of your message without having to do a lot of reading.

2) Include distinctive information

If the goal of the infographic is to convince the reader that the idea or solution being sold is better than the alternative, then make sure the infographic calls out whatever is distinctive about your idea or solution. Otherwise, why should a viewer give it a second chance?

3) Make it clear to a reader of average education

If one looks at the 2009 Census Data, 85% of adults in the United States have at least a high school diploma or GED and 28% have at least a bachelor’s degree, 32% have an associates degree and approximately 60% have 1 or more years of college education without a degree. This says that if the goal is the population at large, you at least want it understandable by someone with only some college, and if the target audience is a professional in the workplace, you may not be safe in assuming your audience will have at least an associate’s degree, depending on the type of professional you are seeking. (If you are targeting doctors, lawyers, engineers, scientists, etc., then you can probably safely assume at least an associate’s degree, but if you are targeting sales, marketing, procurement or operations personnel, where a decade in the trenches is often more valuable than a degree at many companies, you may not be able to make such an assumption.)

In addition to these key points, Sourcing Innovation would also argue that, if you are trying to sell something, then an organization should be careful that they

4) Do Not Oversell the Idea or the Solution

Case in point, here in the great white north, Nova Scotia Business Inc. just released an infographic trying to promote our 360-degree defence and military expertise and our unique ability to support research and development for land, air, and sea projects — being home to 40% of all Canada’s military assets, 65 boat building yards and 26 regional ports (including the Port of Halifax which is situated in the second largest natural harbour in the world and capable of expanding to handle more capacity than any East Coast port if the demand is there), and over 80 defence and aerospace firms including 6 of the top industry leaders.

All of this is true, and Halifax offers, in not just Sourcing Innovation’s view*, an average company the greatest logistics potential of any city in North America right now (especially with CN putting in direct lines to a number of North East and Central US distribution hubs with transit times of only 2 to 3 days) as well as the greatest potential for building new commercial and defence products that capitalize on our world leading expertise in sonar, hydrodynamics, and navigation technology. However, instead of focussing on the huge, untapped potential sitting in the Halifax Regional Municipality (HRM) right now, Nova Scotia Business Inc. in their latest infographic decided to focus front-and-center on the fact that our defence sector generates $1.5 Billion a Year in revenue. So what? The GDP of Canada is about 1.8 Trillion. This means our defence sector contributes less than a paltry 0.1% to the economy from a GDP perspective while the GTA (Greater Toronto Area) area across all sectors contributes about 20% of Canada’s GDP which means that, using industry averages**, it’s defence sector contributes at least 1.2% of Canada’s GDP. In other words, not only would the GTA defence sector contribution break into the full percentile range, but it would be more than ten times Halifax’s contribution. In this light, the HRM looks pretty shoddy, even though it likely represents the greatest potential in all of North America for may of your Supply Chain projects. There’s a reason that Horses for Sources just called Nova Scotia the greatest nearshore location of all.

* More in our next post!

** Overall defence sector in Canada accounts for about 6% of GDP as per a recent AIAC study.