Category Archives: Best Practices

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.

Avoid The Transformation Traps

You’ve been reading SI and after the considerable amount of discussion around Next Generation Supply Management that has taken place since January, you know your organization needs a transformation to get to the next level. Operational excellence isn’t enough — it’s all about strategic business enablement. Moving from tactical cost cutting to sustainable value generation. A long term vision that elevates Supply Management to the center of the business.

However, transformations are easier said then done. Getting it right is a journey, as compared to getting it wrong, which often only requires a single misstep. That’s why SI was pleased with this recent white paper form Wipro that summarized “the top three reasons supply chain transformations fail”. While not a how-to guide, it did point out the most common gotchas that an organization needs to keep an eye out for.

The Leading Practices Trap
While the organization will need to implement, and execute on, leading practices on a daily basis if it wants to be a world class Supply Management organization, it will not be able to go from 0 to 60 without passing through every speed in between, and it will not be able to adopt a competitor’s practices as is. Some processes will have to be adapted gradually. For example, trying to move from landed-cost to value-generation models might be too big of a step for an organization used to making buying decisions from landed cost. The organization might have to move to simple TCO models supported by an optimization solution with expressive bidding and get the stakeholders comfortable with this level of analysis first. Only when an organization understands that lowest landed cost does not equal lowest ownership cost will they be ready to accept that lowest (ownership) cost is not necessarily the best value. In addition, just because JIT inventory management works for the organization’s biggest competitor, this doesn’t mean it’s the right solution for the organization. If the organization uses a more time-intensive manufacturing process than the competition, or is subject to more unpredictability in sales, then the organization might need to maintain buffer stock to insure demand is met and profitable revenue levels are preserved.

The Technology Big Bang
While the organization will need to implement advanced supply chain technologies that automate processes, improve planning accuracy, streamline execution, expand visibility, and transform information into knowledge, an attempt to implement such systems simultaneously across the board is just asking for disaster. Just ask FoxMeyer. Oh wait, you can’t. A failed big-bang roll-out of a new ERP bankrupted the company. All that’s left is a case study (that used to be on SpringerLink). The implementation of new systems must be staged, well-planned, and rolled out in a controlled manner.

Ignoring the Organizational Big Picture
Change requires both buy-in across the organization and the leadership to instill that change. Leadership is required to break through the barriers of poor communication, lack of focus, distrust, and silo mentality. Don’t overlook the big picture.

The white paper also has some good tips on how to avoid the traps. Including:

  • Start from the Top
  • Focus on the Customer
  • Continuous Improvement
  • Fix the Process First

For details, see “the top three reasons supply chain transformations fail”. It’s worth the read.

Want a Skilled Workforce? Train It!

I thoroughly enjoyed this recent article in Industry Week on “Crafting a Skilled Workforce” that describes Blum Inc’s Apprenticeship 2000 program that develops many of the skilled manufacturing technicians that Blum may otherwise be unable to find. While the four-year program costs Blum $100,000 per apprentice on average, 80% of graduates, who are guaranteed a job with a minimum salary of $34,000 a year on graduation, stay with Blum. In otherwords, for ony $125,000, Blum obtains a highly capable manufacturing technician, with journeyman certification from the North Carolina Department of Labour, who will provide the company with years of valuable service. Given that recruitment of even an entry-level technologist can easily exceed $10K to $15K, and that training of a new recruit can take 6 months or more and tens of thousands of dollars of time of a senior mentor, and that there’s no guarantee that the technologist will have the skills, work out, or stay with the company any length of time, investing $125K to produce a highly skilled employee with company loyalty is a small, and brilliant investment.

As SI has said before, Apprenticeship is the Answer.

Mintec – Data for the Masses from the Masses

Regular readers of SI will know the importance of good should-cost modeling (which is also great for negotiations) as well as good market intelligence (which has dimensions and is valuable in a down economy) in cost reduction and avoidance. And while both should-cost modelling and market intelligence have a number of critical requirements that must be met for success, they both have one key requirement in common — good data. But where do you get good data? Certainly not from supplier bids! A new supplier is going to bid what it thinks it can get, not what the actual price is. Market indices from governments and professional associations? Better, but they will typically be at least a month or so behind. Trade associations that track and monitor prices on a daily basis or stock markets that trade the commodity? Great — but do you have the IT skills to integrate the feeds? And are you going to do it for the dozens of raw materials and commodities you need to build your should cost models?

The best place to get data en-masse is from a professional data provider that tracks and integrates all of the feeds you need into a centralized database that is updated with fresh data for the categories you need when you need it and that maintains years of historical data for analysis purposes. One such provider is Mintec. Formed back in 1982 by consultants and analysts who realized that real savings required real data, Mintec has been collecting raw material, commodity, and service price data from around the globe for almost 30 years. Used by 16 of the top 25 Global Food & Beverage & Retail companies, Mintec maintains price data for a database of 75,000 “line items” from A to Z across dozens of industries and categories. It then distills this information into custom databases for each client that contain just the line items they need, pre-processed and normalized to their defaults. (Combine this data with a great expressive-bidding optimization platform, such as that provided by BravoSolution or Trade Extensions and you have cost avoidance engine that can’t be beat!)

To help their clients understand the data, Mintec provides a data analysis package, called Datagain, which can be used to import, graph, analyze, and compare different line items (such as the petrol price in the UK and the petrol price in Australia, normalized to US dollars). A user can graph any set of series, against any frequency, using any (currency and unit) converions, for any date range she chooses. She can also normalize or index this data using a custom formula, factor in seasonality, and plot trends. She can also break the series down across two or four graphs and/or plot specific subseries, against different projections, to see how the price might trend over time under different assumptions. The normalization / indexing equations can use all of the standard algebraic operators and be defined over any set of variables, including user defined variables, that the user chooses.

If the user is not sophisticated at trend analysis, or does not want to do it, Mintec also offers Benchmarking and Market (Intelligence) Report services that do a deep dive into a particular raw material, commodity, or service that discuss recent, current, and projected pricing subject to the state of the market and the dominant factors at play. These, by request, reports complement the monthly market reports and commodity fact sheets that track the major commodities and markets and their relative month-over-month changes for buyers who want to look at the bigger picture. If the user wants to learn more about Datagain, analysis, and should-cost modeling, Mintec also provides on-demand out-of-the-box and customized training sessions as well as quarterly newsletters and occasional articles.

It’s a huge amount of data, that comes at a very low price point. Most customers pay less than 100K £s for access to the data they need, when they need it, updated as often as they like. Moreover, medium-sized business can get basic access (to the datafeeds) and access to the desktop Datagain tool for as little as 10K £s a year. Large enterprises will probably want the on-line hosted applet version (at the higher price-point) that runs through the browser on a hosted database that is accessible anywhere, anytime, and always up to date. While it is more expensive, it’s still cheap compared to what the organization will be paying for their ERP solution (and much more valuable from a cost avoidance perspective).

We Need to Win the Battle for Share of Mind

A recent article over on TechCrunch on how you need to win the battle for share of mind makes a great point of how any organization that wants to grow over time needs to win mind share if it wants to survive, and thrive, over the long term. Not just start-ups. Just like a start-up has to do more than get people to play with its hot product for more than six months if it wants to be around next year, Supply Management needs to do more than just get people talking about some quick-hit cost savings if it wants to ingrain itself into the core processes of each of the business units it supports.

For Supply Management to truly become the central cog in the organizational wheel, and become the first organization consulted on any project, it has to gain permanent mind share among its stakeholders. Engineering has to think of Supply Management as the organization that can identify new potential sources of material and supply before that product is designed, not just the paper pushes who will execute the buy. Legal has to think of Supply Management as the organization in the best position to judge the potential of an M&A, not just the organization that sends the cheque to the external council. Marketing has to think of Supply Management as the organization that can help it understand the market dynamics of the new geographies it wants to expand into, not just the organization that buys the paper.

So how do we do this? We have to solve real problems and provide real value. This has to go beyond just saving 10% on a contract renewal, because high cost isn’t a problem, it’s a symptom. Either the right supplier wasn’t at the table, or the right logistics strategy wasn’t employed, or the right should cost models weren’t used, or the right contract wasn’t negotiated. If supplier discovery and management, network design and management, and contract negotiation and management were all done right the last time, there’d be no money to save (unless raw material prices dropped, but that would be immediately apparent from the should-cost models that used market indices and a pricing formula to capture index changes could be written into the contract to insure the organization gets to take advantage of lower prices immediately). In all but the rarest of situations, savings are only possible because the issue wasn’t addressed right last time.

The rest of the organization has to see Supply Management as the organization that can help their business unit get it right and prevent unecessary spending in the first place. The organization that will get supplier discovery and management, network design and management, and contract negotiation and management right the first time. The organization that will bring true value to their business unit. If we can do that, not only will we have our permanent seat at the big kids table, but we’ll be the central cog in the organizational wheel. We’ll finally be where we’re supposed to be.

So how do we do that?

We start, as pointed out by Lamar Chesney, CPO of SunTrust, and summarized in this Sourcing Innovation post, by learning what value is to our stakeholders and communicating that message. Then to get to value we align perspectives and work together towards the goal. Next we capture the value in an appropriate agreement that focusses on the required solution, not just tactical t’s and c’s. Finally, we help the stakeholder organization with execution because value doesn’t exist until it is realized, and if it’s not realized, we’ll get blamed and fail to capture our much needed mind share. And when all is said and done, we’ll be the secret agent of business improvement.