The idea behind a Green Supply Chain (or a Sustainable Supply Chain, or a Green Sustainable Supply Chain) is to reduce costs while improving the environment. Green Supply Chains, which are often based on Green Purchasing (or Environmentally Preferable Purchasing), offer a host of benefits to their owners, including strong brand image, customer satisfaction, reduced risk, cost reduction, and increased shareholder value. As such, they are valuable assets to their possessors.

Companies with green supply chains often have green operations. IT, Office suppliers, buildings and maintenance, transportation, food, energy, and manufacturing can all be greened with a little thought and a bit of elbow grease. The Green Purchasing^* wiki-paper offered a number of tips on how to identify software and systems, office suppliers, building improvements, transportation alternatives, food choices, energy sources, and manufacturing alternatives that are cost effective and environmentally friendly.

For some perspectives on green purchasing, green sourcing, and the green supply chain, refer to the following posts:

• Strategies to Design for Supply
• The Splendors of Scrap
• An Introduction to Carbon Footprinting
• Ten Green Ideas That Work, Part I
• Ten Green Ideas That Work, Part II
• Kick-Starting Your Environmental Compliance Program
• Green Your Data Centers and Keep More Green in Your Bank Account
• Green Your Desktops and Keep Even More Green in Your Bank Account
• A Field Guide to Green Sourcing I
• A Field Guide to Green Sourcing II
• Green CAPS and the Triple Bottom Line

^* The e-Sourcing Wiki was created and maintained by Iasta, which was acquired by Selectica in 2014 (which renamed itself Determine in 2015). It was retired by Determine (which did not actively maintain it) before Determine was acquired by Corcentric in 2019

Global trade management is important for a number of reasons. Poor global trade management can cost a company dearly, as it can end up paying more duty, fees, taxes, and even fines than it would if the process was well managed, which it isn’t at many companies. A recent Global Data Mining^# study found that error rates in global trade processes approach 10% to 20% in many companies and that the effective control of global trade processes is often 100 times to 200 times worse when compared to accounts payable processes.

Global trade management is an involved process, which, as per the wiki-paper, can take fourteen or more steps for imports and exports and require 35 documents between 25 parties that need to comply with over 600 regulations and more than 500 trade agreements, as per this article in Supply Chain Digest that noted that the complexities of global trade require a new generation of transportation management.

For more insights into the aspects of Global Trade, refer to the other glossary entries on the component functions, and the following blog posts.

• Gartner’s Global Trade Management Checklists
• Global Operations Model Building
• Global Economics for Sourcing Professionals
• Global Trade Metrics Benchmarking
• When Going Global – Don’t Forget the Context!
• It’s Time to Get Your Trade Data In Order
• The 12-Days of X-emplification Day 10: Trade Data Management
• Simplifying Global Trade Management Systems

Although often mistaken for low cost country sourcing, it’s not the same as low cost country sourcing is just one aspect of global sourcing. Other instantiations include best cost country sourcing, where an organization tries to take advantage of producers with higher quality or unique services and not just lower labor costs.

For some insights on global sourcing, see the following posts on Sourcing Innovation.

Sourcing Innovation

• The Benefits and Risks of Global Product Development
• The Global Financial Supply Chain
• Best Cost Country Sourcing
• Best Cost Country Sourcing and the Concept of RiskTurn
• Low Cost Country Sourcing 2007
• The ‘Home Bias’ Effect and International Investments
• The World is Fast, Cheap, Out of Control, and Headed for Disaster
• Low Cost Country Sourcing Leeriness
• Is Near-Sourcing Near At Hand?
• What Defines an Emerging Market?

Generally speaking, it’s a multi-step process, and while the specific steps will vary depending on the services or solution provider you engage, all of the processes tend to have the following commonalities:

• Current Situational Assessment (What is being bought where, from who, and for how much?)
• Supply Market Assessment
• Total Cost / Total Value Analysis
• Supplier Identification
• Sourcing Strategy Identification
• Bid Collection
• Negotiation with Preferred Vendors
• Award and Contract
• New Supply Structure Implementation and Change Management
• Supplier Management
• Results Monitoring

e-Sourcing is the electronic implementation of the sourcing cycle, and e-Sourcing software refers to the software products and platforms that support the sourcing cycle. e-Sourcing software is typically associated with e-Auction and e-RFX software, but it also includes spend analysis, strategic sourcing decision optimization, contract management, online marketplaces, and (virtual) supplier networks.

For more information on the basic e-sourcing cycle and e-sourcing best practices, see the Strategic e-Sourcing Best Practices^* wiki-paper. For a distinction between e-Sourcing and e-Procurement, see the post on how it’s sourcing and procurement. For some general strategies, see the Sourcing Innovation post archive on this blog. And for more information on each of the primary supporting technologies, see the appropriate glossary articles.

^* The e-Sourcing Wiki was created and maintained by Iasta, which was acquired by Selectica in 2014 (which renamed itself Determine in 2015). It was retired by Determine (which did not actively maintain it) before Determine was acquired by Corcentric in 2019

Strategic sourcing decision optimization is an important part of your technology toolkit because it can significantly reduce cycle times, enable significant realizable cost savings, and guide a buyer to the best overall total value management sourcing decision. Analyses that take weeks or months in spreadsheets like Excel can often be done in a few hours, and sometimes even a few minutes, and the savings can be substantial. Aberdeen, in two back-to-back studies in 2005 and 2007, found that the application of optimization tools in the analysis of total cost and the usage of flexible bidding functionality enabled early adopters of the technology to identify an average incremental savings of 12% beyond the savings that could be realized with basic price-focussed auction and e-RFX technology.

There are a number of requirements that need to be met before a solution can be identified as a true strategic sourcing decision optimization solution. In addition to solid mathematical foundations (such as Mixed Integer Linear Programming, or MILP), it must support true cost modeling, sophisticated constraint definition in multiple core categories, and “what if” analysis capabilities.

The system must be able to accurately model the complex cost of goods sold calculations that are common in today’s global sourcing environment. It must be able to account for all of the fixed costs (such as production line set up, support fees, etc.) and variable costs (such as cost per unit, duty, etc.) that are associated with each product level, regardless if the cost is a raw material usage cost, energy cost, labor cost, trade cost, distribution cost, or trade cost. In addition, it must also support the definition of discounts and rebates that suppliers will offer for volume purchases or multiple product purchases.

Since the lowest bid is not always the best solution (as there are quality issues, supply reliability risks, and associated costs to take into account in the total cost and total value equations), it is imperative that the system be able to support the plethora of regulatory, business, and strategic quantitative and qualitative constraints that a buyer needs to truly arrive at an optimal, implementable, solution. At a minimum, the system needs to support capacity and limit constraints, basic allocation constraints, risk mitigation (meta) allocation constraints, and qualitative constraints.

Capacity Constraints allow for the specification of real world limits on the amount of product a supplier can supply and on the amount of product that a warehouse can receive. They also allow a buyer to restrict the supply base according to business rules, regulatory constraints, and strategic decisions.

Basic Allocation Constraints allow a user to specify that a certain supplier, or group of suppliers, must receive a minimum award of one or more products, and may also be used to specify a maximum award that a supplier, or set of suppliers, may receive. They can be used to capture pre-existing agreements, define preferred suppliers, and implement global sourcing strategy constraints.

Risk Mitigation Allocation Constraints allow a user to specify that at least one supplier in a group must receive a minimum, or maximum allocation, and are generally used to mitigate supply risk or ensure compliance with regulations.

Qualitative Constraints allow for the definition, and imposition, of an absolute or average minimum, or maximum, qualitative score on each product, or product bundle, sourced. They allow for engineering requirements, marketing and customer satisfaction goals, and other non-quantitive business constraints to be included in the model.

For a more complete definition of decision optimization, see the Strategic Sourcing Decision Optimization wiki-paper. For a detailed discussion, see the Next Level Purchasing podcasts on “What is Supply Optimization” and the associated transcripts, indexed below. For savings benchmarks, see the Aberdeen white-papers, also indexed below. Finally, the following posts offer some good starting points as well:

• BoB’s Unique Talents
• Expressive
• Strategic Sourcing Decision Optimization
• BoB’s Power Source
• Advanced Sourcing is Where it’s At
• Analytics vs. Optimization
• What’s Involved in Supply Chain Network Optimization? Part I
• What’s Involved in Supply Chain Network Optimization? Part II
• What’s Involved in Supply Chain Network Optimization? Part III
• the doctor Goes Mental on Optimization Myths
• The 12 Days of X-emplification: Questions to Ask Your Optimization Vendor
• The 12 Days of X-emplification: Supply Chain Optimization
• The 6 Days of X-asperation: More Questions to Ask Your Decision Optimization Vendor
• Optimization: Can You Afford Not to Do It?

^* The e-Sourcing Wiki was created and maintained by Iasta, which was acquired by Selectica in 2014 (which renamed itself Determine in 2015). It was retired by Determine (which did not actively maintain it) before Determine was acquired by Corcentric in 2019