The Risk of Being a MultiNational

A recent article over on ChiefExecutive.net for those who “want to be a multinational” did a great job of pointing out many of the risks that a company has to prepare for in order to become a multi-national. It zeroed in on the following seven risks:

  1. Country Risk
    Third parties from countries with less mature corporate governance laws/regulations are more likely to create a compliance breach for a multinational firm.
  2. Industry Risk
    Some industries are riskier than others. For example, food distribution — the risk of contaminants from unknown factories or partners with less rigorous quality control could be high and exposure you as the importer to massive liabilities and lawsuits. Defence is risky as well. Maybe only non-controlled components are being outsourced, but one accidentally exposed document can lead to very serious repercussions to the company and the executives, who could be held personally liable.
  3. Spend Exposure Risk
    If a single vendor accounts for 80% or more of a specific business unit spend and something happens to that vendor, negating the ability of the vendor to meet its commitment, the entire business unit is then at risk.
  4. Compliance Risk
    Failure to comply with import or governing regulations in the importing country from a product perspective can lead to entire shipments being size and destroyed. This is particularly bad in Europe where certain chemicals have been severely restricted or banned by RoHS, WEE, or similar EU directives. It’s also becoming a problem in North America, where substances such as BPA are finally being restricted or banned.
  5. Discovered Exposure Risk
    The supplier, who may not be corrupt today, may have been corrupt in the past — and the corruption could come to light during the time in which your organization is doing business with the supplier. This could be devastating as it could bring your firm under investigation.
  6. Partner Disruption Risk
    If the supplier is supplying a critical part or service, and is the only (significant) source of such product or service, it could jeopardize an entire product or service line and bring significant financial risk to organization as a whole, even if the spend on the supplier is less than 20%. (This risk is complementary to the Spend Exposure Risk.)
  7. Dependency Risk
    If the organization cannot function without the supplier, then each of the above risks that apply to the relationship increases substantially. The financial risk could escalate from significant financial loss to bankruptcy as significant supply chain failures, as chronicled in Supply Chain Digest’s 11 Worst Supply Chain Disasters, can bankrupt even a multi-billion dollar organization.

And it mentioned the following risk, which is buried under discovered exposure risk, that should probably be front and centre:

  • FCPA and Bribery Act Risk
    Your subsidiaries or partners could violate the US FCPA or UK Bribery Act in the course of doing normal business in the country in which they are operating. Although both acts allow for a form of facilitation payments, as that is just the way business is done in some parts of the world, there’s a difference between a facilitation payment and an outright bribe and, in some countries, while they still exist, facilitation payments are not as common as they used to be as they adjust to doing business with the West. (Of course, they find new ways to extract blood from your stone, but I will leave that discussion to a global trade expert.)More importantly, especially under the UK bribery act, even relatively inexpensive gifts — such as business dinners, sports tickets, or Christmas Party invitations — can be construed as bribes. Extra care has to be taken, especially if such gifts go to the winning party.

There can be great rewards to being a multinational that taps the opportunities in emerging markets from both a supply, and demand, perspective, but there are similarly great risks. Is your organization prepared? And more importantly, is your supply chain?

CBTM #4: Mind the Gap – Training vs Competencies


Today’s guest post is from Crystal Jones of The Mpower Group and is the fourth in a series of seven posts on Competency Based Talent Management.

In our previous posts we talked about designing your talent management program and implementing a recruiting plan. However, these are only parts of a larger Competency Based Talent Management (CBTM) program. You have hired the people you needed. So what? How can you make sure they are integrated into your organization and are able to hit the ground running, creating the optimum amount of impact? Not only do you need to look at training your existing team, you need to create a training program for new recruits as well.

This sounds well and good (and perhaps a bit easy). However, it is not as easy as it sounds. We have heard from many of our Sourcing / Supply Chain peers, particularly at our last NPX, that they are struggling with their training efforts. Training is completed, but the learning is never adopted. So what can they do to change the results?

Adoption brings us back to our vowels (AEIOU). In the past we have talked about the importance of Adoption, Execution, Implementation, Optimization and Utilization in any organizational effort. However, training is just not about the act of learning (a consonant); it is about adopting and implementing that learning to drive business results. Using the vowels ensures that the people being trained start applying what they learned. Implementing the vowels is the key difference between training people and developing competency.

To effectively turn a training program into competency development, you must have a good understanding of your desired needs. This requires that you start with the strategic direction and objectives of the company and what role your organization will play. This will show you which organizational competencies you need and will give you an understanding of the gaps you have within your organization. Now, the closure of those gaps can be tied directly to the company’s strategic direction and the role your organization will play, adding value not just for individuals, but for the company as a whole. Sending 2-3 people at a time to some public seminar designed for the masses may develop individual competency but it is never going to develop organizational competency.

Your gap closure strategies must follow a multi-faceted approach (coaching / mentoring etc.). Make sure your entire approach is rooted in Adult Learning Theory and has experiential learning as its basic tenet. Making people sit through day long lectures with no ability to actually practice the new behaviours and competencies in a safe learning environment is of little value. In addition, the curriculum must include the strategic competencies found during the initial gap assessment. A program consisting of functional or process skills alone is doomed. The strategic competencies must also be integrated into the core process modules so that people know how to actually deploy the new process.

Your training strategies must look beyond the technical skills and focus on the strategic skills needed to be successful like change management, communication, collaboration, and decision making. Oftentimes these skills are overlooked when training, although they are the most important to organizational success. Anyone can learn to use any process and those are the skills most organizations worry about when hiring and training. However, developing strategic skills can take your team to the next level and have more lasting effects on the group. It takes your group from Best Practices to Next Practices.

Developing the right competencies within your organization is not easy. It takes a lot of thought and energy to train and develop your team. Sometimes closing the gap can make you feel like you are trying to build a bridge across the Grand Canyon. If you start by looking at competency development in terms of AEIOU and strategic alignment, you will no longer need to build a bridge across the gap. You will find that your organization will soar.

In our upcoming posts we will continue to address Next Practices associated with the Competency Based Talent Management lifecycle.

If you are interested in getting involved or would like to follow this topic further, here are a series of critical activities coming up:

  • Release of the results of the Executive Forum we just facilitated at the IACCM Global Forum for Contracting & Commercial Excellence on Talent Management.
  • A major research project to not identify the problem one more time but to identify Next Practices to solve the problems.
  • A webinar with IACCM on CBTM.
  • A White Paper to focus on Next Practices in CBTM.

Please contact Crystal Jones at crystalj <at> thempowergroup <dot> com for more information.

How Do You Embed Sustainability in Organizational Culture?

A recent article over on the ISM site in their eSide Supply Management publication on “Embedding Sustainability: A 5-Step Approach”, discussed a report by Simon Fraser University and the Network for Business Sustainability that recommended five tried-and-true strategies for making sustainability part of an organizational culture, where sustainability was defined as operating in ways that meet the needs of the present without compromising the ability of future generations to meet their own needs.

In brief, the five informal practices that were recommended were:

  1. Engage
  2. Signal
  3. Communicate
  4. Manage Talent
  5. Reinforce

For each of these practices, they recommended that actions, which included:

Engage

  • Foster Competition
    between teams and business units
  • Make It Easy
    for employees to make choices that favour sustainability
  • Support Grassroots Efforts
    that come from the workforce
  • Capture Quick Wins
    and use them to overcome resistance
  • Prioritize Recognition
    and reward employees who foster commitment and get results

Signal

  • Be a Role Model
    and walk the walk (don’t just talk the talk)
  • Support
    your subordinates when they make decisions to prioritize sustainability
  • Allocate Resources
    to back up your sustainability commitment

Communicate

  • Tell a Story
    that promotes sustainability behaviours through examples
  • Customize
    the message to be authentic and relevant for the organization

Manage Talent

  • Hire Appropriately
    and select individuals with a passion, attitude, and competence to deal with sustainability issues
  • Make Sustainability a Way of Life
    and make it part of the job descriptions, goals, and benefits review process

Reinforce

  • Inform and Repeat
    the message over and over and over

These are all good practices, but will they really embed sustainability? First of all, nothing takes hold in an organization if it does not support both the business goals and the individual goals of the people who need to carry it out. If the ultimate goal is to please Wall Street by increasing profitability by 10% by cutting costs 3%, then no effort will be approved unless costs are reduced. Furthermore, if most managers and decision makers are compensated through productivity increases, and the most effective way to increase productivity is the least sustainable option, guess what option is going to be picked?

As a result, unless the organizational goals have sustainability embedded in them, and unless those organizational goals are mapped to unit goals that have sustainability in them, and unless those unit goals are mapped to individual goals that have sustainability in them, the chances of sustainability truly taking hold for the long term are going to be low. Thus, the organizational culture must first be tuned to sustainability. However, as we all now, just creating the right environment isn’t enough. People need to change — and this requires creating an atmosphere that not only supports the change, but that will support the inevitable hiccups that will result when any process is changed. So a change management initiative will also be required. And then the people have to want to change to truly make a big change. And how do you make people want to change? Incentives and rewards often work well, but those are specific to the types of individuals in your organization. As a result, no roadmap or 5-step plan will work as is. And if you don’t have a set of leaders who want the change to happen, it could be difficult to figure out what you need to do and get it done. And therein lies the challenge. So while I applaud the effort summarized in the report, is it enough?

Caught Now In A Bind

To the tune of Caught Somewhere in Time by Iron Maiden.


If you had the time to lose
An open mind and time to choose
Would you care to take a look
Or is your data an open book?

Time, it’s never on your side
Time, it’s never on your side

If I tempt you, come with me
And maybe you will fulfill your dream
Because I will take you there
Will you come, or are you scared?

Time, it’s never on your side
Time, it’s never on your side

Don’t be afraid, you’re safe with me
Safe as any soul could be … honestly,
Don’t let yourself be

Caught somewhere in time
Caught somewhere in time
Caught somewhere in time … oh, oh

Like a wolf in sheep’s clothing
Your systems hide your deepest sins
And all the things that you’ve done wrong
Do you know where your money’s gone?

Time, it’s never on your side
Time, it’s never on your side

I’ll make you an offer you can’t refuse
You’ve only got your shirt to lose …
Eternally … Just let yourself see you’re

Caught somewhere in time
Caught somewhere in time
Caught now in a bind!


And Sourcing Innovation, with the forthcoming release of The Ultimate Guide to Spend Visibility: An Implementation Guide, which is the first e-book, to the best of the authors’ knowledge, that actually gives you practical advice on how to implement a multi-year spend visibility and analysis effort that will generate year over year returns — complete with detailed guidance on how to identify over a dozen different kinds of savings opportunities — will get you out of that bind.

Plus, you do not have to drop transactions on the floor, you do not have to sell your soul to any vendor, and we will even tell you how to insure that your numbers are accurate to the level required to even pass SOX scrutiny — something that will make your CFO jump for joy.

Stay tuned.

Safety Stock or Service Levels?

The answer is easy. Both!

A recent article in Industry Week on “The MRO Dilemma” asked if you should focus on safety stock or service levels. The answer is both.

The article, which notes that waste is generated every time a piece of equipment breaks down or runs at less than optimal speed because of needed repairs, and that these repairs are delayed if there is not enough spares on hand, notes that more MRO inventory translates to higher inventory carrying costs but also likely higher service levels while less inventory will reduce the carrying costs [while putting] service levels in jeopardy. This is obvious.

It is also obvious that trying to maintain 100% service levels is likely not an option for most companies because that would mean you just about built a duplicate plant in your store room.

But what might not be so obvious is that the 95% service level recommended as a good target is not good advice at all. The target service level does not, as the article indicates, depend on what your company can afford, but depends on what is optimal for your company. And it is often production line / product specific. A production line producing your most profitable product line should never be down, and if that dictates a costly 98% service level, so be it. However, the turn around time on replacing a printer in the admin offices is not nearly as critical and you can accept a service level of 90%, or less, from your internal IT support, especially if they have outsourced the function to a vendor and a higher service level would increase costs 20%.

Just like you optimize your buy, you optimize your service levels. If downtime on a production line costs you $1,000,000 per hour, you spend $100,000 to make sure you have spares for every moving part that can break. If downtime on a secondary machine that is only required for custom orders, which account for less than 10% of profits, only costs you $10,000 an hour, and stocking the same level of spares would cost you $50,000, you opt for a lower service level. It’s all about optimization.

And, there are companies like Servigistics and MCA Solutions, just to name a couple, that can help you optimize this trade-off so that you’re not improving inventory carrying costs at the expense of service levels and vice versa. With optimization, you can have both … at the right levels that are the most profitable for your organization. Be smart.