Category Archives: CSR

Hiperos – It’s So Hip To Be Square with 3rd Party Management! Part I

When we last checked in with Hiperos, they had evolved from a Risk Management platform to an “Extended Enterprise Management” platform that integrated Contract Management, Compliance Management, Performance Management, and Sustainability Management into a 360° solution platform for an organization that wanted to get these various facets of risk under control.

However, as they have continued to roll-out their platform and work with clients in different verticals (beyond finance, which was their initial core strength and where they appear to be dominating the market), they have found that as enterprises get their internal(ly controlled) risks under control, their clients realize that typically the biggest risks they face are from their suppliers and vendors who provide then with all sorts of direct and indirect product and services. As a result, 3rd Party Management (3PM) has become critical to their operational success. How critical?

Consider these statistics. Forty-four percent of data breaches involve third parties, and the most expensive data breach has cost 35.3 Million dollars to resolve. And while this is atypically high, a data breach will cost an organization millions to resolve (as even the cheapest data breach cost $780,000). And if there turn out to be traces of blood money or drug money in your supply chain, it could cost you as much as $160 Million to settle the resulting probe. In short, 3rd Party Risk, if not properly managed, is likely to end up costing your organization millions. The only question is when.

And if you believe that preventative spending to manage risks that might not happen is unwise in this economy, consider this. Organizations that implemented Hiperos 3rd Party Management saw a 75% reduction in customer impact incidents due to sole sourcing. One organization was able to eliminate a seven-figure spend of 4 Million in annual subscription fees that it was paying just to insure that it wasn’t using blacklisted or banned suppliers (and that it wasn’t working with suppliers who were known to bribe and/or be involved in anti-corruption investigations) as the Hiperos 3rd Party Management solution contained all the functionality they needed. And, overall, Hiperos’ clients saw a 300% increase in the assessment of 3rd parties with a high-breach potential — allowing them to be vetted or eliminated before a costly incident occurred.

And this is jus a short-list of costly compliance and reputational risk facing an average organization that operates globally and has to deal with ISO, SAS 70, Anti-Bribery, Anti-Money Laundering, FCPA, SOX, OCC, CFPB, REACH, WEEE, OSHA, HIPPA, and W9 security and reporting obligations, just to name a few. A third party management solution tracks all of this, and more.

So what does Hiperos do to help you with your 3rd Party Management? Stay Tuned for Part II.

Wow! Charbroiled Burgers More Environmentally Unfriendly than Clean-Diesel Trucks!

I have to admit that I was a little shocked when I came across this article on DC Velocity that referenced recent research from the University of California-Riverside that resulted in a study which found charbroiled burgers produce more particulates than clean-diesel trucks.

Specifically, if a clean-diesel 18-wheeler truck is burning ultra-low sulfer diesel fuel, it would have to travel 143 miles on the freeway to send up the same mass of particulates as a single charbroiled hamburger patty. As per this article on WSAZ News on “new california study finds more particulate emissions from charbroiled burgers than diesel trucks”, clean diesel technology is really cleaning up the trucking industry. Recent research from North Carolina State University demonstrated that trucks in compliance with newer standards showed a 98% decrease in NOx and a 94% reduction in particulate matter emissions.

The study, summarized on UCR Today, also found that commercial cooking is the second-largest source of particulate matter in the South Coast Air Basin. Looks like we need to start installing clean cooking technology now!

Anyway, this gives you something to think about that before your next trip to Hardee’s, for example.

Sustainability Requires Shared Understanding

A recent article on “Sustainable Success” over on the CPO Agenda discussed three challenges that, when addressed, can lead to success in sustainability efforts. The challenge of tools and transition to better processes is well known, and straight-forward to address. The challenge of recognizing the achievements of supply management professionals is lesser known, but there are a number of techniques that can be used to address this challenge. However, the challenge of building a common understanding of just what sustainability means and why it is relevant to procurement is often overlooked and not as easy to address.

As the article notes, first among the difficulties in getting sustainability right is making sure everyone sees the same potential benefits. This means a common understanding that goes beyond what the term sustainability means on its own, but what it means for Supply Management and the organization as a whole. As the article notes, sustainable procurement aims for the same outcomes that any buyer would wish to see in their work, and delivers some additional benefits that can go beyond the buying organization. In particular, it means seeking benefits now that do not impact the ability to seek benefits in the future. The impact of activities must be considered not just with respect to the current sourcing event, but over the lifetime of the category and any affected supplier relationships.

So how do you come up with a common definition?

As the article notes, a good way to start is by determining how a potential decision stacks up with respect to some key factors, such as:

  • customer reputation
    does it increase your net worth in the eyes of a customer (who has also embarked on a sustainability agenda)
  • risk management
    does it decrease your overall risk exposure (in terms of supply availability, reputational damage, or media exposure)
  • medium / long term value
    does it decrease costs, increase quality, or insure available supply
  • supplier relationship(s)
    will the supplier partner in innovation to reduce production costs, reduce waste, and decrease environmental impact

And then by determining how the decision stacks up with respect to concrete sustainability factors such as:

  • raw materials
    are the materials you are using renewable and can they be extracted with minimal harm to the environment
  • energy requirements
    are the energy requirements associated with your purchase (for production, storage, and transportation) minimal and can they be met with renewable resources
  • waste products
    are waste products minimal and/or reusable and/or reclaimable? can the food waste be used to feed livestock? can the metal waste be melted down and reused?
  • worker treatment
    are all workers who take part in your supply chain treated ethically, responsibly, and fairly, using standard guidelines, such as those outlined by JLP

If a supply management decision would increase customer reputation, reduce risk, contribute to medium and long term value, enhance supplier relationships, use renewable (and non-environmentally harmful) raw materials, reduce energy requirements, minimize (or eliminate) waste in production, and do all this in the context of ethical worker treatment, then, regardless of what definition of sustainability each individual on a cross-functional sourcing team is partial to, it should be easy to agree that such a decision, at least in the mid-term, is sustainable.

Walmart Changed the World 50 Years Ago, But Did It Change For The Better?

I certainly agree with this recent Time Business article on 10 Ways Walmart Changed the World since the first Walmart store was opened in Rogers, Arkansas on July 2, 1962 (four thousand, four hundred stores ago). But I’m not sure all of the changes created by the world’s largest private employer are for the best.

Let’s start with this nice and succinct quote from the article:

Walmart’s relentless drive for efficiency has bankrupted companies, put downward pressure on wages and upset a retail culture that some believe was less efficient but more personal and aesthetically pleasing.

It may be the story of American capitalism at its finest, but is that the story it wants to bring to the rest of the world as it continues its rapid (or is that rampant) international expansion?

Now, while everyday low prices, supplier partnership, data driven management, supply chain connectivity, focus on decentralized management, and sustainability are good things; and while better selection is neither good nor bad in and of itself; the suburban sprawl it generates is bad for the environment, the relentless drive for efficiency is an accelerating factor in the outsourcing of American jobs and stagnant wages for North American employees is making us poor, and the creation of an overconsumptive (& disposable) culture will make it almost impossible for true sustainability to creep into our culture.

From a simplistic perspective, 6 changes for the better compared to 3 for the worse would appear to be a balance in Walmart’s favour, but it’s not how many good deeds and how many bad deeds, it’s the extent of the damage of the bad deeds that matters. And the extent is pretty bad when we look at things from a modern perspective.

First of all, as the article notes:

The selection that Americans began to demand required bigger stores that could only be built on the outskirts of small towns or in the suburbs of large cities.

Thanks largely to Walmart, we began to sprawl so much that your average big American city is now sprawling into the next big American city. That’s why we have Mega-Regions where it’s hard to determine where one city ends and the next begins. This is about as un-green as you can get. There’s a reason that San Francisco, Vancouver, and New York are the greenest cities in North America. (See Metropolis.) Why? For starters, the bigger the city, the more gas we have to use to get around because public transportation covers less and less. Plus, we need more resources to distribute power, water, communications, and everything else we need to live.

In the last 10 years, the US economy has last over 4 million blue-collar jobs, mainly as a result of manufacturing job losses, which is largely due to outsourcing. Outsourcing accelerated by Walmart in its pursuit of the lowest possible cost.

But this doesn’t pale in comparison to the creation of the overconsumptive and disposable culture it has created. Thanks to Walmart, we not only want to buy more, because some products have become so cheap, relatively speaking, that we don’t even think about buying them. And, more importantly, because some products have become so cheap, we don’t even think about repairing them when they break, even if they repairable. As a result, we now generate more waste per capita then one would have ever thought possible even a few decades ago. Without Walmart, something else might have come along, but the reality is that Walmart came along and Walmart did the damage.

Any differing opinions?

It used to be that Doctors made Life and Death Decisions. Now Supply Managers do too!

This recent CSR briefing over on the CPO Agenda on “when good procurement can be a life and death factor” is great food for thought as it points that not Supply Management is more then just sourcing and procuring, it’s also also sustaining and securing — in more ways than one!

Focussing on how the early 2000s saw several incidents where hospital patients inadvertently received excess doses of their drugs that resulted in fatalities, the article pointed out how a poor selection of IMDs (Interactive Medical Devices) that didn’t do anything to prevent common human errors was the reason that a premature baby died after receiving 10 times the required dose of diamorphine and a person lost their life after receiving a dose 24 times too high after a daily dose was miscalculated as hourly when it would have been trivial to code in a dosage check that asked a nurse or doctor are you sure before administering a dose outside of the range. After all, it’s easy to mistype a decimal point and then 13.5 ml becomes 135 ml, or click the hourly instead of daily button if you’re in a rush (and what health-care professional isn’t overworked these days)?

Now, you could say that the real problem was lack of training, as better training could have minimized the possibility of human error, but in each case sourcing was involved. In each case, a wide range of IMD devices were in service in each of the hospitals. And in each case, each time a procurement exercise took place, a different machine was chosen as the most cost effective. The factor that should have been last on the list was placed first and people died. Remembering that Supply Management’s ultimate goal is value (creation), not cost (reduction), and in this case, the value was procuring the best IMD for the hospital, not the cheapest one today, where the best IMD was one that was easy to use, programmed with easy range checks, reliable, fault tolerant, long lasting, and safe and reasonably priced with respect to these requirements. Considering the inherent value in human life (and the cost of the lawsuit or settlement that the hospital is going to have to pay as a result of a preventable death), if that means spending 20% more, so be it.

If instead of sourcing IMDs as one-off sourcing events when a need arose, Supply Management put security and sustainability first and foremost and redefined IMF sourcing as a multi-year master contract agreement, negotiated against projected demand over the next 3-5 years, lives might have been saved as there would likely not be more than two types of IMDs at any one time (the ones sourced during the last contract, and the ones being sourced during the current contract, where the contract length is defined to insure all of the old machines are replaced before a new contract is negotiated with the possibility of switching vendors) and the amount of training the health care staff would need would be minimal.

And the reality is that medical device sourcing is not the only area of Supply Management where lives are at stake. Supply Managers also source food and beverage categories, and melamine in the milk, diethylene glycol in the toothpaste, salmonella in the spinach, bovine spongiform encephalopathy in the beef (which can cause Creutzfeldt-Jakob disease), and botulism in the chili sauce can all result in death, and if not caught in time, can be as deadly as a plague or coronavirus (SARS).

And Food & Beverage is just one example. The chemical sector is another. What if the chemicals are hazardous and the storage units are poorly made and leak? Cyanogen chloride is colourless, and deadly, and used in the production of Chlorosulfonyl isocyanate which is used in medicine in the production of Beta-lactams, which form the foundation of antibiotics (including penicillin).

Another is heavy machinery. Carbon monoxide (CO) is regularly produced by internal combustion engines in enclosed spaces. If the exhaust system is not airtight and properly insulated, CO could leak into the factory and poison (or kill) your workers before they even know it’s there as it is an odourless colourless gas.

The point is, where physical products are concerned, almost anything you source could be a hazard to human health, and even life. (We still have problems with led in the paint and asbestos in the insulation when sourcing from overseas.) This doesn’t mean that you don’t have to worry about services — it just depends on what you’re sourcing and what products and materials the service providers have to use in the performance of their jobs. For example, Janitorial Services could be a problem if the company is contracted to provide the cleaning products and they consistently use cleaners with too high a borax concentration which is not properly cleaned up.

So, next time you source, get out that corporate social responsibility scorecard; make sure safety, security, and sustainability play a prominent role, and remember that, indirectly, you could be responsible for someone’s life.

Your job just changed, didn’t it?