Category Archives: Compliance

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?

Trade Partnership Programs: Are You Ready for Global Compliance?

Chances are that, if you are a US based organization, you are up to date on you C-TPAT (Customs-Trade Partnership Against Terrorism) and if you are a multi-national, your AEO (Authorised Economic Operators) initiatives to achieve a safer supply chain while streamlining trade through self-compliance security initatives (designed to withstand comprehensive audits). And while this may have been enough in the beginning, today the C-TPAT and AEO are just two of many global trade partnership initiatives that you should be aware of. If your organization is to be a major player in the global marketplace, you should be aware of at least the following seven initiatives:

  • AEO (EU)
    Authorized Economic Operator: AEO status is granted to reliable operators that are compliant with respect to security and safety standards and who can therefore be considered “secure” traders. Benefts include fast-tracked consignment, streamlined declarations, and mutual recognition with countries with a similar program.
  • C-TPAT (US)
    Customs Trade Partnership Against Terrorism: A voluntary supply chain security program focussed on securing supply chains against terrorism. Benefits include reduced customs inspection, reduced border delays, and eligibility for account-based operations.
  • Customs Co-operation and Mutual Administrative Assistance in Customs Matters
    An European Union program that provides the necessary tools for customs cooperation between EU member countries and other importers and exporters, including Korea, Canada, Hong Kong, the US, India, China and Japan.
  • FAST
    Free and Secure Trade: A voluntary joint initiative between the Canada Border Services Agency (CBSA) and U.S. Customs and Border Protection that enhances border and trade chain security while making cross-border commercial shipments simpler and subject to fewer delays.
  • ISA
    Importers Self Assessment Program: a voluntary approach to trade compliance that provides the opportunity for importers who have made a commitment of resources to assume responsibility for monitoring their own compliance in exchange for benefits.
  • SAFE Framework
    SAFE Framework of Standards to Secure and Facilitate Global Trade: a WCO Framework that includes requirements for Customs and Authorized Economic Operators that is designed to facilitate the implementation of secure trade programs in member nations
  • SEP
    Secure Export Partnership: A US-New Zealand Customs security arrangement (which is representative of emerging US security arrangements with other countries).

How To Increase Spend Compliance

A recent item over on the CPO Agenda addressed “How to Increase Spend Compliance” because, as we all know, procurement organizations still face opposition to initiatives to channel indirect spend through preferred suppliers. The article chronicled advice from Carrie Ericson, VP of Procurement and Analytic Solutions, at AT Kearney. This is what she had to say.

Treat it like an opportunity.
It might be a problem, but it’s also an opportunity to cut considerable cost. There’s a chance for procurement to deliver greater value by driving standardization to existing contracts through preferred suppliers.

Focus on the right thing.
A mature organization with quality contracts with preferred suppliers can focus on compliance, but an immature organization without quality contracts with preferred suppliers who can provided products and services that meet organizational needs cannot. This organization must first focus on vendor identification, supplier selection, strategic sourcing, and contract observation.

Procurement must be good at arbitration.
Where you have a category that a lot of different functions within the organization buy and use, you get a lot more perspectives on which is the right supplier or the right contract. It’s Procurement’s challenge to not only get them to align, but get them align in a way that meets corporate needs.

Procurement must understand that buyers think their needs are special.
Even if a user understands that a contract is good for the company, the buyer may still think they need something just a little bit different for their needs. Or they may have developed a relationship with a certain supplier over years and feel that no other vendor can provide the same level of service to them. Or they may feel that it will take too much time, and cost too much money, to transition to a new supplier because their needs are special.

Focus on thresholds, not 100% compliance.
A broad compliance initiative across all contracts and preferred suppliers is risky because it assumes that all the contracts and preferred suppliers procurement has in place actually meet the business users’ needs. If care was taken, this may be the case, but if there are a large number of diverse business units with (seemingly) diverse needs, it may not be feasible, or cost conscious, to meet all the needs with one supplier. Sometimes, it’s cheaper to let low spend business units (on that category) do their own thing. Procurement should establish a spend threshold where anyone having to spend over a certain amount needs to use the Master Contract or get Procurement involved. (And if a proper analysis is done, the Threshold can always be designed to insure that at least 80% will be on contract by default.) Then, the Procurement organization isn’t wasting dollars chasing pennies and if a unit’s needs truly are different, they can still get the right product (at the best value with the help of Procurement).

Visibility into what’s going on is a huge obstacle.
Much of the data CPOs can get their hands on is historical and the money has already been spent. (And that’s why there is no real-time spend visibility and it makes no sense to require that the central data store / spend analysis cubes get updated in real time. Even a spend cube for your fastest moving category doesn’t need to be updated more than once a week. Put the resources into analysis, not updates.) That’s why the biggest challenge for the CPO in driving benefits to the bottom line is influencing that spend before it actually occur.

And


Compliance is typically achieved through stakeholder alignment and outreach by Procurement.
This is the most important point in the article and, unfortunately, it’s buried at the bottom where you are likely to miss it. If the stakeholder’s aren’t aligned, they won’t buy in, and the only way you get buy in is to insure they are part of the process from day one. All of the key stakeholders should be part of the vendor identification, supplier selection, and strategic sourcing; every stakeholder who is affected should give a chance to provide their input up front, and before a contract is signed, the sourcing team should hold a session to explain why a supplier / contract selection is best for the company and each affected stakeholder should be given one more chance to provide their input. Stakeholders who feel they are part of the process are much more likely to accept the results than those who are ignored and have a contract forced on them. While it’s true that there are those whom you’ll never be able to make happy, this will get you to compliance faster (even though it’s more work up front) than any other effort you care to undertake. Work with your stakeholders, and they will work with you!

The Triple Bottom Line will Soon Be The Norm

Is your Supply Management organization ready?

The Triple Bottom Line — which balances economic, environmental, and social performance in order to make a corporation more sustainable — is gaining more support by the day. As per this recent article over on Chief Executive on the ‘Shareholder Push for the “Triple Bottom Line”‘, the percentage of social and environmental shareholder resolutions that garnered at least 30% shareholder support, rose from a mere 3% in 2005 to 26.6% in 2010. At the current rate that support is increasing, it’s just a few years before the majority of social and environmental shareholder resolutions exceed the 30% threshold and not many more years before the majority of well-formed social and environmental resolutions pass.

So, is your Supply Management organization ready?

Unless it is a true CSR leader, probably not. So where should it start? Near the end of 2008, CAPS published a “Critical Issues Report” that addressed the Triple Bottom Line (TBL) framework offered some suggestions for an organization that wanted to get started on the TBL path. Specifically, the report recommended that an organization:

  • Smart small (but do something).
  • Insure proposed strategies are aligned with overall corporate strategies and goals.
  • Incorporate green into your purchasing and sourcing processes.
  • Be proactive.
  • Make sure you’re not just greenwashing.
  • Form a cross-functional team to scale your efforts company wide.

Logistics Improves on Both Sides of the Atlantic

West of the Atlantic, there are two big logistics bottlenecks. One is the US border with Canada (where documentary requirements make in-transit goods a cumbersome process). The other is the US border with Mexico, where there have been long standing conflicts over cross-border trucking. East of the Atlantic, you have EU security programs that are not compatible with US programs, and also make for bottlenecks.

In the last few weeks, progress has been made on two of the three big bottlenecks as the US reaches agreement with Mexico on cross-border trucking and agrees to mutual supply chain recognition with the EU (jocsailings.com).

As per the article in Logistics Management, on Wednesday, July 6, U.S. Transportation Secretary Ray LaHood and Mexico’s Secretaría de Comunicaciones y Transportes Dionisio Arturo Pèrez-Jàcome Friscione signed documents to resolve the long standing conflicts between the trucking industries of the two countries that resulted from the elimination of the pilot program for cross-border trucking in 2009 as part of the Omnibus Appropriations Act. (In response to the act, the Mexican government stated it would place tariffs on roughly 90 American agricultural and manufactured exports as payback. The tariffs amounted to $2.4 Billion of American goods.)

The agreement, focussed on a safety-first program, will lift these tariffs and provide opportunities to increase Mexico-bound US exports and create job opportunities. Furthermore, Mexico will provide recriprocal authority for US carriers to engage in cross-border long-haul operations in that country.

In addition, as per this article in JOC Sailings, the US and EU plan to implement mutual recognition of their supply chain security programs by the end of October. Specifically, mutual recognition between CBP’s C-TPAT and EU’s AEO program will occur, as per the joint statement between the European Commission and the US Department of Homeland Security. Once this is achieved, cargo will flow more smoothly between the US and the EU.