Category Archives: Sustainability

Refining Sustainability, Spend Matters Style

In a recent Spend Matters Perspective, “Redefining Sustainability: Saving Money, Reducing Risk and Going Green”, my fellow blogger tackles the critical issues of sustainability and green, issues that this blog has been tackling since day one. Although there wasn’t really anything new in this perspective for someone who is well read on the subject (and who also follows blogs like 2Sustain), he did a great job of summarizing the current situation, and how most companies (responding to the headlines) tend to over-focus on (EU and China) regulatory requirements or emerging (Walmart) consumer expectations and how only those organizations that go beyond the hot-button issues and take a holistic view realize the true, quantifiable, benefits that sustainability has to offer a procurement organization – cost savings and cost avoidance.

According to Jason, despite the savings, cost avoidance and risk reduction benefits that companies stand to gain from pursuing green and sustainable procurement strategies, traditional sourcing approaches and mindsets often fall short of what’s necessary to achieve results. The primary reason is that classic strategic sourcing models — which often rely on sealed-bids, multi-round negotiations or reverse auctions — are inflexible and in fact limit the options that are on the table when it comes to achieving green and sustainable savings and returns. Furthermore,

  • Traditional sourcing approaches limit the ability of suppliers to suggest or propose alternatives to a standard specification
  • Rote process allows for limited internal analysis, brainstorming and scenario modeling outside of specific steps in the process
  • Strategic sourcing models typically — and for good reason — isolate the procurement function from the rest of the organization at specific points to enable open and transparent markets and pricing

However, cost savings and avoidance can often only be achieved through market competition in an apples-to-apples bid structure that allows the true TCO of each proposal to be calculated and understood. Furthermore, despite noting that traditional sourcing processes and tools can limit options rather than create new possibilities, Jason also notes that leaders use technology platforms to communicate information, capture data, run scenarios and weigh decisions. So obviously it’s not the tools that are flawed, since many leaders use the same tools as many followers, and it’s not the methodologies either, since leaders use RFXs, Auctions, and Scenario Optimization technology to accomplish bid collection, market competition, and true TCO analysis. So what is it? It’s the mindset, and the traditional application of the methodologies and tools by individuals who are not using the full power and extent of the methodologies and tools to “be all they can be”.

Fundamentally, good strategic sourcing can fully capture the costs and benefits of a sustainable sourcing option, compare it side-by-side with another sustainable sourcing option, and compare those costs and benefits side by side with non-sustainable sourcing options. Your processes do not have to be redefined, just refined to take a more holistic view. The first key to success is to not specify what you want, but instead specify what you want to do when composing an RFX. In other words, don’t specify the materials and fabrication process, but the desired functionality, interface, and minimum performance requirements. It’s the same approach you take when writing a good technology RFP (which DO NOT include the Spend Management RFPs that are just endless, or should I say useless, feature lists) and the same approach Tata Motors used when designing the Nano. They left the actual design and composition of all of their components to the suppliers. Instead of saying “two standard wipers, 12 inches and 11 inches, for driver’s side and passenger’s side, made of steel and teflon” they essentially said “a windshield cleaning and rain repellant system that plugs into an interface …” and instead of saying “a four cylinder 180 HP engine with … “, they essentially said “an engine capable of generating at least X HP …”. By taking advantage of supplier creativity and innovation, they were able to produce a better, more sustainable, vehicle at lower costs than they would have been able to design in-house.

The second key to success is to use a life-cycle-based Total Value Management ranking when evaluating bids that captures all cost and non-cost factors that are relevant (and that assigns each non-cost factor a virtual cost to generate traditional life-cycle TCO rankings that takes into account the non-cost factors to determine the optimal bids). It’s not just unit cost, shipping cost, duties and tariffs, and quality-related costs that come from waste and returns management, but avoided carbon-offset costs from a greener product, avoided maintenance costs because of a better product, avoided marketing costs because of a more-consumer friendly product, etc. And you look at the cost over an average product life-cycle, not just a contract life-cycle. If you plan to make, use, and / or sell the product for five years, you look at the expected costs over five years in figuring out your cost factors — not over the next six months. After all, as Jason notes, sustainability results from collaborative innovation, and this will often require longer term relationships with key supply partners and commitments to new, more sustainable, technologies and processes.

The Perspective outlines three additional strategies that leaders use to achieve sustainable sourcing results, as well as some of the cost savings that market leaders have achieved (and that they have, more or less, kept to themselves because they view it as a competitive advantage). It’s worth checking out.

The World is Fast, Cheap, Out of Control, and Headed for Disaster

I recently stumbled upon a Supply Chain Digest article from earlier this year that purpoted to tell us that a Siemens Global Move Points to the Supply Chain Future, in reference to Siemens’ increasing focus on selling new, lower price versions of its products in developing nations, and of manufacturing these close to those markets. While that has some merit from a supply chain future perspective, there is even more merit in what the author, Gene Tyndall, President of Supply Chain Executive Advisors, noted when he said that the world, which may or may not be flat, is fast, cheap, and out of control.

More specifically,

  • Fast — in that connectivity makes the world smaller, yet more complex
  • Cheap — in that products are dropping in price, and becoming more powerful, yet global sourcing is increasing risks and other problems
  • Out of Control — in that most of the world’s purchasing power now resides in the hands of the customers who are empowered, demanding, and impatient. Businesses are no longer in charge.

 

At least part of the world is definitely smaller, and, more specifically, the part of world that is granted access to relatively unrestricted internet. In countries where internet access is limited, or content is tightly controlled, it’s really not that much smaller.

Some products are dropping in price, some have prices that are skyrocketing out of control by a factor of more than one hundred times inflation. Risks are increasing in every way imaginable, and the severity of quality-related disasters is recently responsible for a large number of deaths and illnesses around the globe.

In some markets, like cellphones, all of the power resides in the hands of the customers who are empowered, demanding, impatient, and able to afford the products. In other markets, including those that deal in core food stuffs like corn and wheat, the major producers call the shots, considering that world-wide food reservers are purported by some to be at a 100 year low.

But more importantly, globalization, which has been abused for the past decade or three (depending on who you ask), has put the world on a sure-path to disaster that’s going to be almost impossible to avoid if some companies, and governments, don’t smarten up. Let’s start with the statistics and facts from Chapter 16, “A Negative Equilibrium” from John Ralston Saul’s The Collapse of Globalism and the Reinvention of the World.

  • Global M&A hit 100 Billion a week by the end of 2004
  • By 2004, British Personal Debt hit 1 Trillion pounds, an all-time high
  • In 1973, the OEDCD had 10 Million unemployed job seeksers. In the 1980’s, the number rose to 30 Million. In the 1990’s, we hit about 35 Million. In the early part of this decade, we surpassed 45M, and might even have passed the 50M mark – despite the constant revision of the definition of “unemployed” to exclude people no longer seeking work, who have accepted early retirement, or who have part-time jobs (which may or may not be sufficient for them to live on … in some cities, half the people in homeless housing have some kind of job, but don’t make enough to actually afford shelter).
  • The income of the richest over the poorest in the UK grew from four times to seven times in the 1990’s, an all-time high for an income gap (and that’s before this decade which saw CXO salaries, golden parachutes and severance packages hit all time highs).
  • By the mid-1990’s, child labor surpassed 200 Million.
  • By the end of the 1990’s, the debt-to-export ratio of the most indebted countries were at levels that were, in many cases, 10 times more than they were in 1970. (And things have only gotten worse since then.)

And let’s add a few more scary facts and statistics:

  • The average daily volume in the global forex and related markets is continously growing and the total GNP of the US is now traded at least once every 3 days and the GNP of the entire world is now traded at least once every 15 days! (Daily trades surpass 4 Trillion Globally, and the GNP of the planet is slightly less than 50 Trillion.)
  • Thanks to the recent lending crises, which have snowballed out of control, even 700 Billion, an amount which is more than the GDP of every country except the US, Japan, Germany, China, the UK, France, Italy, Spain, Canada, India, and Mexico, might not be enough to prevent a massive financial industry failure in the US, which is almost 1/4th of the world’s economy.
  • The quest for never-ending cheap labor, which caused a global resurgence in child labor in the 1990’s, is now leading to riots, and as I reported recently, murder, due to the unrest caused by massive labor displacement as companies abandon one locale for another.

The problem is simple, too many companies are focussing on the absolute lowest cost and not enough on the impact their decisions have on sustainability and corporate social responsibility. Globalization has privatized the world, which means that the private sector needs to live up to the responsibilities that entails, as many companies now have more power than governments. If they don’t find a way to balance their responsibility to their shareholders with their responsibility to society, they may bring down entire cities, states, and even countries — and that would do more damage to their bottom line than a few extra cents for labor costs or sustainable operations ever would.

So if you want to keep your company away from the path to disaster, when you source, remember to account for the costs associated with unsustainable and unsocially responsible practices on the part of your suppliers. If you do, you may just find that, not only will you be set to do better in the long run, but that you might actually survive for the long-run.

Centering the Pack: Ron Southard, Randy Littleson, Justin Fogarty

Slowly but surely, the Seven Grand Challenges of Supply and Spend Management cross-blog series is lumbering along. Since my last post, Ron Southard of Safe Sourcing, Randy Littleson of The 21st Century Supply Chain, and Justin Fogarty of Supply Excellence have offered us their (introductory) posts on the subject.

Ron starts off with a tale of technology, noting that to some extent, too much thought leadership in these technologies is being invested in games, consumer gadgets and the like instead of less sexy tools focused on reducing the cost of goods which will instantly improve profitability and foster economic growth creating new jobs. Especially when the technology exists today to attack the problem of escalating costs of raw materials, shipping, retail price increases and other associated supply chain costs, as it has for years. And it’s only getting better. As I am attempting to illuminate in my B2B 3.0 series, innovative companies have been, and still are, introducing technologies that put buyers on even footing with consumers — and the only thing standing in the way of a better business model is adoption. (I urge you to check out the inaugural Sourcing Innovation Illumination Introducing B2B 3.0 and Simplicity For All as well as the upcoming Illumination on why Simplifying B2B for Suppliers Enables Buyers, to be released next Tuesday.) You can be sure, based on his initial post, that his contribution is going to be a good one.

Randy decided that five challenges alone were enough to fill your plate, and gave us his list, which contain a couple of doozies:

  • Connecting Outsourcing and Lean
    Lean requires synchronization, and outsourcing, at least today, makes synchronization a challenge.
  • Controlling That Beyond Your Control
    A huge challenge for brand owners will continue to be balancing the issues of being in control when they are not directly in control of all aspects and to continually adjust to changing conditions “on the ground” that impact costs.
  • Sustainability
    This is a real and serious issue that will only increase in priority on a global basis. Since it fits in with one of my seven grand challenges, I have to agree!
  • Identifying Supply Chain’s Role
    Too many companies are taking far too tactical a view on their supply chains. I agree, and so does Bob. So what are we going to do about it?
  • Volatility
    … things are moving at a faster pace and customer expectations continue to climb while their loyalty is less. Volatility is on the rise …

Justin decided to skip the challenges get all prophetical, but at least he took a page out of my B2B 3.0 handbook. Noting that it’s obviously difficult to envision exactly how the medium will look from a UI or feature/function standpoint on the 30 year time frame … I think it’s safe to say that finding potential suppliers will be easier via powerful discovery tools and networks. And that’s just the start. Starting with communities like MFG.com and CustomPart.Net, and moving on-to custom mash-up search engines like the Supplier Search Engine, the movement is already starting. As for suppliers … they’ll have a greater ability to evaluate their buyers and potential customers. Tomorrow’s B2B 3.0 will be interactive, and will allow for true collaboration, not just data-push. Companies like Co-exprise and Apriori are starting to make that happen in new and innovative ways for direct and custom-part manufacturers. And the new world provides tremendous opportunity for buyers and suppliers who embrace discovery and discussion, as Vinimaya is demonstrating with its new enterprise search technology. The opportunity is there, but, more importantly, as Justin astutely points out, those companies that fail to adapt to increasingly connected world, the challenge may be staying afloat.

Also, in addition to Bernard Gunther’s commentary on Opportunity Analysis that went up Monday, Bob Ferrari has posted parts two and three of his series as well!

Kiva: Can Micro-Finance Make a Macro-Difference?

A few months ago, I was tuned into Kiva by a fellow hoser. Kiva, the world’s first person-to-person micro-lending website, empowers individuals to lend directly to unique entrepreneurs in the developing world with the goal of alleviating poverty.

When you make a loan on Kiva, a (U.S. 501(c)3) non-profit orgainization, you are helping a real person make great strides towards economic independence and improve life for themselves, their family, and their community. In addition, through its data-rich, transparent lending platform, you not only get e-mail updates that inform you of the loan’s status and allow you to track repayments, but you get to see how money flows throughout the entire loan life-cycle and what effect it has on people and institutions lending it, borrowing it, and managing it along the way.

To keep overhead low, and insure that the full amount of your loan goes to the individual in need, Kiva partners with existing micro-finance institutions around the world that are experts in identifying qualified entrepreneurs and in helping them succeed in their business. To date they have made loans totaling $41,246,560 through 104 partner organizations at a total default rate of only 1.52%. If we restrict our analysis to the 82 partner organizations that are currently active or in a pilot stage, the rate drops to 0.56%. Furthermore, 74 of these organizations, which account for 93.67% of the loans, have a default rate of 0%. All I can is if the North American banks were this good at lending, maybe we wouldn’t be in the mess we’re currently in!

Needless to say, I decided to try it out. I’m all for sustainability initiatives, and it’s much more sustainable then simply giving to certain charities. (Even though, as evidenced by my recent sustainability challenge, I’m a big fan of certain charitable organizations, and, in particular, those that are researching sustainable causes and helping children who are unable to help themselves, there are certain charities that I have an absolute disdain for. Specifically, those that simply extend charity to those that, with the right help and support, would be perfectly capable of helping themselves. As the proverb goes, give a man a fish and he will eat for a day but teach him how to fish and he will eat for a lifetime.)

To date, the doctor has made six $25 Kiva loans:

  • Gulchehra Rahimova on June 28, disbursed on July 12, first repayment installment on August 12
  • Din Ly on June 28, disbursed on July 12, first repayment installment on August 12
  • Araba Awotwe on August 14, disbursed on August 29
  • Serigne Cisse on August 14, disbursed on August 29
  • Mavluda Tosheva on September 1
  • Mario Aguilar on September 1

As far as I can tell, it looks like it works great. Now it’s true, as the site clearly disclaims in the footer of every page, that lending to the working poor through Kiva involves risk of principal loss, but so does investing in the stock market, or, even worse, gambling at the local casino — but at least when you loan through Kiva, you’re making a difference, and, as I noted above, your chances of getting your money back, to re-lend to someone else in need, is much greater.

Thus, I would encourage everyone to take part of their discretionary funds and try lending through Kiva. Considering that you can start for $25, or the cost of one good bottle of wine (at the liquor store and not your local 300% mark-up restaurant), it’s an endeavor that the vast majority of us should be able to afford. And if even half of the 1.2B people in the developed world made even one loan a year, think of the sustainable difference it could make. That’s something worth aiming for. And if you do lend, tell them jeff <at> hosernews <dot> ca sent you (because I believe in giving credit where credit is due).

And yes, there is a supply chain lesson here for all of us. If a good supplier is in trouble in these hard financial times, key customers can band together to keep it financially solvent until times improve through faster payments, guaranteed orders, and low-interest loans. And, in addition to the good feeling these customers will get from knowing they did right, they will have also secured long-term capacity at a strategic supplier. Let’s face it — most business people want to do the right thing when given the choice. This means that if you stick by good supplier when it’s having a bad day, it’ll stick by you through thick and thin.

the doctor’s Sustainability Solution: The 10% Blogger Challenge

the doctor is a big believer in sustainability. He’s one of the few bloggers in the space who’s been blogging about green since before it became a hot topic. That’s why, even though he is not in the position that you are as a buyer to enforce the production of sustainable goods and services (because your money speaks louder than words to a supplier), he wanted to do something anyway.

So what’s the doctor‘s solution? Donate 10%* of all current and future sponsorship and advertising revenue on the Sourcing Innovation Blog, web-site, and future on-line properties to charitable causes that are pursuing sustainability options. Every quarter, after the sponsorship and advertising cheques come in, the doctor is going to take 10% of the gross revenue and immediately donate it to one or more charitable causes – and then tell you which causes, and how much, he donated.

This quarter, the doctor chose to make two $525 donations. One to the David Suzuki Foundation, which works to find ways for society to live in balance with the natural world that sustains us, and one to Doctors Without Borders, known as Medicins Sans Frontieres en Canada, which endeavors to find ways to respond rapidly and effectively to public health emergencies, with complete independence from political, economic, and religious influences. I’m a big fan of both of these organizations. David Suzuki is a tireless crusader on behalf of our planet Earth, and Doctors Without Borders recently started trying to mass produce Plumpy’nut, a very simple food that does wonders in keeping young children in third world nations healthy. (There are lots of videos on YouTube that describe its success.) I look forward to being able to make additional donations to both of these charities on behalf of Sourcing Innovation in the future.

Unfortunately, the doctor is not as dim as he looks (or, at least according to some trusted colleagues) and realizes that, on his own, he’s not going to make much of a difference. Even if this site was fully sponsored, at what the doctor perceives it’s market value to be, he’d only be donating thousands a year. A nice number for an individual donation, but peanuts in the grand scheme of things. But the doctor has a solution!

The Solution: The 10% Blogger Challenge!

the doctor is hereby challenging 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. Furthermore, each blogger should advertise the charities they are donating too, and why, and try to convince their readers to persuade their companies to also donate 10% of at least one revenue line, off the top, to sustainable causes.

Just think of the difference it would make if every organization in the developed world took 10% of their revenue and applied it to sustainable causes (charities, community programs, green energy investments, etc.). And since you can supposedly take 10% off the top of everything when buying, there’s no good reason you can’t spare 10% yourself. (Maybe your company would have to do away with the private box at the track, or cut back on it’s over-priced private art collection, but does it really need those?) So join me, and let’s show them that us bloggers are the future, on-line and off.

*The fine print. 10%-off-the-gross of all sponsorship and advertising revenue from the Sourcing Innovation Blog and the Sourcing Innovation Website in 2008 will be donated to registered charitable causes on a quarterly basis, after the revenue is received. This excludes any revenue that is due to a partner through a joint effort or due to an individual or enterprise that sells sponsorship or advertising on behalf of Sourcing Innovation. So, if a quarterly Sourcing Innovation sponsorship is sold for $10,000 by itself, $1,000 will be donated to a registered charity within 3 months of receipt of the funds; and if a partner, with a 30% gain-share agreement, sells an advertising slot for $1,000, then $70, or 10% of the $700 net, will be donated to a registered charity within 3 months of receipt. Furthermore, the doctor is open to having his books audited by any sponsor or advertiser who makes a minimum $1,000 donation to a registered charity of the doctor‘s choosing, as long as they agree to a rigid non-disclosure agreement and make the donation up-front.