Category Archives: Guest Author

Recycling Efforts in Trouble due to the Political Climate?

Today’s guest post is from Brian Seipel, a Procurement Consultant at Source One Management Services focused on helping corporations understand their spend profile and develop actionable strategies for cost reduction and supplier relationship management.

There are plenty of opinions when it comes to the environment on both ends of the political spectrum. You can likely find thousands of posts across the internet on the topic, were you so inclined. I promise that this post doesn’t delve into either side’s take on the planet or our stewardship of it.

So where else might a post of recycling and politics go? More to the point, how does it align with news Procurement Pros may be interested in? As it turns out, plenty of Procurement pros have a stake in the fate of our collective trash.

And in terms of America’s biggest partner in the recycling process, China, we have a problem thanks to a ban set to take effect in Q1 of 2018.

Setting the stage

A good amount of paper, corrugated, and plastic packaging products can be recycled and reused to create new packaging materials. These same materials can also be transformed into other products and, likewise, other products can be turned into packaging. Plenty of packaging procurement initiatives touch upon recycled materials.

At the heart of this recycling transformation are the organizations who purchase these recycled materials so they can be remade into valuable products. Since the early 2000’s, these organizations have been overwhelmingly found in China. In terms of American exports of bales of scrap, China is our number one partner, with these facilities importing over $5.6 billion annually in American paper, metal, and plastic scrap.

It isn’t just the US that exports recyclable scrap to China – the International Solid Waste Association reported in 2014 that 56% of the world’s scrap was exported to China. Clearly, any disruption to China’s buying habits of this scrap material will have very real effects on recycling initiatives globally. In turn, companies involved in the purchase of products made from recycled materials should keep an eye on these import-export relationships.

So what’s the problem?

Recycling isn’t easy – a lot of work needs to be done to get scrap material in shape to recycle. It takes real resources to process scrap material. The cleaner and better sorted scrap is when it arrives at a Chinese factory, the easier, faster, and more lucrative it is to convert to recycled materials. As such, it isn’t surprising that China has been more and more interested in ensuring a quality scrap product in recent years.

This demand for better scrap material, and objection to what China is calling excessively contaminated shipments, have led the country to ban a number of solid waste imports.

This could potentially have a direct impact on the availability of “virgin” materials as we move forward into the ban next year. For example, fewer sources of recycled paper products could lead to a tighter pulp supply and higher costs.

How Will the Scrap Industry Respond?

Assuming China does, in fact, move ahead with plans to ban key scrap imports, American companies are going to have to come up with a response. Several are on the table:

  1. Forego recycling, and send scrap shipments to the landfill instead.
    This is not the greatest of solutions by any means, but if companies take no steps to change behavior, this will be the natural result of a “do-nothing” stance on the problem.
  2. Fight the ban on a socio-political basis.
    From the language of the ban, to the impact the ban will have on businesses both foreign and domestic, there is certainly opportunity to challenge China’s path forward in terms of viability.
  3. Add more quality controls.
    In terms of recycling, an empty soda can is both garbage and a product. If China’s main concern is one of quality control, then steps taken to improve quality levels (in other words, ensuring a process that removes contaminates before bales of scrap are sent to China) may alleviate China’s concerns, and help move the scrap industry back on track.
  4. Further develop and strengthen alternative markets.
    Local organizations may also benefit from building some diversity into their strategies. China put a very fine point on the issue with this waste ban, but their intentions aren’t new, either. China has been increasing their scrutiny of imported scrap bales for the last several years, leading to the rejection and return shipment of subpar bales – Some American exporters have used these intervening years to plan alternative outlets for their scrap. This may include finding other countries to export to, or finding local customers for this scrap material.

The Institute of Scrap Recycling Industries (ISRI) is a US-based trade association made up of organizations from 30 countries that represent the lifecycle of recycled materials; from processing to brokerage, to industrial consumers. ISRI released a nine page response to China’s ban, which provides a few key talking points – Essentially, ISRI’s opening response combines items two and three above.

The response opens by challenging the language of China’s ban, arguing that clarification is required on China’s end to better outline how the band will be enacted (ISRI suggests, of course, that China should follow guidelines developed by ISRI to achieve this goal. Simultaneously, the response calls China’s own capabilities into question in comparison to the United States’ recycling industry: “where it takes 1,150 tons of recyclable fiber to make 1,000 tons of new paper in the United States, it takes 1,300 tons of recyclable fiber to make the same 1,000 tons of new paper in China. As a result, Chinese manufacturers have come to rely on the supply of high‐quality scrap from abroad in order to stay competitive.”

Moving forward

It is too early to say what the true impact will be moving into 2018. The American scrap industry has set wheels in motion to fight the ban politically, as well as ramp up efforts to either improve scrap exports to China or find alternative destinations for the material.

One thing is certain, however. Moving forward, Procurement teams in markets that rely on recycled materials should keep their eyes open and attention focused on China’s next moves.

Thanks, Brian.

Put an (Enormous) Bow on It: The Dual-Sourcing Strategies Behind Holiday Car Commercials

Today’s guest post is from Jennifer Ulrich, an Associate Director and Category Planning Subject Matter Expert at Source One Management Services as well as a contributing author of Wiley & Sons“Managing Indirect Spend: Enhancing Profitability”.

The holiday season is upon us, and you know what that means.  Procurement professionals aren’t the only folks stressing over purchases. All over the world, people are going to market in search of suppliers that’ll provide the gift from the commercial. They want to source a product worthy of jingles and voice-over narration. Maybe it’s a car they’re looking for. In that case, they’re embroiled in procurement campaigns with one big, red goal in mind.

The commercials make the process look easy.

Holiday advertising campaigns paint a wildly simplistic picture of purchasing decision-making process. Viewers are not only expected to believe such enormous bows exist, but also forced to ignore the complexities of purchasing initiatives. They focus exclusively on immediate outcomes.  Favouring hugs and hand holding to the hard work of market research and implementation, they depict a world that can only exist in 30-second pieces.

In a Procurement context, every commercial implies that its amateur Supply Management unit has settled on a single-source solution.  The product – whatever it is – solves a problem, fills a gap, or answers a question instantly.  We’re meant to understand that the supplier (in this case, a vehicle manufacturer) will always meet service expectations.  New cars are never shown replacing a predecessor. Instead, they sit alone in the driveway waiting for the happy family to ‘unwrap’ them and drive into the New Year.

But what really happens as December turns to January and February?  More likely than not, the happy family will employ something like a dual-source strategy. Let’s take a look behind-the-scenes.

Our family has enjoyed a long relationship with the incumbent vehicle. So far, it’s provided value adds in the form of great fuel economy statistics and a comfortable interior.  They’ve also upheld their end of the ‘supplier relationship’ by changing the oil and bringing the car in for regular inspections.  Recently, however, the car’s performance has shown room for improvement.  Maybe the transmission is making a strange sound, or perhaps the family has children on the way and needs something bigger. Whatever their reasoning, this impossibly photogenic family has begun to survey the market.

After months of careful consideration, they’ve located a cost-effective, environmentally-responsible option that promises years of happy driving.  Now, they’re all set for its dramatic unveiling.  That doesn’t mean they’re selling the old car for scraps.  After all, it’s still the supplier they’re most comfortable with, and there’s no guarantee the new car will work as planned.  Retaining the old stand-by as a secondary option greatly reduces the risks associated with such a large purchase.  The old car will enable them to slowly familiarize themselves with the new one’s features and functionality while providing a fall-back plan if something unexpected should occur.  Though they’ll gradually drive the old car less and less, it should prove essential as they transition to an exclusive relationship with their new vehicle.

For companies, employing a dual-sourcing strategy can prove similarly effective for minimizing risk and easing into a new supplier relationship.  Like trusted automobiles, supplier relationships sometimes suffer as years of wear and tear accumulate.  Savvy Procurement professionals are always scanning the market in search of more competitive options, but making a switch is rarely simple.

Long-time suppliers tend to ingrain themselves within a company’s operations and culture.  New vendors can’t hope to equal the trust they’ve established, the value they’ve provided, or the solutions they’ve implemented overnight.  Sending the supplier to the junkyard might prove as short-sighted as scrapping a perfectly good car.  The most responsible and cost-effective option might be to gradually cut ties with the incumbent provider.  That way, companies can enjoy the dependability they’ve grown accustomed to as they begin to establish and optimize their new relationship.  With consistent communications throughout the implementation process, companies should enjoy smooth transitions that satisfy their needs without inviting undue risk or putting too much strain on either supplier.

A dual-sourcing strategy won’t get your company on a commercial.  Responsible behaviour rarely winds up on television.  Still, as a low-risk, cost-effective plan your dual-sourcing system should set you up to more confidently make bold purchasing decisions in the future.  Procurement might never present your company with a big, red bow, but it should annually provide the gift that keeps on giving: sustainable cost savings.

Thanks, Jennifer.

The implications of Crying Thief!

Today’s guest post is from Tony Bridger of Assymetrix Consulting. Got a spending, process, or change management problem? Tony has a solution.

There is an old Nigerian Proverb that runs a little like: “One cry of “Thief!” and the whole marketplace is on the lookout.

However, crying “thief” has serious implications for many business, particularly those public organisations with shareholders who would quickly perceive financial crime as a systemic business process failure.     It is easier for management teams to internally manage fraud than to prosecute. Detection of large fraud is also an admission that both controls and deterrence are failing.   In a recent article, It’s Hard to Find Fraud in Big Spend Stacks …   the advent of AI could provide that vital detection of internal fraud.   It’s a sophisticated solution.

Whilst we are on the subject of proverbs, a key element in fraud management is “prevention is better than cure”. Companies that detect fraud have clearly not created the cultural norms that others take for granted that deter staff from committing fraud.   There are many cultural and technological capabilities that can reduce the incidence of fraudulent activity that are well within the grasp of many businesses.   Deterrence – or risk of detection is a critical cultural message.

With some careful risk analysis, it is quite easy to map out where company fraud is likely to originate. Finance, Procurement and staff expenses are usually the key internal risk areas.   Culturally, one of the first steps is to ensure that there is adequate separation of duties.   In finance, this is simply ensuring that a finance staff member does not have the capacity to both create a supplier vendor master entry – and pay an invoice.   This is a system administration role setting. The creation of “dummy vendors” and subsequent payments is often down to this simple failure.   Making all data elements (Business Number, address, contact details) as mandatory data items also reinforces the message on data integrity.   Many mid to high end systems will also allow user audit trail analysis if required. This simply captures the user-id of the employee accessing the key finance system forms.

For smaller companies, separation of duties can be an issue – but keeping a register of new supplier entries and reviewing this regularly is a key move.   In the procurement space, the person who creates the contract and then manages the winning vendor should also not be one and the same person if possible.   Again, hard to mobilize with limited staff and expertise – but a very clear signal around why is a powerful deterrent.   The idea is not to create a draconian working environment – it is simply ensuring that employees understand that this is designed to protect them – as well as the company.

Where possible, organizations should also use the power of their accounting system to the full.   Many of the low-end accounting systems have decent quality automation for transactions like staff expenses.   From experience, there are some subtle employee mindset changes generated with increased automation.   Almost all of us realize that entering data in to a system creates a record.   Once submitted, unless a request is made to vary the claim – the electronic evidence exists.   Paper can be lost, shredded or misinterpreted.

Almost all staff will recognize that these transactions can be retrieved many years later.   A very good business practice is to engage a vendor that provides duplicate invoice analysis services periodically.   This service can also detect anomalies and “odd” transactions.   A multiple repeated “same value” claim by an employee will almost certainly be found and analyzed. As many of these services are contingent based, they are quite affordable.   Regular auditing can also send clear signals on fraud risk assurance.

However, the combination of separation of duties, increased electronic transaction processing and periodic data analysis should send very clear cultural signals about what is acceptable. Staff will work out the “why?” comparatively quickly.

Organizations cannot effectively function if trust is lacking.   The notion of the cry of thief! Is far more acceptable if good management controls are in place and any subsequent fraud is detected. In effect, it’s a best effort approach to fraud prevention.

Thanks, Tony.

Why Bother Classifying Spend? 3 Ways Spend Analysis Will Improve Your Life … Part II

Today’s guest post is from Brian Seipel, Spend Analysis lead at Source One Management Services focused on helping corporations gain a clear view of their spend data to derive actionable budget optimization strategies.

Yesterday we began our tale of two VARs that have a lot in common. Both serve the same North East region, both offer stellar customer service, and so far the relationship has been good on all sides. Each of your offices comes away satisfied after reviewing their VAR’s track record. But, as we started to discuss yesterday, that’s not all there is to the story. Today we discuss the next two ways spend analytics can change your life … for the better.

Improve Efficiencies

Beyond hard dollar savings, companies stand to save money by building a leaner, more efficient Procurement department. From the benefit described above, we can already see how our total vendor pool will be reduced through consolidation, and fewer vendors to manage means less time devoted to the procurement process. However, we will also learn more about our vendor landscape through the analysis.

Continuing the example above, let’s consider those two VARs a bit more closely. All else equal, we may find out that New York’s VAR offers a vendor-managed inventory program, centralized billing, and an online customer ordering portal. Each of these value-adds will help Procurement be more efficient, even if no hard dollar savings are generated. By properly researching the landscape, we can determine what value-adds are truly important and focus on building up these efficiencies.

Clamp Down on Maverick Spend

So far, we’ve consolidated spend to a single VAR (generating hard dollar savings via negotiated rebates and unit pricing using our newly consolidated spend as leverage) and improved our procurement process (generating soft dollar savings by understanding and implementing best practices).

We haven’t, however, talked about specific items being purchased. As the saying goes, “the devil is in the details,” and the very best supplier relationships can fall prey to maverick spend if employees are left to their own devices.

Consider all of the non-strategic, commodity spend that will pass through our VARs; items like cabling, computer peripherals, office equipment and a whole host of other small purchases are often included in contract pricing lists. But what about an employee who goes off the reservation, and orders off-contract? Your negotiated rates become meaningless. Would the purchase of an off-contract mouse by a single employee that is $5 more expensive break the bank? Likely not – however, this problem can get out of hand quickly if large groups of employees routinely ignore the on-contract equivalents. Analyzing spend and comparing it to negotiated on-contract items allows us to identify the problem and either reign in employee behavior, renegotiate the contract price list, or a combination of both to solve it before it gets out of hand.

Which Camp are you in?

If there’s one thing our tale of two VARs has taught us, it is that “you don’t know what you don’t know.” Neither VAR may look like a poor partner at the outset. However, when you look at the entire picture, room for improvement becomes more obvious (especially if we’re willing to change it up). We simply can’t see that entire picture without performing a spend analysis in the first place.

By performing our spend analysis, we put ourselves in the position of moving between the three-foot and 30,000-foot view quickly, enabling us to look at our spend and supplier relationships from all sides. Only then can we effectively manage our spend.

Thanks, Brian.

Why Bother Classifying Spend? 3 Ways Spend Analysis Will Improve Your Life … Part I

Today’s guest post is from Brian Seipel, Spend Analysis lead at Source One Management Services focused on helping corporations gain a clear view of their spend data to derive actionable budget optimization strategies.

Let’s face it, you and your team have your collective hands full keeping the Procurement trains running each day. Adding a spend analysis initiative on top of everything else being juggled? Well, that may be one ball too many to keep in the air. It seems like an unnecessary added step you simply don’t have time for and, really, what’s the point?

Through years of working with clients to develop and execute strategic sourcing initiatives, I have found there are two camps I can sort organizations into. Which side a client lands on is indicative of how much work lies ahead in terms of helping them truly control spend. Organizations will either be pro spend analysis… or barely spend time on the subject, if any at all.

To be fair, many organizations run a tight ship in terms of managing spend – but there’s still room for improvement for a good number of others. There are some great reasons to make a proper spend analysis a priority. As such, I wanted to take a minute to extol the virtues of this process to show some of the benefits you may be missing out on. See below for my top three reasons a proper spend analysis should be the next initiative you spend some time on.

A Tale of Two VARs

(Value Added Resellers)

First, I’d like to set the stage a bit. Consider the relationship between an organization and its IT hardware/software value-added resellers. In this scenario, we have two such VARs; one servicing the organization’s New York branch, the other servicing Philadelphia.

These two VARs have a lot in common. Both serve the same North East region, both offer stellar customer service, and so far the relationship has been good on all sides. Each office comes away satisfied after reviewing their VAR’s track record. But is that all there is to the story?

Generate More Savings

One of the most apparent (if not THE most apparent) reasons to analyze your spend is the impact such an analysis has on strategic sourcing initiatives. At the most basic level, an organization needs to know several key facts before developing a strategy around cost savings:

  • “How much money are we spending, and who is spending it?”
  • “Who is that money going to?”
  • “When are these transactions happening?”

These seem like simple enough questions, but getting the answers can be tricky. To kick off our VAR example, one great way to save money with such VARs is to leverage your spend volume to negotiate rebate structures and develop reduced unit pricing for all purchases. The more you spend, the bigger the rebate and the greater the incentive for VARs to offer unit price discounts – and these things can add up quickly. Consolidating spend to as few VARs as possible helps to maximize this strategy, and both our VARs service the same region. However, because New York and Philadelphia each use two separate VARs, neither will be able to negotiate as strong a rebate, and we likely won’t make much progress in commanding discounted rates. Each location may have a great relationship with its respective VAR – and Procurement wouldn’t know they were missing out on a savings opportunity until a spend analysis revealed this missing piece.

But this is just one way spend analytics will change your life.

Thanks, Brian.