Category Archives: Dick Locke

American Bar Association to Fortune 500: Clean Up Your Supply Chain

Today’s guest post is from Dick Locke, President of Global Supply Training Company, author of the classic book on Global Supply Management, and a seasoned expert with international experience in Supply Management (having run global supply chains from around the globe).

The Minneapolis Star Tribune published an article titled “Bar Association Warns Corporations: Clean up supply chains.” The author says that the president of the American Bar Association will be sending a letter to the CEOs of all the Fortune 500 companies. He goes on to say that the letter will ask the CEOs to “commit to ending human-rights abuses in their supply chains.”

Chris Johnson, who heads the American Bar Association’s (ABA) business section’s supply-chain initiative makes some provocative statements in the article:

  • “Regulation is increasing. Litigation is increasing. It’s astounding to me that companies don’t get out ahead of this. It’s a time bomb.”
  • “Companies remain reactive and not pre-emptive in handling possible human-rights abuses in their supply chains.”
  • “Why would you want to wait to have your products found in the rubble along with 1,100 bodies of dead workers?”
That last statement was about the April 2013 collapse of Rana Plaza in Bangladesh. More than 1100 clothing workers died when the multistory factory building collapsed. Investigators found several European and U.S. companies’ products in the wreckage.

This was a tragedy for the workers, their families, and their communities. It is an ongoing embarrassment to the purchasing profession. Some of the companies involved had no idea their product was being produced in a manifestly unsafe building.

Collapsed Rana Plaza

I believe it’s also a wakeup call. There are signs that the clothing industry is banding together to change their purchasing practices on an industry-wide basis to improve their supplier selection techniques.

The article focuses on human rights violations going on in company supply chains. Those violations can involve coerced labor of adults and children, any kind of labor by children, safety issues, wage and hour violations and a host of other issues. Here are two issues many of you are facing now:

  • Is your company a retailer or manufacturer? Do you sell more than $100 million per year? Do you do business in California? If so, is your company making a public statement on its web site about what it is doing to remove coerced labor from its supply chain? If it isn’t, it’s violating California law.
  • Do you work for a publicly held US company? Do your company report to the SEC about the origin of any tin, tungsten, tantalum or gold in the products you sell? It needs to or it’s in violation of Federal law. If you have any electronics in your products, you have one or more of those metals. That’s the obvious example. Here’s a list of 22 other products that contain the metals.

However, a good Supply Chain Social Responsibility (S)CSR program needs to go beyond just following the law. I was surprised to find that U.S. law allows children as young as 12 to work on farms. Does your company have a cafeteria or food vending machines? If so, you probably have 12 year olds working in your supply chain. And it’s legal. It’s just not ethical.

Social Responsibility goes beyond labor issues. It includes prevention of giving and receiving bribes. It includes treatment of animals. It includes preserving the environment. The last topic applies to every organization that buys paper, for example. That’s just about everyone. Does your paper supplier use sustainable forestry techniques?

Want to learn more about what’s involved and how to develop and execute an (S)CSR program? While I don’t usually plug my own work quite so blatantly, Next Level Purchasing’s “Exemplary Supply Chain Social Responsibility” is the only training course I have found that goes into this topic in great detail. In eight on line training hours, on your own schedule, you will get a thorough and practical understanding of the issues and the solutions. To build on Chris Johnson’s statements (above), it’s much better to be preemptive when there’s a threat of time bombs.

Thanks, Dick!

Dick Locke On The Yin-Yang of the Business Universe (Repost)

Editor’s Note: This is a repost of a classic post by Dick Locke. (His guest posts are all archived.) Dick, who has delivered seminars to over 100 companies across the globe, is a seasoned expert on International Sourcing and Procurement who wrote the book.

Steven Guth proposes that “Procurement pros should be in sales“. He
implies, but never quite says, that procurement pros should have sales
skills. That’s right on. I’ve been there, done that and even got a
tee-shirt. Sales skills are essential, especially if you are in a
corporate central group that is outside of any profit centers.

Here’s the situation. I won’t mention the company name, but I hope
people will figure out who it is. They had a Corporate Procurement group
of which I was a part. I received an assignment to start up International
Purchasing Offices (IPOs) in Asia back in the mid 1980s. Funding those
offices quickly became an issue. It had been an issue all along for the
Corporate Procurement Group, with big annual negotiations and
discussions about how much each profit center would pay to fund the
corporate group. Now we wanted to add more people and expense for an
unproven new function. They might as well have painted a big target on
our backs.

The funding solution we came up with was that we had to generate our own
funding and using us had to be voluntary. That meant we had to charge
our users a fee and that we were in competition with two other groups.
One was reps and subsidiaries of (largely) Japanese and European
companies who had set up a sales subsidiary structure in the US. The
second group was our own company’s buyers and purchasing managers in
profit centers who felt they could source, purchase from, and manage
overseas suppliers themselves.

We realized we had to not only charge less than what sales subsidiaries
charged but also less than our profit centers felt it would cost to do
it themselves. We came up with essentially a sliding scale of markups on
purchase orders. Small users might pay as much as 5%. Large users might
pay less than half a percent.

I’m glad to say it worked. The operation was handling more than a
half-billion dollars per year in orders when I left. That’s not to say
there weren’t, err, “learning experiences.” One of our big issues is
that we had selected employees for their purchasing and engineering
skills, and not for their marketing skills. It required a tune up for
several of our people, not excluding me. It took about three years to
become fully self funded. If we had avoided some mistakes we could have
shaved about a year off that time.

It had some very pleasant side effects. We essentially were running a
small business within a big corporation. Our people got lean,
entrepreneurial and very customer-oriented. We quickly developed an
antipathy to bureaucracy. We became really efficient. It also took us out
of the annual budget battle and the annual exercise to calculate what we
were saving. (I refer to that as “lies, damn lies, and purchasing
statisitics.”) We merely had to state that we received x number of
purchase orders per day from people who didn’t have to use us and were
paying us for our services. That kept management happy nearly all the time.

Where is this model applicable? In companies where there is a lot of
independence on the part of profit centers, a center-led purchasing
effort, issues with funding the central department and finally where an
internal department can develop and market an advantage over their
competitors. Check it out, it may be right for you.

Dick Locke, Global Procurement Group.

This was, and is, and a great post, Dick.
(And why SI is including a few games to sharpen your sales mindset in it’s Gamer’s Guide to Supply Management.)

Cross-Border Shipping with Mexico

Today’s guest post is from Dick Locke. Dick, who has delivered seminars to over 100 companies across the globe, is a seasoned expert on International Sourcing and Procurement who wrote the book. (Here is the link to his archived posts.)

the doctor sent me this article from Inbound Logistics and wondered if I agreed. Well, mostly, but I think it overstates some difficulties. I operated an International Procurement Office in Mexico and we were able to get on-time delivery to our US customers in the 98% range over long periods of time … and that included supplier performance, cross border performance and logistics performance in two countries.

Some of the issues the article mentions are common in every country. Natural disasters are just one example. Every logistics network has to have backup plans when problems occur. And of course, when you’re operating in another country you have to have an open mind to doing things their way.

The article does have some good points:

* Exporting from Mexico requires using a Mexican customs broker. If you are moving goods to the US, you will probably want a US customs broker also, unless you want to have your own people at the border. Yes, that’s an extra step in the process.

* The border does jam up around Christmas as many expatriate Mexicans ship presents south.

* Of course you need to understand your country’s security related requirements, such as C-TPAT in the US.

* You should always avoid insuring every shipment and rely on a blanket policy

* You do need to keep track of goods crossing the border

But some is either overstated or applicable to any country, and some I disagree with.

* If you are shipping LTL there are several LTL logistics companies, all aimed at industry. DHL, Fed Ex and UPS as well as local Mexican companies such as Estafeta all do cross-border LTL work.

* You are not “guilty until proven innocent” under Mexican customs regulations any more than you are in the US or other countries. And the US has the same five year “statute of limitations” on customs errors … and it’s five years from your last import of a product.

* I wouldn’t ask a Mexican carrier to price services in US dollars. Fuel costs are in pesos as are nearly all of the carrier’s operating expenses. Asking to price in dollars will get you a higher price and possible attempts to renegotiate if the dollar weakens.

As an observation, the Mexican trucking industry is changing. Twenty years ago, it was a collection of small, independent1 truckers. Today there are bright, new, shiny trucks on the Mexican roads and large, serious logistics services available.

1 Extremely independent. Mexican truck drivers were the last of the wild west cowboys. A habit of stopping off overnight at what were euphemistically called “cantinas” made on time delivery really difficult. Times have changed.

Mexico’s Education System Improves Overnight!

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are archived for your perpetual enjoyment.)

I believe that one of China’s long term advantages over Mexico has been that the Chinese are more serious about education. Education in Mexico has not been as high of a priority in policy as it has been in China.

Yesterday, the extremely powerful head of the Mexican teachers union was arrested for corruption. It was a little matter of allegedly siphoning off 200 million USD for her personal benefit and sometimes for the benefit of high ranking union officials. They didn’t mention that teachers sometimes have to buy their jobs from the union.

Details in the: Idaho Statesman
     and in the: New York Times

Thanks, Dick!

It’s Not Just About Cost!

Editor’s Note: Today’s guest post is from Dick Locke. Dick, who has delivered seminars to over 100 companies across the globe, is a seasoned expert on International Sourcing and Procurement who wrote the book. (Here is the link to his archived posts.)

Last week, I bought two home items at Costco. One was a Chinese-assembled and branded 42 inch very thin LED-lit TV for $300. The other was a U.S. made foam mattress for $500. Guess which one had an obvious manufacturing defect and had to be returned and which one worked perfectly right out of the box? The simple product from the US or the complex product from China?

Anyone? Anyone?

It was the U.S. built mattress (and it was so much fun to get it picked up and replaced).

Products aren’t going to come back to the US from anywhere unless our factories not only compete in landed price but have better quality than other countries’ products have.

While China doesn’t have the greatest reputation for quality in some of its products, its electronics (and I’m sure other products) are generally excellent. I’m convinced that quality levels are more a function of the purchasing techniques that buying companies use and less on the country of manufacture.

Thanks, Dick!