Category Archives: Miscellaneous

Product Compliance

There’s more to sourcing than just acquiring products – a good sourcing plan aligns with your corporate strategy, which, hopefully, should be focused on green products and initiatives. That’s why Aberdeen’s benchmark report on “Product Compliance: Protecting the Environment, Protecting Profits” (sponsored download temporarily available courtesy of Managing Automation) caught my eye.

This report starts off by stating that most manufacturers have not developed systematic, repeatable product compliance processes that efficiently address today’s complex and challenging business environment with an every increasing corpus of complex legislation (including the recent EU RoHS directive and the 7th Amendment to the Cosmetics Directive) placing constraints on the design, distribution, and reclamation of each and every product produced.

Manufacturers today spend considerable time and effort ensuring that their products comply with a multitude of regulatory mandates. Yet many companies’ approaches to ensuring compliance have left them at a high risk of noncompliance, potentially resulting in an inability to sell in global markets, unmet customer mandates, blocked shipments, and associated revenue loss. The high risk level exists despite significant efforts to achieve compliance by most companies. In fact, meeting compliance challenges today has resulted in increased product development cost, decreased ability to innovate, and added staffing.

The most interesting finding in the report that caught my attention was that compliance performance is less dependent on level of effort than on implementing best practices and enabling those practices with the appropriate compliance infrastructure. In other words, brute force can not be used to tackle the problem, you need technology enabled best practices.

According to the report, top business initiatives being pursued include:

  • design for compliance
  • improving compliance documentation and evidence
  • bundling compliance into NPD (new product development) processes
  • proactively monitoring product designs for compliance
  • physically auditing products against compliance requirements

Furthermore, Aberdeen’s findings demonstrate that investments into best practices and enabling technology really pay off. Best in class companies have compliance rates of 90% or more, as compared with laggards who average 10% to 40% of products in compliance with applicable requirements. In addition, leading companies have 53% fewer stopped shipments than other companies and top performers have 35% fewer product recalls. Furthermore, there is often a strong disconnect between self-reported levels of compliance and assessed level of compliance. For example, Aberdeen’s “Environmental Compliance in Electronics” study (now AberdeenAccess members only) found that actual compliance levels are lower than self-reported and that companies are typically at a higher risk than they believe.

What are the major challenges that impact product compliance? According to the study, challenges include:

  • lack of consolidated information on regulatory requirements
  • lack of accurate product data
  • difficulty to determine applicability or exemption
  • resource or skill shortages
  • differing requirements by country
  • inefficiency in gathering material data from suppliers

These challenges can be addressed by the recommendations offered by the report:

  • adopt proactive compliance strategies
    and consider exceeding the strictest global standards in order to enable global sales
  • proactively monitor and assess compliance early in and throughout the product lifecycle
  • seek more detailed product composition from suppliers
  • audit content to address potential variability in your supply chain
  • standardize and centralize compliance processes and organizations
  • automate compliance processes with a compliance infrastructure

and by the following processes and technologies:

  • a Six Sigma mentality
  • collaboration and workflow automation technology
  • innovation on demand
  • a world-class Center Led Procurement organization

The Nokia Saga

Both Spend Matters, in “Nokia, Front and Center, Led Well, Almost”*, and Supply Excellence [WayBackMachine] have recently discussed Nokia and their journey to a center-led organization. According to Tim, Nokia has made the move in an effort to save $300 M Euro over three years by better aligning supply strategies with business requirements, reducing purchasing operation and transaction costs, and better integrating supply management with supply chain management and product creation.

The reality is that they are doing a lot more than just moving to a center led model. According to the presentation at eyefortransport’s recent Supply Chain Directions Summit in the San Francisco Bay Area, they are also focusing on:

  • improved capacity planning
  • 3PL cost management programs
  • offering new service levels to manufacturing centers and to sales
  • collaborating with suppliers to reduce packaging requirements
  • better supply base management
  • improved frame agreements
  • location-based supply chain improvements

Although they did not release the dollar values associated with improvements they have made to date, they have reduced packing requirement ratios from as high as 2.0 to under 1.4, almost doubling the amount of product they can fit on the same shipment. They have improved capacity utilization by focusing on lane-based planning and dealing with short term and mid-term plans separately, with long-term plans updated quarterly. They have evolved outbound shipments to small lot order sizes which they are better able to optimize, since the vast majority of their orders (> 85%) are now small lot sizes. They are also evaluating non-traditional delivery methods in some regions and achieving great success.

They’ve restructured their frame agreement to include a standard contract which includes all of their standard clauses and SOX compliance, fill-in-the-blank appendices to deal with standard requirements such as compensation, storage, service levels, and service levels, and customized fill-in-the-blank appendices for each region to deal with specific local requirements such as TAPA or C-TPAT compliance, GPS monitoring, driver screening, security escort requirements, etc. This allows them to draft better contracts, faster, with reduced risk.

They’ve found that:

  • controlled variables can be a large source of improvement
  • tangible metrics are essential to achieving success
  • the revised frame agreement regulates requirements
  • risk management, security teams, and 3PL collaboration guarantee risk reduction
  • constant audit and process reviews sustain growth
  • collaboration is essential in strategy, tactic, and action plans

Note that eyefortransport’s sister organization, eyeforprocurement has a number of upcoming events next year custom designed for today’s procurement professionals, including the Supplier Management Forum
next April in Miami. Registrations received before year’s end save $400 off of the regular registration rate and those who quote “sourcing innovation” in the discount code field save an additional $100.

* All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.

The Dangers of Centralized Buying

One of the more interesting talks at the “2006 Informs Annual Meeting” was Katri Karjalainen’s talk on Conflicting Goals in Centralized Organizational Buying.

Many organizations large and small pursue centralized buying in hopes of achieving the following benefits:

  • economies of scale
  • purchasing expertise
  • administrative efficiencies
  • specialization
  • volume discounts
  • optimal use of resources and process efficiencies

However, centralized buying brings with it the following corresponding disadvantages:

  • missed local opportunities
  • loss of local knowledge
  • loss of control over supplier performance

As a result, the organizational conflicts often arise due to:

  • divergence of subunit goals
  • conflicts of preference between purchasing center and remote units
  • lack of subunit inclusion
  • cost of certain purchases on a corporate contract may be higher than the subunit could achieve locally
  • quality of certain purchases on a corporate contract may be lower than the subunit could achieve locally

As a result, the benefits of centralization are highly dependent upon commitment to contracts by the organization and the subunits and economies of scale, the primary reason most organizations centralize purchasing efforts, are often the last to materialize.

That’s why I keep promoting Center Led Procurement where you can have the best of both worlds.

I know it might be difficult, as Jason Busch points out over on Spend Matters in “”Nokia, Front and Center, Led Well, Almost”* but I think it’s worth it.

* All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.

Flaming Sideburns

Well, I haven’t found a good follow up to the Flaming Laptops fiasco to write about yet, so while you’re waiting, you can always check out Finland‘s Flaming Sideburns, Spotify previews. Or, if you like your rock a little more psychedelic, you can check out the Flaming Lips. Finally, if you like your rock with a modern punk twist, you can check out the Flaming Bulldogs on Audio Lunchbox. Got your own flaming band to recommend? Leave a comment.

And for those of you just itching for a comedy fix, Humor Matters has a Christmas Humor Index in the spirit of the forthcoming season.

Savings Strategy Development, A Review Part II

To hit home my point that I believe the online course “Savings Strategy Development” from Next Level Purchasing (now the NLPA, part of Certitrek) is worth the time and investment for a purchasing professional looking to advance her knowledge and career, with kind permission, I am going to dive into a few topics covered in the course that I believe hit home on the importance of a good savings strategy and a well designed course to help you develop one.

The course begins by noting that saving money is arguably the #1 reason for the purchasing profession. Businesses exist to make profit, and that happens when the bottom line is improved. There are two ways to do that. Increase revenue or decrease expenses. Effective purchasing decreases expenses, particularly in terms of cost of products sold or selling, general, and administrative expenses.

The first lesson then goes on to define seven types of savings, including the well understood hard-dollar, the moderately realized but hard-to-calculate payment term savings, and the less common alternate condition savings. It lays out clear calculations for each of these. For example, the proper way to calculate payment term savings, which results when more favorable payment terms are negotiated, as defined in the course, is:

{(New Discount – Old Discount) – [(Old Window – New Window) * (Money Cost/365)]} * Spend

where:

  • New Discount : new discount rate offered by the supplier
  • Old Discount : old discount rate offered by the supplier
  • New Window : new number of days in which payment is due
  • Old Window : old number of days in which payment is due
  • Money Cost : annual cost of money
  • Spend : spend on products and/or services to which the new discount applies

It then clearly defines the difference between quick hit, supplier relationship, and strategic sourcing savings opportunities and defines a methodology for determining what type of opportunity a category represents. It also defines the basic strategies that should be considered for each savings opportunity. For example, a quick hit opportunity generally implies the use of competitive bidding from pre-qualified suppliers who have already accepted a contract template.

Of course, the crux of the course is the ten phase approach to world class sourcing which should be applied as a starting template each and every time you start planning your sourcing – and savings – strategy for a strategic sourcing opportunity. And unlike some approaches that you will discover reading through materials you will find on the web, which tend to focus on the technology and not the core underlying process, it includes due emphasis on a current baseline analysis (phase 2), market survey (phase 4), and success measurement (phase 9). After all, without a baseline, you will not be able to measure your success, which is key to establishing your worth, and that of your department and profession, as a procurement professional, and without a decent understanding of the market, it will be hard to determine reasonable goals, objectives, and the magnitude of your success. (A price concession in a tight market where suppliers generally have more bargaining power is a bigger win than a price concession in an open market where supply exceeds demand and suppliers have little bargaining power.)

I hope this gives you some more insight into the importance of continued education and appropriate courses for your development and why I believe “Savings Strategy Development” from Next Level Purchasing is most likely worth your time and investment as a procurement professional.