Category Archives: Sustainability

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!

Grocery Retailers Waste So Much Food It Should Be Criminal!

Approximately 1/3rd of all food is wasted in North America. (See 2013’s Thanksgiving Post.) For years, I’ve been struggling to figure out why. It’s well known that the biggest offenders are

  1. processors in developing countries who (due to financial, managerial, and technical constraints) struggle to properly store, cool, and process the food on-time to preserve it.
  2. restaurants, who discard as much food as they discard other waste (Source SI)
  3. retailers, who through bad forecasting, order too much and then spoiled food goes in the dumpster

But it is not well known that retailers intentionally over-order and waste food just to make sure their produce section looks nice (Source Spend Matters “eating the cost of wasted food and sometimes thats ok waste matters part 6”). And that is definitely NOT OK! Never, ever, ever! Not when over 13% of the world’s population is undernourished (Source: KFF and Wikipedia) and 15% of Americans, that’s right, 15% of Americans are considered “food insecure” and experience hunger in their households. (Source: FAO Washington “the new face of hunger: why are people malnourished in the richest country on earth”)

In other words, the produce that is being wasted by retailers as an “acceptable loss” might be enough to counter a sizeable portion of the undernourishment problem in America — and that’s not counting the waste by restaurants and food processors! There’s no excuse for this. Not only are people going hungry, but we’re paying more for our retailers’ stupidity.

Why do they do this? According to Spend Matters, retailers believe that having a good-looking produce section that is fully stocked with fresh products is essential to get customers in a store. And that having more products than needed rather than running out tends to be better for business. While both of these statements are true, this doesn’t mean that a store has to considerably over-order to avoid stock out or waste food.

Not only has computing power increased dramatically since the pentium was released twenty years ago, which allows large amounts of historical data to be processed on the Procurement Manager’s workstation, but so has the accuracy of demand prediction models which can very accurately predict demand for any product at any time of the year, and even take into account the impact of sales, market shortages, and market recalls. A 1% buffer in these models is more than plenty to prevent stock-outs 99% of the time if these models are properly applied on enough data.

Furthermore, the standard practice of marking the produce down 50% when it starts to rot in hopes in that it will sell before it is unconsumable is stupid. When you see rotting tomatoes, moldy oranges, or squishy cucumbers, you’re not even going to buy them for 75% off. Stores have to smarten up and do two things.

  1. Mark produce down when it’s shelf-life gets down to 72 hours or less.
    Considering we also have very accurate models of shelf life under given situations, this isn’t hard to do.
  2. Donate produce with a shelf-life of less than 48 hours to a local shelter on a nightly basis.At this point, the store is taking a 75%+ write-off anyway and it knows it. It would be much better to donate the food, and get a charitable donation tax credit, when the food can still be safely used than throw the food in the waste bin. Especially since the retailer could use this to get a brand boost if it advertises that it donates X$ in food each year to the local food bank.

    No consumer expects every item to be in stock every time they go to the store with the never-ending stream of supply disruptions we experience these days, so the game has to change. And no consumer wants food to go to waste if people in their own city are starving! It’s not about the most fresh produce, but the most responsibility — and these days, a little goes a long way and the first store or chain in a region to capitalize on this is going to get a big brand boost.

And if you are a eco-nut who wants to protest something, here’s a cause. Protest grocery stores that build waste, or shrink, into their model without making sure that such food doesn’t end up in the dumpster. While some sustainability problems aren’t easily addressed, this one is.

Environmental Damnation #19: Water

Water, water everywhere
and not a drop to drink

There are dozens upon dozens of challenges being thrown at you as a Procurement professional on a daily basis. We’ve said it before and we will say it again. These challenges will cause you nothing but grief and agony as these damnations, collectively, do nothing but divert your attention from critical strategic planning, (should-cost) modelling, and supply assurance.

Fresh Water is quickly becoming the scarcest resource. While nearly 70% of the globe is covered by water, less than 2.5% of it is fresh. Moreover, only 1% of our freshwater is easily accessible, with the rest trapped in glaciers, snowfields, and the earth itself. In essence, as pointed out in a National Geographic (in the FreshWater Crisis) article, at most 0.007% of the planet’s water is available to fuel the planet’s 7 Billion people. At least 1 Billion people worldwide lack access to fresh water, and up to 3 Billion face water scarcity issues at least one month of the year. And this situation is only going to get worse — by 2025, over 5 Billion people may be dealing with water scarcity. Not food scarcity — water scarcity. The only thing more important to life than water is air. So the fact that it is expected to be so scarce should be, to be blunt, scaring you sh!tl3ss.

But it’s not just we as individuals that need fresh water to drink (and bathe and, to some extent, clean), and the farms that need it to grow our food, but our organizations need it too. When it comes to modern production, water is needed to clean and cool modern production plants. For example, not only is it impossible to make semiconductors and modern computer microchips in anything other than an ultra-clean facility, but ultra-pure water is required during production. Chips, and the electrical pathways that power them, are built up in layers and need to be washed clean of the solvents and debris from the layer just completed before the next layer can be started. This can only be done with ultra-pure water — which is so pure that it is unsafe to drink (because water is the universal solvent and perfectly pure water would actually leach minerals and vitamins out of your body, instead of adding them as vitamin and mineral water does).

The production of ultra-pure water requires 12 filtration steps beyond reverse osmosis, a process that is often used to turn ocean water into drinkable water. Each of these steps requires as input water of a certain purity. And even reverse osmosis requires water of a certain purity, or the equipment has to be shutdown and cleaned too often, making regular, cost-effective production difficult.

But it’s not just semiconductor and microchip plants that require fresh, clean, water — data centres, which use water cooling, do too. Salt water corrodes the cooling system, and a single leak could short out an entire facility (if it was over the main relay station). Even if your facilities don’t rely on freshwater, chances are that your suppliers’ facilities do. A lack of freshwater in your supply chain can result in unexpected disruptions, and if it is needed for cooling plants that can overheat, even disasters.

And it might not be so bad if this was the extent of the risk. But a lack of freshwater can cripple an entire economy. As per this recent article over on EurActiv.com, the entire German economy is vulnerable to global (fresh) water scarcity.

According to an author of a recent WWF Study (in German), released last August, many German economic sectors are both responsible for and affected by the international water crisis, from the food sector to the auto and fashion industries. (Almost 9,000 litres of water are needed to produce one kilogram of cotton in Pakistan!)

Even Southern Europe is running out of water. Currently, 80% of water is used for agriculture in the region, and in some of these countries, there is not enough groundwater and desalinated seawater is needed to make up the difference.

And the water shortage is further contributing to the climate change that may have caused it. As pointed out in Wikipedia, the resulting aquifer drawdown (and pumping of fossil groundwater from below the surface of the earth) increases the total amount of water within the hydrosphere subject to transpiration and evaporation, which upsets the climatic balance in ways yet to be understood.

And if you’re not preparing for the coming water shortage now, when it hits, it may be too late. You barely have time to get a drink, and now you have to ensure that the entire supply chain will have enough to drink in the coming years. And when you are surrounded by fire, this is not easy to do.

So what should you be doing? If your facility requires large amounts of fresh water, don’t depend on local city infrastructure to deliver it to you. Plan to build your own pumps and filtration systems to draw water from nearby lakes or underground wells. And if the facility is in a region that regularly experiences water storage, consider producing excess capacity and selling to nearby factories to reclaim your investment sooner rather than later.

Key Priorities for Ethical Supply Chains – An Interesting Study

Software Advice, a software review company which covers the supply chain management space, recently posted the results of its “Key Priorities for Ethical Supply Chains” Industry View 2014 that discussed the results of two surveys distributed to over 1,100 consumers. The findings are interesting, generally indicative of the current state of affairs, but, as far as SI is concerned, specifically off, though not due to any fault of Software Advice or the methodology employed by the researcher. What do we mean? Read on.

In the first survey, the group of over 1,100 consumers was split into three and each group of consumers was asked how much more they would pay for a product, normally priced at $100, that was produced more ethically with respect to one of three ethical initiatives: ethically sourced materials, carbon emission offset, and good working conditions. The first group said they’d pay an average of $18.50 more if the raw materials were ethically sourced, the second group said they’d pay an average of $19.70 more if the product had its carbon emissions offset, and the third group said they’d pay as much as $27.60 more if the product was made by workers working in good working conditions. A deeper dive revealed that 35% of consumers would not pay a penny more for products made under these ethical initiatives. And while the second finding does not surprise the doctor, he does not believe the first finding in its entirety. But more on that later.

In the second survey, the respondents were asked which of the three broad ethical initiatives would make them more likely to purchase a company’s products: working conditions, reduced environmental impact, or community involvement. The results were more-or-less evenly split. This does no surprise the doctor either.

So why doesn’t the doctor believe the average consumer would pay considerably more (an average of 21.93% if the above survey is to be believed) for an ethically sourced product? Three reasons.

  1. In the vast majority of verticals, it is not the most socially responsible company that is the market leader.
  2. Fly Research’s recent survey, which attempted to determine what factors are really important to consumers in their purchasing decision, found that only 9% of UK and 16% of US consumers rank “ethical company/brand” in their top 3 attributes but the vast majority are more concerned with value for money (86%), price (76%), and quality (73%). (See SI’s recent post on Do As I Say, Don’t Do As I Do!
  3. The study did not take into account the inherent bias of the consumer. As a result of recent disasters and media storms — including the fire in Bangladesh, the BP oil spill, and underground sweatshops in Russia — not only is corporate ethics and supply chain sustainability on the mind of many caring consumers, but it is stirring up their emotions. And an emotional subject is not an unbiased one. While a consumer might try her best to be unbiased when responding to a survey, when all of the questions stir emotional responses, her responses are going to be skewed relative to what they would be compared to the situation where only a small portion of the survey contains questions or answers that stir emotions. So had these been just three factors in a pool of ten or more that she is asked to consider when defining what is most important to her when selecting a product for purchase, and the other seven plus do not stir any emotion, she will be able to better balance her emotion with her objectivity. And this is why when you compare the results of this survey with the Fly Research study, you find a discrepancy (that cannot be easily accounted for unless there is emotional bias in the consumer responding to the surveys). How else do you explain that a third of consumers expressed a wilingness to pay over 10% more (and up to 100% more) while another third expressed a willingness to pay up to 10% more when the Fly Research study found that less than 43% would pay more than 5% extra and the percentage of respondents who would pay more than 5% declined much faster than the percentage of respondents in the Software Advice Study.

In other words, consumers are starting to care, aren’t necessarily sure which issue they care about the most, will definitely choose a socially responsible product over one that is not socially responsible if all things are equal, but if the cost differential is too high, the average consumer will not be swayed to a more socially responsible product, despite their desire for social responsibility. So while the issues are likely spot on, the relative worth to the average consumer is still in question.

However, in addition to confirming our suspicions that there is no high level issue with respect to social and environmental responsibility that is considerably more important than the others, the study did reveal that if you drill down, there are some specific issues that concern consumers more than others. For example, where environmental responsibility is concerned, more consumers care about reduced water use and biodegradable packaging than reduced carbon emissions. Where community involvement is concerned, 43% believe that the best thing a company can do is to open a factory where jobs are needed (and not outsource to another country). And where working conditions are concerned, 45% believe workers should be paid a fair wage. This gives you starting points in your CSR efforts that will earn you brownie points and increase your brand’s reputation if appropriate initiatives are undertaken. It will be interesting to see how these trend over the coming year.

Procurement Trend #21. Increased Raw Material Scarcity

Eighteen anti-trends from the bush country still remain. As much as we’d like this series to be nearing the end of its run so that LOLCat can come out of the bag and once again explore the world, this lunacy has to stop. We have to shine the light on all these half-truths and lies and put an end to them once and for all. We will continue until each one is laid bare in the hopes that the boondock futurists run back into the bush lands from once they sprang and leave us alone to push forward.

So why do so many historians keep pegging increased raw material scarcity as a future trend? Besides their inability to recognize the twenty first century, there are a few reasons, but among the top three are:

  • We’re burning fossil fuels like there’s an endless supply
    and there isn’t. New drilling technology might allow us to tap more reserves then we thought we could, but this only gives us two or three extra decades before we run out. Since most of our current fossil fuel reserves formed over hundreds of millions of years, and are from plant remains before the time of the dinosaurs, it should be obvious that they are not renewable.
  • We’re using rare earth minerals as fast as we can mine them
    and demand is still increasing as mobile mania hits the world!
  • Global food reserves recently hit an all time low
    back in 2009 and with population steadily increasing, the situation is not going to improve.

So what does this mean?

Fossil Fuel being burned like there’s no tomorrow might mean there is no tomorrow

Non-renewable energy reserves are running out, pollution is on the rise, and if you aren’t already being hit with rapidly increasing energy costs, expect to be taxed to the hilt by way of carbon credits. At some point, where fossil fuels is concerned, there will be no tomorrow. Thus, you have to start moving towards renewable energy resources — wind, solar, water — as soon as possible and make sure that you are only using fossil fuels for transport, at least until such time as there are suitable hybrid bio-fuel/battery-powered transport options for you to choose from.

Rare Earth Minerals are on the verge of extinction

They are called rare earth minerals for a reason — they are few and far between compared to regular earth minerals and in a very limited supply. You need to find alternate designs that, at the very least, require less of these materials if you can’t eliminate the need for them completely. And you definitely need to start designing for recycle and reclamation.

Food Reserves at an all time low

Food costs are going to increase through the roof, and severely impact your bottom line, unless you do whatever you can to eliminate waste through the supply chain end-to-end. In many countries, a third of food is needlessly wasted. Not only can we do much better than this, but we need to. Even though there are now almost 7.3 Billion people in the world, we are still able to produce enough food to feed everyone, but yet over 870 Million people are chronically undernourished. Simple math says that if 2/3rds of global food production feeds about 6 Billion people, then we can easily feed 7.5 Billion people with sufficient nourishment. However, it also says that as the population grows, our ability to produce more than we need decreases substantially and any natural disaster that wipes out a major crop will have huge repercussions if we cannot eliminate waste. So you need to review all of your transportation, storage, and production processes to make sure you get total supply chain waste as low as possible as soon as possible.