Category Archives: Sustainability

Even in Night, Procurement Shines Bright

The Winter Edition of CPO Agenda had a great article on how stand-out procurement functions are continuing to extend their reach and value despite volatile market conditions. In “How the Stars Shine Brighter”, the authors reviewed the 2008 Assessment of Excellence in Procurement from A.T. Kearney (AEP) that surveyed and benchmarked almost 500 respondents against their industry and geographic peer groups as well as best-in-class companies.

The study identified three key trends from leading procurement practices that can be directly linked to the attainment of sustainable competitive advantage:

  • Leaders achieve a broader mandate to drive change,
  • Leaders develop dynamic new value-creation strategies to satisfy ever-increasing customer demands, and
  • Leaders continue to develop and maintain robust enabling capabilities in performance management, knowledge and information management, and human resources management.

Leaders Drive Change

In direct materials leaders typically control two-thirds of external expenditure — twice that of the average firm. In indirect materials, the proportion is 73% for leaders, 42% for followers. By addressing a larger portion of the total corporate spend, leaders are yielding overall procurement-related savings that are 2.3 times greater than the followers. For a $20 billion company that could represent a 21% advantage in earnings per share versus its competition.

How do they do this? They:

  • Align with Corporate Strategy
    The CPO maintains a close relationship with senior management to help him or her align procurement strategies with the overall corporate strategy.
  • Refine the Organizational Structure
    Today’s procurement organizations frequently follow a center-led model that features common policies, approaches and practices for purchasing company-wide.
  • Increase Strategic Focus
    Leaders focus on strategic initiatives, not transactional activities that are best left to automated systems.

Leaders Develop New Value-Creation Strategies

Leaders go above and beyond the basics, initiate supplier collaboration, and differentiate themselves through superior approaches to risk management, best-cost country sourcing, and sustainability. They

  • Take Sourcing Practices to New Heights
    Leaders take a highly systematic approach to the application of traditional sourcing strategies, including volume concentration, best-price evaluation and global sourcing, as well as more relationship-orientated approaches such as product specification and joint process improvement, and relationship restructuring. Leaders also create value by using sourcing and category management methods such as innovation network leveraging, product “teardown” (a common method of analysing competitors’ products), collaborative cost reduction, expressive bidding and price benchmarking, to name but a few, to a far greater extent than followers. As a result, they attain higher levels of cost savings and value.
  • Drive Supplier Collaboration and Innovation
    Leaders are redefining boundaries and reaping the benefits of true partnerships, such as more product and service innovation and faster time to market.
  • Unlock Value through Risk Management
    The majority of leaders systematically use internal risk mitigation strategies to ensure supply continuity, develop category management contingency plans, align supply security with their overall business risk tolerance goals, and define, measure and track risk management and supply chain key performance indicators (KPIs).
  • Source from Emerging Markets
    Leaders arrive to the party early, while the savings buffet is full and plentiful. Leaders demonstrate that potential obstacles around emerging market sourcing can be overcome by actively engaging with and investing in suppliers. The ability to manage risk — through supplier process auditing, process risk assessment, high-quality data reporting and analysis, and the placement of key procurement executives in offshore locations — gives the leaders confidence that their emerging market sourcing activities will bring cost improvements without introducing excess risk.
  • Follow Sustainability and Corporate Social Responsibility Best Practices
    Finding the right balance between economic viability, environmental awareness and social well-being is a significant challenge, but a competitive advantage can be gained by companies that locate intersection points for all three. Sustainability leaders are differentiating themselves in a number of ways, be it through reductions in energy use and waste, taking on a holistic, future-orientated focus, or extending sustainability outward to the extended enterprise.

Leaders Employ Robust Enabling Capabilities

Leaders measure actual benefits, perform audits of procurement benefits, examine the function’s impact on profit and loss, and track productivity performance indicators. Leaders

  • Employ Best-of-Breed Technology
    Leaders have taken spend visibility to the next level, linking systems to product development and product lifecycle management tools to further improve control and influence procurement decisions earlier in the design and decision-making process. Leaders are improving their business intelligence capabilities with respect to spend management, using techniques such as predictive modeling at a much faster rate than followers. And leaders hold, on average, more than five e-sourcing events per business day — a rate four times greater than that of the followers.
  • Win the Fierce Battle for Talent
    Leaders realise that continued success depends on their ability to attract and retain the right people.

Supply Chain Responsibility

Chances are that if you’re (out)sourcing globally, your supply chain is not as responsible as you think it is. Even leaders in supply chain social responsibility still struggle with fiascos, as illustrated by The Gap, who faced child-labor allegations in India earlier this year when, without its knowledge or consent, a vendor subcontracted part of an order to an unauthorized facility that used child-labor to produce garments. Considering the impact this can have on your brand, you should be taking steps now to make sure this doesn’t happen to you.

So what should you do? Without reference to the Stanford Global Supply Chain Management Forum, as quoted in this recent Supply Chain Management Review article on “Taking Supply Chain Responsibility to the Next Level”, I can tell you that you need to put greater emphasis on the social side of the equation. And in addition to the models and measurement systems, you need an overall monitoring framework that will give you real-time visibility into your supply chain, and, most importantly, your suppliers.

In addition to the basic supplier performance management functions, which should include compliance status and the findings of the most recent supplier audit, this framework should also tell you which of your suppliers are actively working on your active orders, and what the status is. This will enable you to properly determine which suppliers pose the most risk, and, more importantly, which suppliers need an active (surprise) audit, and which suppliers don’t.

Furthermore, the technology should lay the foundation for trailblazers to implement structural changes within their supply management function to insure that social and environmental responsibility is considered as part of every award. It should also support the collaboration required to develop innovative products, processes, and technologies that can transform the supply chain and the business.

So how do you select the right technology? Find a technology that can support the holistic, dynamic, and flexible supply chain model that can improve your overall business performance. As highlighted in “taking supply chain responsibility to the next level”, leaders make the following assumptions about their supply chains.

  • Social and environmental factors strongly correlate with supply chain performance
  • The extended supply chain is fluid, and may not look the same tomorrow as it does today
  • Getting it right is a journey, not a destination, and definitely not a sprint. It takes time to get it right, and the key to success is to get progressively better each day.

In my view, even if it’s not perfect, any technology that can allow you to integrate supply chain responsibility into your overall sourcing process is a step in the right direction. Good examples are Aravo‘s Supplier Information Management (SIM) platform that can allow you to track, report, and execute on all of the data you need to be socially responsible, EcoVadis‘ sustainable supply management solution which tracks the relevant data on your suppliers CSR practices, and SupplierSoft‘s supplier information management platform.

On the Eighth Day of X-Mas … (Supply Chain Trends in 2009)

On the eighth day of X-Mas

my blogger gave to me
thoughts for a shilling,
strategies for winning,
tactics for saving,
five golden rings,
four little words,
tri-focal lens,
two boxing gloves
and a lesson in strategy.

Hot Technologies in 2009 Will Be Spend Analysis and Decision Optimization

Given the current economic climate, organizations will start to adopt these technologies despite their concerns that they are too complicated (which has not been true for years) or too expensive (which is also not true). The emerging leaders in low-cost self-service optimization, like Iasta and Trade Extensions, will take off, as will services companies, such as Lexington Analytics and Opera Solutions, that use leading spend analysis software like BIQ.

Emerging Technologies in 2009 Will Be Specialized Marketplaces and Focussed e-Sourcing Offerings

You’ll not only see an emergence of vertical specific marketplaces like MFG and Co-exprise Energy, but commodity specific marketplaces like cBoxBid.

Sustainability Will Be a Component of Every Sourcing Event

Thanks to Walmart, customers are demanding sustainability, and thanks to the EU, many nations around the globe are in the process of defining and implementing environmental regulations like RoHS and WEEE.

Your Favorite Vendor Will Not Be Around in a Year

This year has seen a couple of big vendors, with credit lines cut off due to bank failures, lost lawsuits, and VC belt-tightening, go through a number of layoff rounds. Two of the largest vendors in the space, despite claims of “regrouping”, are in serious trouble and could soon be on the block … along with a dozen small companies that took too much VC money, and sold too little product, in the last few years. Some have great products, and will be sorely missed if they don’t get sold and close their doors, but it’s a harsh reality when you don’t manage for frugal growth, don’t continually focus on innovation not just in products but internal operations as well, and don’t bring in outside expert help when you need it. (It’s too bad that some of these companies don’t understand that consultants are cheap. Unfortunately, many of these same companies are being run by first-time entrepreneurs — who don’t really understand the difference between a start-up, a small company, and the mid-size or large company they came from.)

You Get More Thoughts for a Pound Than You Do for a Shilling

Twenty times more, to be precise.

the doctor’s 10% Blogger Sustainability Challenge Update

Back in September, I issued a challenge to all bloggers who generate advertising or sponsorship income off of their sites to donate 10% off the top (off the gross for you financial types) to sustainable charities of their choosing from all advertising and sponsorship income they receive, and to do so at least yearly (with quarterly donations being preferred).

Although, to the best of my knowledge, no one has taken the doctor up on his challenge yet, I am happy to report that I have inspired at least two of my fellow bloggers to be more charitable in their endeavors.

First of all, Jason Busch of Spend Matters, decided to “Give Thanks for Spend — and Give Back” and has started to ask some investors and consultants that he advises in lieu of a fee that they give a donation to a local Chicago organization that distributes food to needy families and individuals in his North-side neighborhood. (I just hope he asks for a copy of a tax receipt! That way he knows he’s making the difference he wants to make.)

Secondly, Charles Dominick of The Purchasing Certification Blog and Next Level Purchasing will be kicking the New Year off with a “Charity Challenge” that could see a substantial amount of money directed to worthy charities. I can’t release any details at this time, but I can say that it sounds really cool and that you should keep your eyes peeled for it!

As for the doctor, this quarter saw three $525 donations to the David Suzuki Foundation, Medicins Sans Frontieres  — also known as Doctors without Borders, and Water for People, respectively. The David Suzuki Foundation, which works to find ways for society to live in balance with the natural world that sustains us, is one of the leaders of the sustainability movement; Medicins Sans Frontieres continually endeavors to find ways to respond rapidly and effectively to public health emergencies, with complete independence from political, economic, and religious influences and developed Plumpy’nut — a very simple food that does wonders in keeping young children in third world nations healthy; and Water for People funds sustainable water projects and sanitation systems built by local communities in developing countries — sustainability at a basic level.

I hope that our efforts continue to inspire more bloggers to follow us in our cause because we can only make so much difference on our own. Let’s face it, green computing (which means ditching the printer), fluorescent light-bulbs, high mpg cars and public transportation, only buying products in recyclable containers and packaging whenever possible, and smart energy use in the home are all worthwhile endeavors, but when it gets right down to it, individuals are not the biggest threat to the environment — corporations are. For starters, corporations utilize most of the energy … and waste most of it as well. (Some estimates are that energy usage in North America could be reduced by as much as 25% — or more — if corporations just invested in more energy-efficient buildings!) They also waste most of the water, etc. And it’s our need for energy that causes us to burn coal and oil … and pollute the environment. And the only way to take on corporations, and especially those whose products we can’t boycott on a massive scale, is with action groups, that we can join and support. In other words, alone we are weak, but together we are strong — and together we can make sustainability and corporate social responsibility standard operating procedure.

The Green Goblin is Coming … Are You Ready?

One of the overriding themes at this year’s 6th Annual International Symposium on Supply Chain Management was Green … and how you need to be ready for the Green Goblin before he takes a huge bite out of your bank account. Carbon caps and strict regulations are starting to take effect around the globe, and if you’re not ready, it could cost you a lot more in fines and carbon credits than it will cost to be proactive and identify year-over-year sustainable savings by acting now.

Chances are you won’t be hit as hard as public sector institutions in BC, who only have until 2010 to be carbon-neutral, or face an offset of $25 per ton of CO2 emitted, but there’s a lot of talk these days among the more progressive provinces and states in North America to institute carbon taxes, and you can be sure that, one way or another, some form of carbon tax, be it direct or indirect, is going to hit you eventually.

Fortunately, there are a large number of easy ways to take a big bite out of your carbon footprint if you just look. An easy first step is facility retrofitting and IT virtualization — both of which make a big impact on energy needs. Most buildings use at least 40% more energy than they need to just in heating and cooling, and today’s technology generally allows for retrofits, with 30 to 50 year life-spans, that starts paying off in as little as 5 years. Furthermore, most organizations use 30% to 80% more energy to power their IT infrastructure than is necessary, and today’s virtualization solutions (as I’ve discussed in this post on data centers and this post on desktops) often have a 12 month payback (as per this savings template)!

If you’re in transportation, you can optimize routes, keep your fleet well maintained, and use nitrogen-filled tires — which both extend tire life span and reduce average fuel consumption by 5%. You can also optimize loads, using appropriate load planning optimization software, and work with your customers to maximize available lead times, which may let you use rail instead of truck for the majority of the distance, which emits significantly fewer units of CO2 per pound.

And you can get creative like UBC did to reduce your carbon footprint. They analyzed their carbon footprint and found a large amount of it was due to mail and package deliveries across campus. The courier that they did the least business with made an average of 85 stops per day. Considering that they already had centralized mail distribution, which now runs off of electric vehicles (which can be powered by clean hydro-power) there was no reason that they couldn’t centralize courier drop-off and pick-up to 2 drop points, which would reduce CO2 production from deliveries by over 95%! Plus, they also substantially reduced the cost to the couriers, many of whom had to have 2 or 3 trucks dedicated to their campus, and they can use this as leverage in negotiations to reduce annual courier payments by hundreds of thousands of dollars.

They also found that a lot of carbon was contained in the unnecessary packaging that accompanied the majority of deliveries on campus. So they went to their largest supplier, who was just a few kilometers from campus, and told them that they were not allowed to add packaging to anything delivered anywhere on campus and they were to start using reusable totes (since anything that needed safety packaging would have safety packaging added at the manufacturer). Whenever the supplier dropped off a standard cage of totes at the central mail distribution facility, they could pick up an empty cage of totes ready for return. They plan to roll this out to more suppliers … and the environmental … and cost … savings are going to add up here as well. (They are a large University of tens of thousands and faculty, staff, and students … think of all of the stuff that flows into a campus on an annual basis!)

They’ve also instituted a program where a product cannot be requisitioned unless it is locally recyclable or the manufacturer has a recycling program where they will take the product back when it’s end-of-life is reached. That way, they are not responsible for the CO2 associated with disposal of a product. And they’ve saved money in all of their initiatives … saving over 25 Million since the Sustainability Office was formed in 2001.

And the good ideas don’t stop here. There’s no reason you can’t go paperless in your office. What do you really need to print out besides the final version of a contract where you need a signature? A fax? Nope – it’s already in e-format and ready to be redirected to a user’s inbox. A policy document? Nope … leave it on the central server, where it is automatically backed up to redundant storage nightly. A meeting report? Nope! Either give your workers laptops or equip the meeting room with thin terminals and flat-screens, which could be laid flat under a glass table, and let everyone access their own copy of the report electronically in the meeting. If you set your mind to it, you’ll find that you rarely need to print anything … especially since the majority of what is printed in an average office (up to 80%, in fact) ends up in the recycle bin by the end of the day. It’s much more economical to give all of your workers two large LCDs than to buy paper. Much more!

So get creative, and cut back on carbon wherever you can, or the Green Goblin might be taking a big bite out of your bank account when the regulations come in, and you have to buy credits off of the exchanges (Montreal, Chicago, EU) where they are now trading anywhere from $6 to $30 a ton.