Category Archives: Guest Author

Geo-Political Risk


Today’s guest post is from Nick Ford, Director of Customer Service & Delivery, EMEA, Xchanging (which also owns MM4 and Spikes Cavell and which has built up a fairly extensive S2P suite over the past couple of years).

The news is dominated by geopolitical events from around the world — the spread of Ebola, the conflict in Syria, the unrest in Ferguson, ISIS and just about anything that happens in North Korea. Most people will read a few articles, watch the evening news, form an opinion, feel mad, feel glad, feel nothing. Some people will take action. They will be driven to help where they can by donating their voice, their time or their money. Then there are the people who have to leave their emotions, their political affiliations and their prejudices at the door and when disaster strikes, they have to think about business.

As procurement spreads across more and more geographical boundaries, organisations are being exposed to more and more geopolitical risk. In order to ensure the safety of their company, CPOs and Procurement Directors must proactively consider the implications of these events on the running of their businesses. They need to take into account where they are doing business, where their suppliers are doing business and where their manufacturers are located. What is the volatility of that location? What is the political stability, the currency stability and the stability of the work force within that location? How does that affect your business? Some more progressive organisations are taking this further down the supply chain and looking at where their suppliers’ suppliers are doing business.

How–to Measure Geopolitical Risk

Historically, supplier risk has ignored location factors and has instead been focused almost entirely on financial performance. This made risk a very binary exercise but the deeper and broader you go into operational risk the less it becomes about numbers and absolute answers. To truly understand a supplier’s risk profile, you must undergo stress testing and what–if scenario planning. What if war broke out in a region in which you operate? What if, suddenly, a fire broke out in a supplier’s factory and destroyed everything? Where would you transfer that work to, and quickly? What impact would that have on your lead times or your payments? What impact would that have on your customer contracts? You could come up with any number of scenarios and run them through your supply chain operating model to see what impact they could potentially have on your delivery to your customers. Once you understand what impact these events could have, you can start to defend against them.

How Geopolitical Risk Has Changed

Due to technology and access to the internet, the world is becoming a much smaller place. World news is immediate. You’re able to monitor events and changes automatically. Organisations now have an abundance of information available to them. There’s always been political unrest and risk in certain regions but now there is a far better understanding as to what’s changing on a daily basis which allows CPOs to begin to proactively safeguard against them.

The Cost of Geopolitical Risk

Reducing geopolitical risk is about supply chain analysis, disaster recovery, your ability to move to a different supply chain supply environment and how quickly you can do that should a situation arise. The other aspect of geopolitical risk to consider is the cost. From a risk perspective, in the short-term, it costs more to work with a supplier out of China than it does to buy from someone down the road. In most companies, there’s not enough emphasis placed on the increased organisational risks that occur when working with some of these low-cost suppliers. The harm done to the business should something go wrong could be irreparable. The Ebola outbreak, for instance, could have a huge negative impact on Western organisations if they are no longer allowed to import from affected countries or if new trade restrictions, regulations, or possible quarantines are implemented. When selecting suppliers, procurement teams need to take a total cost of ownership approach.

The Cost of Managing Geopolitical Risk

A total cost of ownership approach looks beyond the direct price and takes into account all of the indirect costs of using a supplier, risk and risk management included. For example, based on your risk profiling, you may want to use a double supply scenario to cover areas where you think the geographical or political risks are high. Organisations currently importing from Ebola affected sub-Saharan African may take this approach. That of course, will add to the cost of the good or service. It’s the procurement team’s job then to convince the board that although it may cost a little more, at the end of the day, it lowers the risk profile of the organisation

Supplier risks haven’t changed in the past 10 years — as far as I know there’s always been risk of war, disease or disaster — but the increase of global supply chains have left companies more exposed. Thankfully, there has also been an increase of available information to help prepare and defend against these risks. Strategic CPOs and Procurement Directors know that the best offence is a strong defence and are thus making risk management and disaster recovery a priority — even if it costs a bit more. You get what you pay for.

Supplier Risk: The Tip of the Iceberg


Today’s guest post is from Nick Ford, Director of Customer Service & Delivery, EMEA, Xchanging (which also owns MM4 and Spikes Cavell and which has built up a fairly extensive S2P suite over the past couple of years).

Titanic, the ship not the film, has more in common with your business than you probably realise. Both are massive entities, run by people with years of experience, moving full steam ahead, in a sea of risk, assuming that they’ll be able to see and manoeuvre around any danger that presents itself. The problem, with both your business and Titanic, is the unseen danger — the risks below the surface. Titanic, as we all know, was taken down by an iceberg — sliced open along the hull by the ice beneath the surface of the ocean. If your business isn’t careful, the same thing could happen. I’m talking about supplier risk.

Supplier risk is an iceberg. The tip of the iceberg, that visible 10%, is the financial risk. A supplier’s financial performance is well documented and publicly available. It’s easy to understand their financial position, to monitor their reports and turnover and make an assessment on their viability. Traditionally, this has been the primary way organisations have measured supplier risk but it’s not the whole picture. Underneath the surface lies an absolute plethora of ‘other’ risks that need to be monitored and measured — just like an iceberg — and, just like and iceberg they have the potential to sink your business.

There are three main categories of supplier risk: financial, supply chain and corporate social responsibility — and then there are multiple tiers within each of those categories, across multiple dimensions. It’s those multiple levels, as you move further and further down the supply chain, where the bulk of risk sits. When you consider executive changes, geographical risks, political risks, disaster planning, and stress testing, to name just a few factors, you begin to see supplier risk as an enormous subject.

What some of the more progressive organisations are doing now, is looking at the next 4 or 5 levels of supplier risk. They’re doing this via a structured process in order to understand what their true supplier risk profiles are and to be able to measure and monitor them on a quarterly basis. Procurement should be about managing risk proactively rather than just protecting the suppliers and services that come into your organisation.

Currently, however, most organisations aren’t doing a sufficient amount of supplier risk management, they’re just doing the basics. What’s happening in procurement departments is they are doing what is appropriate to the risk appetite of the organisation. If there’s a very strong appetite within the organisation to manage operational risk, then you’ll tend to find that risk is also higher up the agenda for the CPO or Procurement Director. It’s very high on the agenda in financial services and the oil and gas industry for example, less so in retail and manufacturing. Supplier risk management is reactive at the moment, but I think that will change over the next 5-10 years. It has to.

Along with increased appetite for risk, I think there will be a lot more investment in technology in this area over the next 5-10 years. There’s been a lot of investment in the area of supplier relationship management over the past few years. Going forward, I can see those tools extending dramatically into the risk area. There will be a proliferation of supply risk management tools that come onto the market which bring together the more basic areas of risk, like financial performance and revenue, with all of these other, deeper areas of risk, creating a dashboard that allows you to see your complete risk position — the whole iceberg — at any point in time. Currently, outside of the oil and gas sector, there isn’t really a demand for this type of tool but as risk moves up the procurement agenda, CPOs will reach a point where they’ll need this level of in-depth supplier visibility.

You can find very good data now on the financial risk of suppliers. Executive changes, stock holding changes and financial performance, are all public knowledge and very binary — you either have it or you don’t. The tip of the iceberg is pretty much under control for most procurement departments. When you move below the surface and begin to look at the more strategic and proactive areas of supplier risk, that’s where organisations are currently leaving themselves open to damage. Effective risk management requires creativity. It means stress-testing your supply chain, assessing your suppliers’ suppliers, executing scenario and what-if planning. Unfortunately, it will probably take a few disasters to truly move risk higher up the corporate agenda — it took the sinking of the Titanic to make supplying enough lifeboats for everyone on board law — but if procurement wants to be seen as a strategic function, they’ll need to start addressing the rest of the iceberg.

American Bar Association to Fortune 500: Clean Up Your Supply Chain


Today’s guest post is from Dick Locke, President of Global Supply Training Company, author of the classic book on Global Supply Management, and a seasoned expert with international experience in Supply Management (having run global supply chains from around the globe).

The Minneapolis Star Tribune published an article titled “Bar Association Warns Corporations: Clean up supply chains.” The author says that the president of the American Bar Association will be sending a letter to the CEOs of all the Fortune 500 companies. He goes on to say that the letter will ask the CEOs to “commit to ending human-rights abuses in their supply chains.”

Chris Johnson, who heads the American Bar Association’s (ABA) business section’s supply-chain initiative makes some provocative statements in the article:

  • “Regulation is increasing. Litigation is increasing. It’s astounding to me that companies don’t get out ahead of this. It’s a time bomb.”
  • “Companies remain reactive and not pre-emptive in handling possible human-rights abuses in their supply chains.”
  • “Why would you want to wait to have your products found in the rubble along with 1,100 bodies of dead workers?”
That last statement was about the April 2013 collapse of Rana Plaza in Bangladesh. More than 1100 clothing workers died when the multistory factory building collapsed. Investigators found several European and U.S. companies’ products in the wreckage.

This was a tragedy for the workers, their families, and their communities. It is an ongoing embarrassment to the purchasing profession. Some of the companies involved had no idea their product was being produced in a manifestly unsafe building.

 Collapsed Rana Plaza

I believe it’s also a wakeup call. There are signs that the clothing industry is banding together to change their purchasing practices on an industry-wide basis to improve their supplier selection techniques.

The article focuses on human rights violations going on in company supply chains. Those violations can involve coerced labor of adults and children, any kind of labor by children, safety issues, wage and hour violations and a host of other issues. Here are two issues many of you are facing now:

  • Is your company a retailer or manufacturer? Do you sell more than $100 million per year? Do you do business in California? If so, is your company making a public statement on its web site about what it is doing to remove coerced labor from its supply chain? If it isn’t, it’s violating California law.
  • Do you work for a publicly held US company? Do your company report to the SEC about the origin of any tin, tungsten, tantalum or gold in the products you sell? It needs to or it’s in violation of Federal law. If you have any electronics in your products, you have one or more of those metals. That’s the obvious example. Here’s a list of 22 other products that contain the metals.

However, a good Supply Chain Social Responsibility (S)CSR program needs to go beyond just following the law. I was surprised to find that U.S. law allows children as young as 12 to work on farms. Does your company have a cafeteria or food vending machines? If so, you probably have 12 year olds working in your supply chain. And it’s legal. It’s just not ethical.

Social Responsibility goes beyond labor issues. It includes prevention of giving and receiving bribes. It includes treatment of animals. It includes preserving the environment. The last topic applies to every organization that buys paper, for example. That’s just about everyone. Does your paper supplier use sustainable forestry techniques?

Want to learn more about what’s involved and how to develop and execute an (S)CSR program? While I don’t usually plug my own work quite so blatantly, Next Level Purchasing’s “Exemplary Supply Chain Social Responsibility” is the only training course I have found that goes into this topic in great detail. In eight on line training hours, on your own schedule, you will get a thorough and practical understanding of the issues and the solutions. To build on Chris Johnson’s statements (above), it’s much better to be preemptive when there’s a threat of time bombs.

Thanks, Dick!

The Evolution of Purchasing


Today’s guest post is from Lisa Nyce, Senior Project Analyst for Source One Management Services, LLC. Source One is a leading provider of sourcing consultancy and category management services.

Over the years, purchasing has become more strategy-oriented, rather than transactional. Purchasing professionals have evolved from the processing of traditional purchase orders and similar responsibilities to involvement in higher value and higher impact ROI projects. Technological advances enable purchasing professionals to offer so much more to an organization today. So sit back, buckle up, and get ready to navigate through a number of drastic transformations – we’ll show you how to become a more involved player by taking advantage of a shifting technological landscape.

Procurement pros have a growing number of tools in their arsenal to help make their lives easier and their projects more successful:

  • Spend Analysis Software – Get a better understanding of the Total Cost of Ownership (TCO) of goods and services. To get the most out of any software, the backing of the supporting department and program is essential. For example, with supplier relationship management software, a thorough strategy containing performance management and risk mitigation plans allows a software solution to serve with a full-circle advantage.
  • Cost Savings Tracking – identify cost savings opportunities and aid in the verification of implementation. Aside from the straight-forward benefit of tracking immediate cost savings, these tools can be used to remain competitive by ensuring that these savings are sustained over time and supplier rates remain locked at negotiated levels.
  • Supplier Report Cards – Ensure that expectations are being understood and met by both suppliers and internal stakeholders. These serve as an asset as new technology is presented and suppliers are scorecarded for future endeavors. As the technological landscape shifts, suppliers who don’t “keep up with the times” can be eliminated.
  • Stronger Legal Controls – minimize the need to involve a legal department or outside counsel when engaging in contractual negotiations. As heavily-regulated industries see a new or adapted regulatory climate, these legal controls assist in preventing penalties or a stigma attached to a brand as a result of internal or third-party noncompliance.

Purchasing has been incorporated into the more inclusive Supply Chain operation – it is no longer just a function of buying what is needed at the right time, at the right price with the right quality. Supply Chain activities encompass Strategic Sourcing, Supplier Relationship Management (SRM), Logistics, Planning and Quality. All of these new factors make purchasing a strategic function and the key to being able to meet or exceed the customer’s expectations.

New options abound for management and procurement professionals alike

Organizations have reduced the number of individuals required to get work done. Thirty years ago a typical Purchasing Department could include a Purchasing Manager, Buyers, expediters and clerks. That amount of manpower is simply not needed today. Electronic efficiencies have virtually eliminated clerical positions, and due to more efficient MRP systems, transactions are completed in less time allowing more time to source strategically, build stronger relationships with suppliers, and engage more with customers and stakeholders. Furthermore, employers today have many more options for staffing.

There are permanent, temporary, contract-to-hire, and various staffing options specific to the procurement industry. Procurement consulting is a viable option for companies wanting to obtain subject matter expertise on a particular spend category.

Likewise, supply chain professionals have access to a wider range of educational options to up their game: Logistics, Planning, Procurement, Supplier relations to name just a few. Not only are degrees available in Supply Chain but certifications from accredited institutions and groups are also available to a much greater extent.

The evolution of the Purchasing function has developed and will continue to do so. The change is necessary for organizations to continue to prosper. To stay ahead of the curve, remember to always monitor developments and consider what areas of improvement are possible – this will pave the way to not only personal gains but also further changes in the industry.

Thanks, Lisa.

Driving Stakeholder Engagement


Today’s guest post is from Diego De La Garza, a Senior Project Manager at Source One Management Services and a regularly sourced pundit for sourcing issues in Latin America. As Senior Project Manager, he leads a team of internal resources in the development of strategies to reduce costs and increase service levels for clients.

When organizations undertake new sourcing initiatives, much is said about setting clear objectives for the parties involved and establishing attainable timelines. However, stakeholder engagement is often neglected. Regardless of their business unit, stakeholders will only participate when they clearly understand the process and appreciate the value that strategic sourcing can deliver. However, unlike a timeline or objective, stakeholder engagement may be volatile and cannot just be monitored. It needs to be driven. How quick and how much all stakeholders engage will be paramount to maximize the success of the initiative.

So how, do we drive stakeholder engagement in general? First of all, the expectations need to be adequately communicated to all stakeholders, and their feedback must be requested upfront. The stakeholders’ needs, concerns, and requirements are unique and must be understood. Empathizing with the stakeholders will allow them to see the engagement as an opportunity to drive results, and a clear chance for them to add value that otherwise would be limited due to resource constraints.

The key with communicating with stakeholders is speaking their language. In other words, we cannot engage stakeholders in the finance department by speaking in the terms of the marketing team, and IT will not understand why an initiative is important to Finance. Ongoing communication is the only way a stakeholder will understand his or her requirements are being accounted for.

Stakeholders should also identify the parties involved. In cases where strategic sourcing consulting firms are employed, stakeholders can be offered information, expertise, additional resources, or access to data that will support a successful sourcing engagement. All stakeholders involve must be able to understand what this external party brings to the table, how to collaborate more effectively with that third party, and how to utilize these resources available at their disposal.

Another key ingredient for stakeholder engagement comes from the higher levels of the organization and entails strong sponsorship. Sponsorship drives stakeholder engagement because it acts as the voice within the organization. When senior leadership establishes a deep commitment within a sourcing initiative, it validates efforts and aligns departments. Even when expectations are clear, and roles are well defined, stakeholders who perceive low levels of sponsorship will not engage to their full potential or will lose interest quick.

Stakeholder engagement is essential because it creates collaboration across business units, even in cases where sponsorship is lacking, or other stakeholders seem disinterested. When stakeholders are engaged, they become loyal supporters of the sourcing initiative. Driving shareholder engagement is a dedicated effort. As needs change and evolve, checks and balances should be managed throughout in order to increase the success of the initiative.

Thanks, Diego!