Category Archives: Risk Management

You need a Platform that Supports Sustainability

I think we can all agree that sustainability is important – very important. You might be in business to make money, but the only way you’re going to make money is if you stay in business. The only way you’re going to stay in business is if you’re sustainable, because, otherwise, you risk running out of resources, money, or, and I’m not kidding, customers. The earth is finite, so it stands to reason that there is only a finite amount of any resource. A company has a finite amount of money, and wasting it is the quickest path to going out of business. Today’s consumer is concerned about the environment – harming it will drive them away, and with no customers, you have no business.

So how do you achieve this magic of sustainability? Well, you can achieve it the same way you achieve everything else in business – hard work, perseverance, and ingenuity. But the real trick comes in sustaining sustainability – and the best way to do that is to have not only supporting processes and methodologies, but a supporting platform as well.

A supporting platform can help you keep track of your initiatives which can range from your office recycling program to your global waste reduction initiative. Recycling efforts within a single large office building can save hundreds of thousands of dollars. As noted in a now classic S&DC article on “Building the Green Supply Chain”, the Boulder Community Hospital reduce, reuse, and recycle program saved the hospital $600K a year. On a global scale, Walmart saved 2.4M in shipping just by reducing packaging requirements. And Interface Inc, in their effort to move to a zero environment footprint, have saved more than 260M in the first decade of their sustainability program.

More importantly, it can also help you get control of your global sustainability initiatives when it comes to environmental impact reduction, social responsibility, and prevention of animal cruelty. Unlike internal waste reduction initiatives, which often do not exceed the complexity of making sure the used toner cartridges were shipped back to the manufacturer, global sustainability initiatives require you to also insure your supply chain does not violate the initiatives you commit to. Just because you don’t have a sweatshop, pump out toxic emissions in excess of the Kyoto protocol, or skin cows alive does not mean that your suppliers do not.

In order to insure that you have a supply chain in compliance with your initiatives, you have to track relevant information from your suppliers and have them track the corresponding information from their suppliers. This is an insurmountable challenge unless they can provide you with the information you need directly into your systems, as the average large company has dozens, if not hundreds of essential tier 1 suppliers and thousands of less critical suppliers. This requires a web based platform capable of securely collecting, storing, indexing, aggregating, and unifying all of the relevant information from each supplier.

Furthermore, depending on where you want to do business, sustainability might be more than just an initiative – it might be a fact of life. If you want to do business in the EU, you need to comply with REACH and RoHS, and possibly half a dozen other directives. California has introduced its own green legislation, and parts of Asia, suffering from severe pollution as a result of the rapid build up of manufacturing capability over the last few decades to meet the demands of American and European multinationals focussed on low cost country sourcing, may not be far behind. You have to not only maintain all of the documentation necessary for compliance purposes, but have to be at least 99.999% certain you are in compliance before making a shipment into the region. If even the tiniest removable part of your electronics system, such as the removable power cord, is not in compliance, your entire shipment could be blocked, seized, or destroyed.

This dictates the need for a platform that tracks not only all information related to your sustainability programs, but all product related information from raw materials through final production. This is the only way to minimize your risk of non-compliance. That’s why you need a Supplier Information Management (SIM) solution, or an e-Sourcing/e-Procurement solution with enhanced Supplier & Sustainability Information Management. Fortunately, you have a lot of options. We’ve covered many on SI in the past and will cover more in the months to come.

Doing Cross-Border Trade in Europe? Download this Free Handbook!

The Organization for Security and Co-operation in Europe (OSCE) recently released the “Handbook of Best Practices at Border Crossings — A Trade and Transport Facilitation Perspective” to assist the 56 OSCE participating States / UNECE member States in the development of more efficient border and customs policies through the promotion of existing best practices in the field. Clocking in at 268 pages and 5.7 MB, this e-book is filled with advice on the international legal framework; international co-operation; balancing security with trade and transport facilitation; policies for control, clearance, and transit of freight; risk management; border crossing point design; the use of information and communications technology for non-intrusive inspection; human resource management, and measuring performance. Given the wide array of legislation that an international organization can face, given that this e-book is totally free, the doctor thinks it’s a must have in your global trade e-Library.

As the handbook points out in chapter 3, there are five major categories of security threats that countries need to watch out for at their borders:

  • normal criminal acts
    such as car thefts on one side and chop shops on the other
  • technical violations
    such as lack of proper documentation
  • traditional organized crime
    that would include smuggling of weapons, people, and other contraband
  • terrorist threats
    that could result in attacks, destruction of property, and death
  • border management threats
    that would include corruption and abuse of power

These require a number of security procedures and controls to deal with. (The UK alone has 37 procedures, as outlined on page 57, that range from AEO [Authorised Economic Operators], CSI [Container Security Initiatives], and MATRA [Multi-Agency Threat and Risk Assessment] all the way to dangerous goods declarations, pre-ship notifications, and commercial insurance.) Some of these are compliant with the new WCO SAFE Framework, some are not. Either way you need to be aware of them, what impact they have, and how they can benefit you.

To really dive into the issues, and recommendations, download your FREE copy of the OSCE “Handbook of Best Practices at Border Crossings — A Trade and Transport Facilitation Perspective” today!

Best Practices of Trade Compliance

A recent article over on the ISM site entitled “A Steel Thread”, which discussed how import/export compliance management is part of the fabric of today’s global business world and how ignoring it could result in your shipment being flagged for intensive investigation, seized, or destroyed, did a good job of pointing out how federal trade compliance regulations have increased dramatically over the past several years. But this is not why SI liked it. It also did a good job of pointing out the roadblocks to compliance for an average Supply Management organization, starting from the fact that the sourcing and compliance teams often have different definitions of supply chain security. But this isn’t why SI liked it either. The reason SI likes it is because it summarizes six best practices of trade compliance that will significantly help an average Supply Management organization get its global trade processes and policies under control.

The six best practices it focusses on are:

  • Education and Training
    Let’s face it. The average supply management professional is probably not aware of the myriad of compliance and security legislations that an average category could be subject to when sourcing internationally. Training, which overviews the major legislations, the common sourced categories that might be covered under those legislations, and best practices to maximize the chances of compliance is a great place to start.
  • Senior Management Commitment
    We all know nothing takes root without senior management sponsorship, so making sure senior management understands the importance of a good trade compliance initiative and supports it is a great place to start. If you’re having trouble getting support, SI recommends that you start by pointing out the 88 Million Dollar Fine JP Morgan got for failing to comply with trade compliance legislation.
  • Written Policies and Procedures
    Once you’ve identified your best practice processes that minimize the chance of non-compliance, you need to write them down, create checklists, and make sure they are followed. The reality is that if you are found in non-compliance, you will be fined, even if it was 100% unintentional and you did everything you could to be in compliance, but if you can show you did your best, the severity of the fine and punishments levied will likely be minimal. The government agencies responsible for monitoring compliance aren’t out to shut businesses down or make trade unduly difficult, they are just trying to do their job and enforce the law. However, most of the acts only define maximum fines, not minimum ones, and it’s not common practice for them to severely punish good corporate citizens who have a process, follow the process, and do their best to ensure compliance for a small slip-up.
  • Connectivity with Business Units
    Not only is it impossible to do compliance in a vacuum, as the article points out, but it is the business units who often have the detailed data on products and services that you need to make proper compliance assessments. Working with them can eliminate issues before a shipment is even made.
  • Internal Assessment
    As the article points out, an internal self-assessment of compliance practices should be performed to gauge how well regulations are being met and how compliance is connecting with logistics, supply management, sales, shipping and receiving — and it should be done as soon as possible if you haven’t done one, and reviewed annually to see if all bases are still being covered. And it should be very well documented. This will help you if you are ever investigated for possibly running afoul of trade legislation.
  • Third Party Assessment
    In addition, as the article points out, once or twice a year, a “second set of eyes” should evaluate how trade compliance is being handled throughout the company to make sure you didn’t miss anything. This can turn the tide in your favour if non-compliance occurred someone along the supply chain as you not only did your best to make sure you were in compliance, but had a third party that has expertise in supply chain audits do their best to verify that you are in compliance as well.

About the only critical best practice that they missed is:

  • Implement a Trade Compliance Platform
    The reality is that you can’t do all of this manually, or even attempt to track all of the relevant data manually. You need a technology solution to help you — one that centralizes all of the data and makes it all available to all of the people in your organization that need it, as well as to trusted partners that need, and are authorized to use, it.

There are other best practices, but if you start with this list, you will get most of the way there in short order.

For Lasting Results, Follow the Procurement Leaders …

… but be sure to focus on the right characteristics first. Reviewing a recent summary of A.T. Kearney’s 2011 “Assessment of Excellence in Procurement Study” over on the A.T. Kearney site on why you should “Follow the Procurement Leaders” that described seven ways to lasting results, I couldn’t help but notice that they had all the right suggestions, but in reverse order. Starting from the bottom of the list, and working our way up, we see that the suggestions will transform your organization from an average performer to best in class.

  1. Win the “War for Talent”.
    This is the first T necessary for supply chain success and the most critical one. No supply chain function can be happen without someone in place to plan, manage, and execute it — and for any function to be planned, managed, and executed in an optimal manner, you need world-class talent.
  2. Adopt Technology.
    This is the second T necessary for supply chain success and the next most critical one. Once you have found the right talent to take your supply chain to the next level, you need to enable your talent with the right technology to make them as efficient and effective as possible.
  3. Transition to Category Strategies.
    As the article notes leading procurement organizations use more advanced toolkits — systematically employing more than twice as many methods as the followers — to tailor their approaches to each situation. That’s why leading e-Sourcing / e-Procurement providers are now offering platforms with category templates / workflow management capabilities to allow platform customization to each organizational category and support the third T of supply chain success.
  4. Use Supplier Relationship Management.
    Suppliers are key to supply chain success, and leaders manage the relationship to get the most out of it. They use suppliers to improve innovation and growth, monitor compliance and risk management, and improve capabilities across the supply chain.
  5. Manage Risk Systematically.
    Leaders use risk-impact analysis, financial risk management, and disaster planning as ways to protect against, and mitigate the effects, of disruptions — unlike the risk management “followers” that constitute 80% of companies that are a single natural disaster away from a major supply disruption.
  6. Contribute to Top and Bottom Lines.
    It’s not just about cost reduction, but about value generation. Good Supply Management doesn’t just stop at cost reduction, but goes onto demand reduction, component innovation, product innovation, and even market innovation. This is done by managing risks, managing supplier relations, applying category strategies, using technology, and using all of the skills your talent possesses.
  7. Align with the Business.
    Leading supply management organizations support the business strategy. And while this is the most important goal from the viewpoint of Supply Management, as the goal is to increase the image of Supply Management in the organization, this can not be accomplished until all of the pieces of the puzzle, described in the first six steps, are in place.

What Impact Will the National Defense Authorization Act (NDAA) Have On Your Supply Chain?

According to a recent press release over on the IHS site, stringent new counterfeit-part regulations in the 2012 U.S. National Defense Authorization Act (NDAA) may have broad international implications that could impact hundreds of of overseas companies that supply Billions of dollars’ worth of items to the U.S. Government. This act, which was signed into the US law on December 31, 2011, not only authorized 662 Billion in funding “for the defense of the US and its interests abroad”, not only included Title X, Subtitle D on “Counter-Terrorism” which deal with the detention of persons the government suspects of involvement in terrorism, but also contains 8-page section 818 on the “detection and avoidance of counterfeit electronic parts” buried in its 565 pages.

This section states that the secretary of the department of defense shall issue or revise guidance … which … shall address requirements for training personnel, making sourcing decision, ensuring traceability of parts and shall revise … the Federal Acquisition Regulation to address the detection and avoidance of counterfeit electronic parts and The revised regulations … shall provide that … covered contractors who supply electronic parts or products that include electronic parts are responsible for detecting and avoiding the use or inclusion of counterfeit electronic parts or suspect counterfeit electronic parts in such products and for any rework or corrective action that may be required to remedy the use or inclusion of such parts.

In addition, the act states that the Secretary of Defense shall implement a program to enhance contractor detection and avoidance of counterfeit electronic parts and the program … shall require covered contractors that supply electronic parts or systems that contain electronic parts to establish policies and procedures to eliminate counterfeit electronic parts from the defense supply chain, which policies and procedures shall address

 

 

  • the training of personnel
  • the inspection and testing of electronic parts
  • processes to abolish counterfeit parts proliferation
  • mechanisms to enable traceability of parts
  • use of trusted suppliers
  • the reporting and quarantining of counterfeit electronic parts and suspect counterfeit electronic parts
  • methodologies to identify suspect counterfeit parts and to rapidly determine if a suspect counterfeit parts is, in fact, counterfeit
  • the design, operation, and maintenance of systems to detect and avoid counterfeit electronic parts and suspect counterfeit electronic parts, and
  • the flow down of counterfeit avoidance and detection requirements to subcontractors

 

 

 

And many other requirements, along with punishments for offenses which an include 2 and 5 Million dollar fines for individuals and 5 Million and 15 Million dollar fines for corporations for first offenses with second offenses garnering fines of up to 30 Million dollars.

This is of grave concern, because the legislation applies not just to counterfeit parts, but suspect counterfeit parts. An organization that supplies parts that are suspected to be counterfeit, whether proven counterfeit or not, will have to remedy the situation on its own dime (which could cost Millions to mint), and if it doesn’t do so satisfactorily, could be fined Millions of dollars on suspicion. And given that the reports of counterfeit parts have soared dramatically in the last two years, with 1,363 separate verified counterfeit-part incidents in 2011 as compared to 324 in 2009, this is a serious concern for anyone supplying products to the US Government. Given that many of these counterfeit parts are commercial electronic components that have wide use across every major technology end market, this is an especially serious concern for suppliers and manufacturers in electronics supply chains.

It would appear that this puts the need for supply chain security and risk management in your electronics supply chain at an all time high, now that even suspected fraud can bankrupt your company. The impact of this legislation could be much worst than 10+2. What do you think?