Category Archives: Sustainability

Seven Tips for Succeeding in Any Market, Part II

Yesterday, we noted that the article published in Chief Executive last year on Seven Tips for Succeeding in Asia actually provided seven tips for succeeding in any market and, briefly, explained why. Today, as promised, we are going to review the supply management corollary to each of these seven tips because they will help you increase the value of your Supply Management organization.

So, without further ado, here are the seven tips for creating a successful Supply Management Organization.

  1. To expand your organizational influence, pick a department with an unmet need your organization can readily fulfill.
    For example, let’s say you are not yet supporting any marketing and legal spend and know that you have to go after one of these sacred cows to increase your spend under management. Let’s also say that you just hired a new analyst who was a marketer in a past life and who has experience sourcing creative services from his past job but not a single professional in your organization knows anything about e-Discovery, which is Legal’s issue of the day. In this case, you should go after Marketing as you have someone who can help them source better talent more efficiently, and save them money by decoupling non-value added services.
  2. Find a mentor on the Board (of Directors) who understands the value you can bring to the organization and can help you forge stronger ties with the C-Suite.
    This will get you more support across the organization and will inevitably help improve your financial situation as other budget holders see the value in supporting your efforts. Eventually, they will be willing to pay their share of system upgrades, GPO fees, or contract labour who you identify as being able to reduce their costs and/or increase the value they offer.
  3. Scale your organization by learning the language of finance.
    Let’s face it, if you can’t explain to the CFO in a language she understands that the budget and cost savings calculations should not be decoupled, you will be forever doomed with constantly being tasked to do more with less until the organization implodes under the weight of an increasingly impossible task. You need to be able to demonstrate the ROI of investments in training, technology, and talent to get the budget you need to deliver the savings the organization wants, and the ROI you know your Supply Management organization is capable of with sufficient budget.
  4. Be sure to consult regularly with the IP specialist on your legal team.
    Considering that you will be sourcing contract manufacturing and services from value-added services providers who could very easily copy your products and steal your expertise, you need to make sure you are adequately protected to discourage this from happening, especially in foreign markets.
  5. Keep an eye on your ROI, especially when services and SaaS contracts are about to come up for renewal.

    While there isn’t an advanced sourcing technique or technology that won’t save you money in the right situation when properly applied, not all techniques and technologies are created equal, and neither are all situations. If a service provider isn’t delivering the value you expect, they may need to be replaced. And if a technology platform isn’t delivering a decent ROI, it definitely has to be replaced. Your cash is limited. You can’t be wasting your budget on non-ROI products and services when there are dozens of products and services that can save you double digits and provide an ROI of 3X to 10X, or more.
  6. Go after the low-hanging fruit first.
    The fruit at the top of the tree may be juicier, but it is a lot more difficult to pick, and the risk of falling off of the ladder and seriously injuring yourself is much greater. Start with the easier wins, gain experience, and work your way up to the harder wins.
  7. Reward success with bonus pay tied to performance.
    Give your top talent the opportunity to increase their compensation without ceiling, and watch your savings soar and value surge. Just be sure to tie the compensation to appropriate metrics, because you get what you incentivize! (But, whatever you do, don’t put a ceiling on potential compensation. If you know you’re not going to make any more money, why would you work harder? There’s a reason the most successful companies in the enterprise space don’t limit the earning potential of their sales-people. They know that every dollar earned in commission puts ten dollars in their bank account, and the shareholders know that, at the end of the day, every $10 in the bank ramps up valuation by $20 to $100 and makes them many times richer in the end than the sales-person. If you think about it, a truly successful organization is one where the top sales-person and the top buyer both take home more than the average CXO!)

And this is how you begin to create a successful Supply Management organization. There’s a lot more to success, but these corollaries are a good starting point.

“China Defense” or “Chewbacca Defense”?

When it comes to reducing carbon emissions, we have the unfortunate situation in North America that many people, rather than tackle the problem head-on and doing something about it, are, instead, invoking the “China Defense”. The China defense goes something like this: There are other countries that are polluting the atmosphere much more than we are, like China, because they are still growing and emerging, especially from an industrial perspective. And they are not going to stop what they are doing.

The problem with this defense is that it makes about as much sense as the “Chewbacca Defense“. For those of you familiar with South Park, the creation of the mad minds of Trey Parker and Matt Stone, the “Chewbacca Defense” is a legal defense designed to deliberately confuse the jury by making use of the fallacy known as ignoratio elenchi (red herring). This defense, which (supposedly) satirizes Jonnie Cochran’s closing argument in the O.J. Simpson murder trial, starts off by stating that Chewbacca lives on the planet Endor, which isn’t true. Then it states that the statement does not make sense (which it doesn’t). Then it connects the senselessness of this statement to the actual legal case, to imply that the legal case is equally senseless.

Confused? Good. Because you’d have to be to fall for the “China Defense” when you consider, as pointed out in this great HBR blog post on ‘the fallacy of the “China Defense”‘, the following:

1. China is doing much more than we are to reduce carbon emissions.

  • China introduced a 10-year 5 Trillion Yuan alternative energy plan in 2010
  • In August 2012, it announced it would spend over 2.3 Trillion Yuan in the next 3.5 years to cut pollution
  • In August 2012, it announced it would reach 21 GW in solar power capacity by 2015
  • As of January 2013, Wind is the #3 source of energy in China
  • It just announced the implementation of a carbon tax

2. Science doesn’t care

We have to decarbonize at the rapid rate of 5% less carbon per dollar of GDP annually until 2050, or the catastrophic effects of global warming will make us long for the days when Hurricane Sandy and Hurricane Katrina were the worst we had to deal with (and the cost of catastrophes was under 100 Billion).

3. Not only is going green good, but it will put more green into your pockets than you can imagine.

The truth of the matter is that the clean economy will be a multi-trillion dollar market. Embracing the clean economy could go a long way to helping the U.S. manage it’s public debt!

So make sure to do your best to minimize carbon in your supply chain.

Could You Run Your Supply Chain from Another Country for A Month?

A recent post over on the HBR Blog Network on why we’re relocating our HQ to Dubai for one month about Starwood’s one month move of their HQ to Dubai for one month brings up an interesting question:

 

Could you run your supply chain from another country for a month?

 

It’s an important question. Because if you can’t, you’re not prepared for a disaster. And given that the likelihood of a disaster shutting down your primary location is increasing as the number of natural disasters rise each year (thanks to global warming), you should be. While the risk of a disaster shutting down your Supply Management headquarters is likely small compared to the risk of a significant disruption impacting your supply chain (which is approaching 85% for many companies), the risk is there. And you have to be ready.

Furthermore, if you have the right supply management infrastructure, you should be just as capable of running your supply chain from another country as you are of running it from a temporary location fifty kilometres away. If you have a true visibility solution, you just need an internet connection and you know where everything is. If you have a good sourcing and procurement platform, you can source and order whatever you need from anywhere. And if you have a good e-payment solution, you don’t need to pick up a check from a PO Box. Good distributors have their own on-line visibility and transportation management systems, and all of your 3PL and Import/Export Brokers can be connected with an e-Document Management solution. Plus, if you truly are global, you should be able to set up quickly near a major supplier who wants to help you out in the local country to keep you as a major customer.

In other words, if you couldn’t pick up and temporarily relocate your Supply Management headquarters at a moment’s notice, you probably don’t have a modern Supply Management office running on a modern Supply Management platform. And you should. Especially since there might be no better way to really learn a major market that you are sourcing from.

Are Your Groceries Killing the Environment?

According to a recent article on Sustainable Brands on “sainsburys reduced supply chain footprint”, The Co-operative Group, Nestle, and Sainsbury’s say they will improve the sustainability of some of their products in response to research from the Product Sustainability Forum of WRAP (Waste & Resources Action Programme), an independent not-for-profit company funded by all four governments across the UK and the EU.

The Product Sustainability Forum just released
an initial assessment of the environmental impact of grocery products which collates information from more than 150 studies across more than 200 grocery products. The main finding, summarized in the executive summary on page 4, is that the production and sale of grocery products contribute between 21% and 33% to household consumption GHG emissions and approximately 24% to abiotic resource depletion impacts. Wow! (In English, abiotic resource depletion is the deletion of non-renewable resources such as fossil fuels, minerals, etc. One calculation for abiotic resource depletion is given in a Wiley publication on Polymers, the Environment, and Sustainable Development.) In fact, food and beverage products constitute eight of the top-ten product groups from an environmental impact perspective:

  • Alcoholic Drinks
    cider, lager, spirits, wine
  • Ambient
    cereals; canned seafood, meat, veggies, soup, pasta, and noodles; pet food; chocolate; coffee; crisps; rice; sugar (confectionary); and processed snacks
  • Bakery
    (sweet) biscuits; breads; cakes; pastries;
  • Dairy
    butter; cheese; milk; cream; yogurt;
  • Fruit & Vegetables
    bananas; onions; potatoes; tomatoes;
  • Meat, Fish, Poultry, Eggs
    beef, deli, eggs, seafood, lamb, pork, poultry
  • Non-Alcoholic Drinks
    carbonates; concentrates; juices
  • Chilled & Frozen
    Veggie & Potato Products; Ice Cream & Frozen Deserts; Margarine; Pizza; Pre-packed Sandwiches; Ready Meals

The other two groups are:

  • Household
    dishwashing products, cleaning products, laundry detergents, paper products
  • Personal Care
    batch and shower products, deodorants, nappies

What’s scary is that these “Top 50” comprise approximately 80% of all GHG emissions associated with producing, transporting, and retailing the grocery products in the UK and food and drink is 80% of these categories. So, at the current time with current practices, our groceries really are killing the environment and these 50 products are contributing up to 20% of all GHG emissions that are currently produced!

Where’s all that GHG coming from? The worst offenders, according to the initial study, are meat products (at 37.4% of grocery GHG) and dairy and eggs (at 17.3% of grocery GHG). Why? The production process for milk takes a lot of energy. It turns out that the median product embedded energy for liquid milk is 5.1 MJ/kg (Megajoules/kilogram), and at a sales volume of 5,186 Million kg / year, 26,400 TJ (Terrajoules) of energy is required to produce the milk consumed in the UK. Similarly, a lot of energy is required in the fresh poultry production cycle: 40.35 MJ/kg for a total UK market consumption of 17,600 TJ of energy. And, of course, most current methods of energy production emit copious amounts of GHG. And where meat is concerned, many animals produce methane gas, and some in copious quantities. There are other reasons, and some are contained in the report (and the rest of the reasons are in the studies surveyed by the report), but it’s the findings that are important. The current production and distribution methods for many of our staple foods are quite damaging to our environment, and the companies producing and distributing those staples have to shape up. It’s good to see that a few companies have said they will. Let’s hope they follow through.

If You Really Want to Reduce Costs, Reduce Waste!

SI recently asked if you, like your peers, were chasing the lost cause of cost reduction, giving the recent findings by Supply Chain Insights that, from 2000 to 2011, 75% of companies in process industries lost ground on margins despite best efforts to reduce costs over the last decade or so. That being said, there is one cost that can be reduced — and that’s the cost associated with waste.

As per a recent article in Forbes on How GM Makes $1 Billion A Year by Recycling Waste (which should be titled how GM reduces costs by $1 Billion a year) that referenced a GM media publication on how “GM Makes the Business Case for Zero Waste”, the US generates 7.6 Billion tons of industrial waste a year that ends up in landfills. Given that the average tipping fee for a ton of waste exceeds $53/ton, industrial manufacturers are wasting over 402 Billion a year!

And that’s the losses assuming that the best that could be done with the waste is diverting it from the landfill. If the waste is scrap steel, which can be melted down, or cardboard that can be recycled, or smaller batches of chemicals that can be resold, the cost reductions can be extremely significant. Furthermore, 98% of these cost reductions go straight to the bottom line. As per the GM press release, the waste manage costs associated with its mature waste management program are about eighty cents per ton of solid waste reduced! In other words, in the long run, it costs pennies to save tens of dollars (and at the rates tipping fees are increasing and metal costs are rising, it will soon cost GM pennies to save hundreds of dollars). And once GM converts the other half of its manufacturing facilities to landfill-free facilities, it’s savings will double!

So if you really want to reduce costs, stop burying your money in landfills.