Category Archives: Sustainability

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.

Procurement Game Plan: A Review Part III.3

Charles Dominick of Next Level Purchasing and Soheila R. Lunney of Lunney Advisory Group recently released The Procurement Game Plan: Winning Strategies and Techniques for Supply Management Professionals. And even more recently, SI began it’s detailed review, in three parts, of this new Procurement Guide. So far, in our review, we’ve covered the Purchasing Professional’s 10 Commandments, organizational role, Supply Management strategy, talent, social responsibility, strategic sourcing, supplier qualification, negotiation, supplier relationship management, and success reporting. This post, which is the beginning of the end of our review, dives into techniques for improving Procurement performance and a few specialized areas of Procurement, as covered in the second last chapter of the text.

The authors define four main technologies for improving performance:

  • Procurement Outsourcing
    which is the shifting of some procurement tasks to an external organization
  • Group Purchasing Organizations
    are entities that are responsible for sourcing and managing aggregated contracts on behalf of a discrete group of companies
  • Procurement Cards (P-Cards)
    that allow organizations to take advantage of the existing credit card infrastructure to make electronic payments for a variety of business expenses
  • Procurement Technology
    that includes e-Procurement and e-Sourcing and allows a buyer to take it to the next level

Since Procurement Outsourcing will likely be restricted to tactical functions if your goal is to create a first-rate strategic Procurement Organization, since GPOs primarily offer advantages only on categories where you just don’t have the volume or the manpower, and since proper coverage of the technologies you should be familiar with and using on a daily basis is a book in and of itself, we’re going to restrict our review of performance enhancing technologies to P-Cards.

Procurement Cards are a tool that can be adopted to reduce tactical activities as they negate the need for POs and simplify payment, which can be made by the buyer placing the order. If three-way match is used (which is the matching of a Purchase Order to an Invoice to a Receiving Record), it can reduce administrative costs as it negates the need for a separate invoice review and payment by accounts payable. Of course, on the other side of the coin, a P-Card can also increase the potential for fraud.

However, as the authors note, implementing P-Cards is not as simple as calling up your local merchant account provider. Due to the ease with which a user can pay for goods not received, overpay, or open the company up to fraud (by forgetting their card at their favourite restaurant), a number of decisions need to be made before the first card is issued. As per the text, some of these decisions include:

  • should there be one spending limit for all holders, spending limit by categories, or individualized limits by buyer?
  • are there limits by transaction, day, or month?
  • are any categories restricted? exempt?
  • who is eligible for a P-Card and who is not?
  • is the P-Card limited to purchases from approved suppliers?
  • what transaction information and reporting capabilities do you require?
  • which provider(s) can meet these requirements?

And these decisions need to be made in context of the advantages and disadvantages P-Cards can provide, which include:

Advantages

  • reduced cycle times which free up your staff to do strategic, instead of tactical, work
  • faster supplier payments which can reduce a supplier’s cost of capital if they have to borrow less (and, in turn, the cost they pass on to you)
  • extended payment terms (which do not impact your supplier as you owe the P-Card provider, not the supplier)
  • less maverick buying (if P-Cards are made mandatory for certain purchases and controls that restrict payment amounts and vendors are put in place)
  • better transaction data for your spend analysis
Disadvantages

  • increased chance of theft/fraud (as it’s just another credit card)
  • longer reconciliation time (if one payment is made for multiple invoices)
  • less budget visibility (as they track transactions, not budget)
  • another system to reconcile (if they are not made mandatory for certain classes of payments)
  • move maverick buying if controls are not well defined (as Homer can now order anything he wants from Mighty Office Express Supplies [MOES] if MOES is an approved vendor with no limit)

Implemented effectively, P-Cards can be a great tool. Implemented poorly, they can be your worst nightmare.

After a whirlwind tour of the technologies employed by leading Procurement organizations, which includes e-Procurement, e-Sourcing, and (Decision) Optimization (explained by the doctor in the Inefficiency Eliminator wiki-paper and the two-part Next Level Purchasing Podcast on Supply Chain Optimization [Part I and Part II, with transcript]), the book moves into a discussion of specialized areas of Procurement where special teams are important.

These areas include Global Sourcing, Procurement Outsourcing Provider (POP) and Global Purchasing Organization (GPO) management, services procurement, and inventory management. Since a discussion of each of these topics is a post in itself, and the discussion was quite dense, we’re just going to focus on a key element of success discussed in the penultimate chapter that many books miss — Project Management. As the authors note:

As organizations have grown globally, Procurement is called upon to unify everyone with a common buying strategy. This requires that a leader assemble a team and coordinate the efforts of subordinate Procurement staff, business unit representatives, and management. There are limited resources, goals, and timelines. Does this sound like the project management discipline? You bet it does!

Project management is an essential element of successful Procurement and every Procurement professional needs to be educated in Project Management methodology (which is why NLP has a course on Professional Purchasing Project Management). This section of the chapter discusses the project charter and its importance, project plans for simple projects, project plans for highly complex projects, and risk analysis — a key part of every project plan. This is a section of the text that everyone should read carefully — twice!

At this point, the reader should have a strong understanding of the basic knowledge required for Procurement success, be aware of her weaknesses, and have a plan to address them (such as through additional [online] training, certification, or mentoring). At this point she is ready to begin her career in the Procurement workplace and become a perennial all-star, which is the subject of the final chapter of the book and will be the subject of our final post.

To be concluded!

Can You Detect Greenwashing?

Can you detect when a supplier is Greenwashing their product or service? Are you sure? Did you take part in Earth Hour? You did? Guess what! You probably can’t detect greenwashing!

Earth Hour, another stupid marketing gimmick supposedly designed to get the message out about responsible energy usage, actually encourages the exact opposite by telling everyone to stop using power — at the same time — for one hour. Then, at the end of the hour, everyone — at the same time — turns their lights, tvs, and washing machines back on. This is the kind of action that can bring down a power grid, and, guess what, cost more energy then is saved in some cases. (Very little energy is actually saved, by the way. Less than an hour’s worth of lights or TV. You know why? When the hour is over, people are still going to do their laundry. They are still going to cook in their ovens. And they are still going to use whatever power hungry toys they have in their house.)

If you were a power engineer, you’d know that grids are designed to work where energy requirements are at rather constant levels. Basically, in laymen’s terms, whatever is put on to the grid has to be taken off, or the grid will blow. Similarly, if too much energy is taken off too fast, the grid can blow too. If power usage all of a sudden drops 50%, sometimes entire plants have to be rapidly taken off-line. (Which can be a problem if you have a nuclear plant in the mix. You just can’t shut one of those down on a whim!) This wouldn’t be a problem if it wasn’t for the fact that it takes a lot of time and energy to start up certain types of power plants. Water may turn turbines on its own when they are placed in a waterfall thanks to gravity, but sometimes a kick is needed to start a wind turbine. And coal burning plants don’t start up at the flick of a switch. It takes thousands of households turning off tvs and lights to equal the power required to start a small power plant. Imagine the power wasted shutting down and starting up a large power plant in one hour.

But I digress. As per the Sins of Greenwashing, maintained by TerraChoice, only 4.5% of products in 2010 were sin-free. Only 4.5%! The average claim is stretched so far from the truth that it’s only basis in reality is that the words used to describe it are part of the English language (most of the time). This is important to keep in mind with Earth Day coming up in two weeks and marketing folks getting ever more keen to tap into all the hoop-la that it entails. (Not that Earth Day is bad — just the marketers who try to sell non-green products and services as green.)

So how do you detect greenwashing? Familiarize yourself with the “10 Signs of Greenwash” developed by Futera and documented in this guide on Understanding and Preventing Greenwash co-developed with BSR. In brief, they are:

  1. Fluffy Language
  2. “Dirty Company”
  3. Suggestive Pictures
  4. Irrelevant Claims
  5. Best in Class
  6. Just Not Credible
  7. Jargon
  8. “Imaginary Friends”
  9. No Proof
  10. Out-Right Lying

The Procurement Game Plan: A Review Part I.2

Charles Dominick of Next Level Purchasing and Soheila R. Lunney of Lunney Advisory Group recently released The Procurement Game Plan: Winning Strategies and Techniques for Supply Management Professionals. In our last post, we set the stage with The Purchasing Professional’s 10 Commandments. In this post we’re going to continue our fairly detailed review of this book, which will span four or five posts. We’ll start by covering the first four chapters of the book that discuss organizational role, supply management strategy, talent, and social responsibility — the stage that a modern supply management professional has to act upon.

The first chapter on Procurement’s Place in the organization starts out with an overview of management’s expectations of modern Procurement — something every Procurement Pro needs to know when finding a (new) job in today’s highly competitive skill-based marketplace. We’re well beyond the time when all that was expected of Supply Management was cost savings. Now, with costs rising and consumer belts tightening, Supply Management is also being tasked to deliver productivity improvements, brand & differentiation support, customer satisfacation, cash flow improvements, great service, competitive advantage, and sometimes even revenue. It’s a tall order for a single organization — it’s good that the strategies and tools exist to deliver. (And that’s kind of what this blog is all about, but the doctor digresses.)

The chapter then dives into the types of goals that Procurement / Supply Management organizations have, and this is where the value of the book starts to kick in. Organizations, depending on their stage of maturity, either have no (documented) goals, which is very bad, vague goals (with no meaningful measurable targets), which is bad as a professional will not know how important each goal is relative to other goals, SMART (Specific, Measurable, Attainable, Relevant, and Time-Bound) goals, which are good and a minimum requirement for organizational success, or Strategic SMART goals, which are great as they also tie the SMART goals to overall organizational strategy. A world-class supply management organization puts the good of the organization before the good of itself.

The chapter also discusses strategic vs. tactical procurement, Procurement as a Profit Centre, Procurement as a Service Centre, and Procurement’s Role in Specification Writing — but the other key section of the chapter is The Procurement Manifesto. Because it can be difficult to gain buy-in from functional departments when trying to get them to accept Procurement’s involvement, it is important to have a list of reasons why it will benefit them to work with Procurement. Your Supply Management organization should have such a list and should describe then in The Procurement Manifesto that can be given to the other organizational units. For details on what to include, see the book.

The next chapter discusses Supply Management Strategy — The Procurement Playbook if you will. The existence of an appropriately written guiding document will help keep the organization on the same page and help it to achieve its goals. Such a document must contain the following five sections in order to meet the department’s needs:

  1. The Procurement Organization’s Business Plan
  2. The Procurement Organization Structure
  3. Cost Control Strategies
  4. Risk Management Strategies
  5. The Supply Management Sourcing & Procurement Methodologies

Each piece of the puzzle must be clearly defined and outlined, and each organizational member must be on the same page. For details on how to write the Procurement business plan, on what types of cost control strategies to focus on, and what types of risk management strategies might be included, see the book.

One of the key parts of this chapter is the section on standard supplier selection criteria. The authors note that you should use a hierarchy of constraints and criteria every time you select a supplier. That hierarchy must include all of the relevant selection criteria, ordered and weighted so that each supplier can be compared fairly. This is sometimes the only way to determine which supplier will be the best fit for an organization. Generally speaking, this hierarchy should contain cost, value, quality, service, social responsibility, convenience, risk, and agility at a minimum, with other factors added depending on the goods or service being sourced. The weightings and rankings will be project specific.

The next chapter on Procurement Talent Management is one of the key chapters of the books and contains one of the key messages, talent is key to success. Without it, no amount of technology or transition management will help. It does a great job of discussing the five facets of the talent management cycle — Assess, Retain, Develop, Recruit, and Unify — and how each is necessary for organizational success. It also points out that they are not sequential and, depending on organizational needs, they may all need to be addressed simultaneously. Not only is talent management more important than many organizations prioritize it in their key issues list, but it is more difficult than many organizations would lead you to believe. This is a chapter to be reviewed in depth as almost every point matters, but a key point it addresses that is often missed is that education is a retention tool. Real professionals want to learn and improve, and will value an employer that not only allows them to do that, but that sponsors their education and efforts to improve themselves. The value of educating a resource is many times the up-front investment. Many, many times. The only point I’d disagree with in the entire chapter is the statement that by working with the business schools of the universities in your area, you can hire (at no cost/credit only or at minimal cost) intelligent and hard-working interns to take away the burden of tactical work from your strategic sourcing team members. While it is true that you can hire these intelligent, eager, hard-working resources at little-cost to do just this, they will need regular supervision from your senior Procurement Professionals, and this is a hidden cost you will need to account for.

The next chapter, and the final chapter that we’ll cover in this post, is on social responsibility in procurement: the new rules for a more responsible game. Whether this is important to your organization now or not, it will soon be as more and more consumers demand environmental or social responsibility, so you better get a handle on how it is going to impact your organization now, or you’ll be scrambling later when the media has you under the gone. Not a situation any Supply Management organization wants to be in when they can eliminate the risk with some careful research, planning, and a social responsibility program – which may not have to be all that extensive or demanding.

One of the key points covered by the chapter, which is often missed by other books, is ethics. Not only does social responsibility start with ethical behaviour, but a perceived lack of ethics, real or not, can land you and your organization in hot-water. As an example, the authors describe some recent government scandals, including one that got their mayor in some very hot water. In 2007, Mayor Luke Ravenstahl accepted two days of golf in the Mario Lemieux Celebrity Invitational from UPMC and the Pittsburgh Penguins, valued at $9K. His defence is that while the city’s ethics code limited city officials to accept admission to cultural or athletic events valued at $250 or less per year, charitable outings were exempted. This may have been a charitable event, but it’s value created a perceived conflict of interest that landed him in very hot water with the media. Then, a few months later, he decided he wanted to accept free tickets to go to a Stanley Cup Final game against the Detroit Red Wings. This time, he asked for an official legal opinion first, but it didn’t matter because the ticket value was very high and another councillor said he made half of the Mayor’s salary and pays for his hockey tickets out of his own pocket and the mayor should do the same. The lesson is that even if you don’t violate the ethics or gift acceptance policy of your organization, if there is any chance your actions could be perceived by a (large) group of people as unethical, you probably shouldn’t do it. And if you have to think about whether or not something is ethical, and, even worse, think you have to ask permission, just don’t do it.

The sections on the supplier code of conduct, green procurement, and supplier diversity, which for the most part cover all of the basics, are also quite good and worth a careful read.

That’s it for Part I. In Part II, we’ll discuss the next four chapters on Strategic Sourcing, Supplier Qualification, and Negotiations. Stay tuned.

Commodity Prices Have Exceed the Peak of World War I

And it doesn’t look like they are going to decrease any time soon. But more importantly, recent analysis by the McKinsey Quarterly indicates that commodity prices will remain high and volatile for at least the next 20 years. As per this recent article in the McKinsey Quarterly on “a new era for commodities”, demand for energy, food, metals and water will continue to rise inexorably as three billion new middle-class consumers emerge in the next two decades.

And the changes will be significant. As per the article, the global car fleet will double by 2030. Calorie intake per person in India will increase 20%, per capita meat consumption in China could increase by 60%, and urban infrastructure demand will soar in both countries. A hundred years ago, this was not that big of an issue as improvements in exploration, extraction, and cultivation techniques kept the world ahead of ever-increasing global needs. But today, the potential climatic impact of carbon emissions associated with surging resource use limits exploration and extraction because we’re already at a level where global carbon emissions are significantly above the level required to keep increases in the global temperature below 2° Celsius — the threshold which has been identified as potentially catastrophic. Plus, current cultivation technology is pretty much at its limit as only so much food can be grown in a fixed space.

And everything is connected. The ripple effects of water shortfalls at a time when 70% of water is consumed by agriculture and 12% is consumed by energy production can be catastrophic. For example, in Uganda, water shortages led to escalating energy prices which led to the use of more wood fuels which led to deforestation and soil degradation that threatened the agricultural food supply.

As a result, for the short term, commodity prices are going to stay high and your organization had better be prepared.