Category Archives: CSR

On the Seventh day of X-Mas (2016)

On the seventh day of X-Mas
my blogger gave to me:
Sustainable Posts
e-Procurement Posts
some SRM Posts
some CLM Posts
some Best Practice Posts
some Trend Bashing Posts
and some ranting on stupidity …

Sustainability. Corporate Social Responsibility. They are more than just buzzwords. They are essential to not only productive Procurement but corporate survival. If you’re not careful, and a critical resource required for production gets exhausted, then what? If you’re not cautious, and banned materials get into your products and you get hit with tens of millions of fines your company can’t afford as it is operating on razor thin margins, then what? And so on.

The reality is, Failure to Monitor a Supply Chain for Risk Can Tarnish Your Brand.

Don’t forget! A Major Disruption to Supply Chains Occurs Every Day — Is Yours Ready?

That’s one reason A Financial Health Check Should Be a Pre-Qualification of Every Supplier Qualification.

You have to Stop Blaming the Supplier! Melamine in the Milk is STILL Your Fault
After all, You’d Think It Would Be Obvious By Now that You Should Not Poison Your Customer!

You Need to Get Sustainable Because Customers Won’t Pay!

Sustainablity Requires Shared Understanding

Waste is costly. More costly than you think.
So here’s A Starter’s Guide to Zero Waste
Reasons you should Waste Not, Want Not
and Grocery Retailers Waste So Much Food It Should Be Criminal!

And even though you’re focussed on that bottom line, remember to ask yourself:
Is Your Supply Management Ethical?
Do You Know the Rules of Ethical Supplier Interaction?
Dilemma or Not, Buyers Still Must Take Ethics into Account!

And while you might not be big on document management,
Content is a Cornerstone of Compliance

In conclusion, come back tomorrow for the eighth day of X-Mas, and Don’t Be a Smeghead!

A Financial Health Check Should Be a Pre-Qualification of Every Supplier Qualification

And every organization should review a financial health or risk report, comprised of, or augmented with, third party data, and, unless they are (or have in-house) financial experts, this should preferably be done by a third party. The reality is that in today’s data driven world, no organization should be surprised by a bankruptcy of a mid-size or larger supplier that has been in business for at least three years. The probability of the vast majority of these bankruptcies are now predictable by financial analysts and while they may get a few wrong (as some companies may shape up just in time and others may fail faster than expected for a non-financial reason), they get a lot right.

And it’s not like financial ratings are hard to get anymore. While they are not as insightful, as they work exclusively on credit data and stock data compared to released financial statements (which is where the early warning indicators hide), most of the big data / credit services track enough data to come up with a reasonable financial risk score that at least lets you know whether, from a financial perspective, the supplier could be reasonably safe or is currently very risky — and needs a detailed analysis. Moreover, a financial health-focused offering by RapidRatings, and their FHR (Financial Health Rating) Report (which has been around for almost a decade), with an open example here, provides not only deep insight into potential risk, but the magnitude of the risk and the hard data for the risk — as well as the insights — and can detect risks from early warning signs that have not yet manifested in observable behavior (such as late payments).  In addition, RapidRatings’ new Financial Dialogue offering, which works in conjunction with the FHR, identifies the most important questions you should be asking your suppliers based on their health rating.  (An when you look at just the FHR report, you wonder why every organization is not doing at least this detailed level of supplier financial health analysis before committing a large or strategic spend to a supplier when all the data they need can be summarized in an easy to understand fashion.)

Now, you might say that because only one vendor, today, offers this depth of a report, which wasn’t previously available, and because the organization has done just fine without it for almost a decade, that you don’t need it, but SI would like to disagree. With global sourcing constituting so much of your supply chain, you don’t really know that much about your suppliers, their health, or the conditions in which they operate. And if they are supplying a custom made component, a raw material in limited supply, or a specialized service, the cost of recovery could be much greater than the initial cost of supply. These reports are becoming a necessity as part of your risk management.

SI is not saying you have to use RapidRatings or subscribe to their FHR reports (although they should be on your shortlist), but that you should at least do deep financial analysis on all of your strategic suppliers and use a platform to do it.  And while SI expects that other vendors with the same degree of analytic capability, financial know-how, and supplier insight — specifically Resilinc, FusionOps, and Simfoni — will soon attempt to release similar offerings, with their own unique spin, SI doubts that these other providers will be able to match the depth provided by RapidRatings for quite some time, as they are, respectively, focused on supply chain resilience, big data insights, and analytics on the go.  (However, if you are  currently using any of these vendors, you should work with them on their new analytic offerings as they can still offer other insights into the suitability of the supplier for your operation, assuming the supplier is financially viable enough to work with in the first place.)

While financial risk or financial health is only one KPI that should be used to analyze suppliers before qualifying them for inclusion in an event, it is an important one — the organization needs a supplier that will stay in business. Another KPI that should be included is a comprehensive CSR (Corporate Social Responsibility) assessment, as you want responsible and sustainable suppliers, and this can be obtained as well from vendors such as Sedex Global and Ecovadis. Finally, once the supplier has been deemed financially stable and sufficiently responsible, an overall supply chain risk rating should be computed (based on geography, risk of natural disaster, political interference, etc.). This will require either a risk management vendor (such as Resilinc, Risk Methods, etc.) or an analytics vendor that pulls in feeds from one of these vendors.

It’s a lot, but if you can be sure in your supplier, that’s one less worry in your overly complex supply chain.

One Key Question to Ask When Selecting a Multi-Criteria Supplier Sustainability Monitoring Solution

In our last post on Key Questions When Selecting a Multi-Criteria Supplier Sustainability Monitoring Solution, we noted that not only can supply risk management not be siloed, but in order for it to be successful, it must be centralized through a CoE that puts together policies and procedures that not only ensure that

  • every supplier is covered
  • on all relevant dimensions
  • but not on irrelevant dimensions
  • without any duplication of effort

but also ensure that

    • there are no false positives in the risk assessment and
    • there are no false negatives

In order to effectively implement this holistic approach, an organization will require a good multi-criteria supplier and sustainability risk monitoring solution that can proactively monitor, assess, and re-asses supplier sustainability and risk using data from dozens, if not hundreds, of disparate sources that paint a comprehensive picture of supplier sustainability.

But not every platform will make the cut. Definitely not all will meet the integration requirements, which is one key requirement of a good platform. More specifically, ethics, corporate social responsibility, and sustainability information is vital information that can and should be used in many different supply management platforms such as e-Sourcing, e-Procurement, CLM, SRM and other platforms that support a wide variety of supply management processes and workflows. As such, this integration should be trivial and for major supply management platforms, almost “out-of-the-box”. Moreover, in some organizations, this information also needs to be available to other departments that, and no surprise here, are reliant on different platforms and responsible for smaller or indirect spends not (fully) under the control of Procurement. As such, the platform needs a well defined, and easy to use, API that can allow the data to be pulled out for any platform that needs it, and that allows any proprietary or limited access data the organization has access to on the supplier’s sustainability and risk profile to be pushed into the system. Why?

For more complete details on this requirement, as well as key questions to ask when evaluating a multi-criteria supplier sustainability monitoring solution, check out Sourcing Innovation’s latest white paper on 5 Essential Criteria for Selecting a Supplier Sustainability & Risk Monitoring Solution, sponsored by Ecovadis, that will help you understand just what a good sustainability and risk monitoring solution needs to do.

Waste Not. Want Not.

Corporate Social Responsibility (CSR) and sustainability is all the rage with Generation Y and, in many countries, is essentially the law (where environmental protection is a key concern of citizens and law makers alike) — but are you doing everything you should (even if it is not yet legislated)?

Basically, if you procure it, and it is not used, you wasted it — and if you are not careful, it will go to a landfill, and that should be unacceptable.

However, in many companies, the focus on CSR and Sustainability is on the supply chain, and the Tier 1 (and Tier 2) suppliers as it is expected the company will comply with all laws and adhere to its own Sustainability and CSR policies, but this over-focus on the supply chain often results in drips of waste throughout the organization that, when added up, create a small pond, if not a large lake.

What do we mean by this?

Due to a lack of initiative or control by Procurement, the following happens in most organizations:

  • paper, paper everywhere especially in the back office (as AP needs to print invoices that fail OCR to re-enter them, legal has to print contracts to review them, managers need their reports on paper, etc.)
  • obsolete MRO inventory piles up in the stock room as excess parts for equipment replaced years ago doesn’t go with the equipment
  • low-cost defective products pile up in the back of the warehouse as it’s not worth the perceived return costs for minimal cost products or low volumes
  • non-recyclable packaging goes to the trash and the local landfills (and dumping costs) pile up
  • broken pallets litter the corner of the yard and are left to rot

But Procurement could prevent most of this.

  • demand management reduces paper especially if Procurement ensures AR, Legal, Managers, and anyone else who generally uses a lot of paper has dual monitor systems. A couple of hundred on a good extra monitor can reduce paper usage by 80% and only has to be replaced every 4 to 5 years.
  • MRO management (software) either in house or third party can instantly detect when inventory is obsolete and sell it to someone who needs it before all it is useful for is scrap metal
  • up-front return process definition and management ensures that defective products get promptly returned, or recycled, to make sure scrap yards don’t increase
  • insistence on reusable or recyclable packaging and making it mandatory in contracts can prevent packaging waste
  • better pallet acquisition can increase lifespan and a recycling/disposal policy can make sure the wood goes to good use

In other words, unless Procurement makes an effort to define its wants as waste free as possible, it will get its wasteful wants. Another point to ponder.

Geopolitical Sustentation 25: Government Actions

Upon review of our damnation series, we know that governments can be a major source of damnation. From their meddling in the employment rate (economic damnation 3), currency strength (economic damnation 5), and their sheltering of the 1% (economic damnation 7); their lack of support for postal services (infrastructure damnation 11), ports (infrastructure damnation 13), and roads (infrastructure damnation 14); their (mis)management of customs acts (geopolitical damnation 28), trade embargoes (geopolitical damnation 29), and the TPP poison pills (geopolitical damnation 30); their taxation (regulatory damnation 33), tariffs (regulatory damnation 34), and health and safety (regulatory damnation 35); and their poor urbanization plans (societal damnation 43), utter lack of support for education (societal damnation 44), and their handling of workers’ rights legislation (societal damnation 48), their damning meddling is everywhere. (It’s more ubiquitous than the meddling of those meddling kids.)

But this is just the tip of the iceberg. In our damnation post we listed a few of the more focussed damnations that will cause you a never ending nightmare.

  • Budget Freeze
  • State of Emergency
  • New Legislation Outlawing your Product or Service
  • Criminal Charges against your Organization or Executives

1. Don’t Sell Governments More Than You Can Afford to Maintain in the Receivables Indefinitely.

There’s no guarantee of quick payment, or even late payment in the timeframe you are led to believe it will materialize in. Government might be good money, long term contracts, and guaranteed references, but they aren’t always the best customers if you need money now. Make sure you have a core business selling to the private sector that can sustain you through the dry times.

2. Don’t be slack in receivables recognition and collection

Insure all deliverables are received, acknowledged, and accepted on a timely basis. Make sure the invoice gets in the approved payment queue ASAP, and follow up the minute a payment date is missed. You don’t want multiple invoices in a queue during a budget freeze or budget shortfall. You want as few as possible, and you want them front of the queue as soon as the freeze is lifted.

3. Keep abreast of any proposed legislation that could impact your product

You want plenty of time to engage lobbyists if you can afford it, and if the product line is that profitable, or identify reformulations (or replacements) if the product is important, but not worth enough to engage lobbyists to try and alter the legislation appropriately (which may not be successful).

4. Make sure you have well documented policies and procedures in place … and all follow them.

Have a policy that failure to follow policies and procedures, especially those that are designed to protect the organization and stay on the right side of the law, will result in immediate discipline and possible dismissal. Also implement monitoring systems and processes to do your best to ensure that all individuals follow critical policies and procedures. The goal is that if someone breaks the law, it’s doing so in a way not supported or condoned by the company.

5. Make sure the board oversees the executive and reviews key financial reports and deals on a regular basis.

If one of your executives is engaging in shady business practices, you want to discover it and take action first. It’s often the difference between a slap on the wrist and a public hanging. (And don’t say you have nothing to worry about. It’s well known that the job that attracts the most psychopaths is that of the CEO, with the job that attracts the second most psychopaths being that of the lawyer who defends him.)