SUPPLY CHAIN RESOURCE COOPERATIVE

I had the opportunity to spend some time at IBM’s Research Triangle Park facility, (the actual hosting site for the Watson computer) this past week.  IBM hosted a roundtable for the Center for Advanced Purchasing Studies, with executives from P&G, US Steel, CB&I, Mastercard, and others attending.  In that session, Dan Carrell from IBM shared a number of key perspectives that is driving IBM to diversify into the world of analytics.

Three major shifts are driving the new economy:

  1. Data is foundational to everything we do. Data is a natural resource – those who capture data and learn how to exploit it will be those who succeed in the new economy.
  2. The Cloud is transforming information technology and moving business processes into digital services.
  3. The shift to Cognitive computing is unlocking new insights and enabling optimized outcomes. Cloud Platforms and Cognitive Solutions will take companies like IBM into the future.

An amazing fact is that 90% of the world’s data has been produced in the last two years – and 80% of this data is unstructured! The massive amount of data found in the form of speech, text, articles, videos, digitized images, and graphics is exploding. But organizations and individuals have never had tools to put their arms around this massive flood of data, which is constantly changing and morphing, and increasing in scale. This is changing with the emergence of cognitive computing which creates an ability to take this data and impose a structured format over it which is dynamic and able to adapt and learn. Research shows that 77% of organizations are implementing technologies to begin to exploit this capability.

Cognitive systems have the ability to

  • Understand unstructured data and natural language.
  • Reason and provide confidence levels around the reliability of predictions
  • Learn and adapt through feedback, a process which is sometimes called “supervised learning”
  • Interact in a natural way with users, sometimes through voice recognition and computer-generated responses (such as Siri on the Apple Phone)

Cognitive systems have the potential to help procurement executives make better decisions, bring to bear the expertise of the most experienced individuals to other parts of the organization, discover new insights, and prove th quality, consistency, and compliance around sourcing processes.

IBM Watson is building capability around four primary sourcing processes:

  • Sourcing and market analysis (Buying Assistant)
  • Understanding of price movements in the market (Pricing IQ)
  • Deep insights into specific suppliers (Supplier IQ)
  • Managing contracts across the supply base (Blue Hound)
  • Managing supplier risk (Risk Insights)

These developments will be coming online in the next few years, and are likely to have a major impact on our working environment and the roles we take on in the supply chain.  However, a key theme that comes up in our discussions is the notion that the capability to exploit “big data” and derive key predictive  analytics from the broad world of social media, digital images, and internet chatter involves more than just “buying technology”.  Developing this capability, like many other other organizational capabilities, involves REAL WORK!  Organizations that are successful must begin by establishing an approach to data governance, and then begin to launch pilot studies that target specific business problems and issues. In the process, they are likely to hit dead ends, roadblocks, and unsuccessful outcomes.  But they will also learn “what works”, and understand how to employ many of the analytical tools in the context of their own organizational culture, mindset, and desired outcomes.

We are really in the very early stages of this incredible transformation.  To be successful in the years ahead requires leadership support, a willingness to accept failure, and most of all, the mindset and attitude of a Research and Development -focused organization.  This is where procurement and supply chain leaders need to start to change their culture, which is a tough thing to do in an environment of cost-cutting priorities.  But to overlook this now will put you way behind your competitors in three to five years from now.

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Jeff Townley, former Chief Procurement Officer at Nortel Networks, provided some fantastic insights in my MBA class this evening.  In so doing, he shared some great insights about “Outsourcing:  The Good, The Bad, and the Ugly.”

The GOOD – “ODM’s were a wonderful way to outsource, and we had a great experience with them, as they are always good at common hardware. The ODM’s in Taiwan have a single tech park where they all started. Almost every one of the heads of these ODM’s all went to school together and started this Tech park. Nortel decided to put their phones as well as other data access products with the ODM’s – and they would help you by adding some design value. You didn’t have to add designers, and they leveraged the fact that they designed similar products for other people, could do it quicker, and would leverage that, and would get their money back through manufacturing in a low cost environment. At the time – it was all in Taiwan, and over time most of them opened manufacturing locations in China in order to compete on cost.

Clean sheeting was an activity Jeff led on all of Nortel’s projects, and which involved taking all of the transformation costs, where it was being built, and put it all down on paper. “We would go negotiate with other suppliers to try and move it. It didn’t make it easy to move, but having to learn a lot of experiences, we learned to move things pretty well. Nortel was on the first to create an outsource system house in Boston which was moved to Penang. PCB’s were outsourced in the 1990’s, and final assemblies not long after, but the system house where it was all consolidated, putting it through your systems test and shipping it – was all outsourced to Penang.”

The BAD – “Back in the 90s a lot was going to Mexico. Nortel had a plant in Calgary which produced phones that were moved to Mexico  This was Solectron, that was later bought by Flex. All of a sudden I recognized there was a problem – you are not keeping up with demand. I couldn’t get a good story out of them. Eventually we figured out that when Nortel had the PO’s on the suppliers for the long leadtime items – and they would get put back to the front of the queue. Component suppleirs put it at the front of the queue and it resulted in a 20 week leadtime! This was a 10B company – and a $50M hole in our fourth quarter. I got a team of people and we killed ourselves to get the orders out and only missed our revenue target by $2M, which ended up being noise on a bottom line.”

nortel-shares

The UGLY – “Nortel went to Chapter 11 in 2008. One reason was they blew the whistle on themselves for financials – that maybe wasn’t needed. They weren’t doing anything that others weren’t also doing.  It is my feeling and the feeling of many others, that Nortel should have sold off some divisions and streamlined their business in the 2005-2007 timeframe rather then trying to maintain such a broad portfolio for the Enterprise and Carrier markets”. Nortel had an opportunity to sell the optical division to Corning for $100B – but decided not to do it! Years later, when they declared chapter 11 – they left Flex with $400M of inventory. Needless to say, the relationship got really bad.  They put everything on stop ship – would ship nothing. What good would that do us? We have to continue to ship to get paid by customers. But we wrote them a check for tens of millions. Nortel ended up paying 97 cents on the dollar for many of the claims when they sold their IP through the Google consortium, and paid off not all, but a number of their bills.

Today Flex has software that helps them understand when components aren’t turning fast enough. That was surely developed on the foot of getting stuck with Nortel’s inventory! Nortel was growing too quickly, and World Com and others realized they had a lot of “dark fiber” in the ground, and the internet was not being used.  Today, Netflix is 37% of Internet traffic on any given night! I guarantee you that if that had happened in 1999 – the fiber would not have been dark. And there is finally a push for more bandwidth. But it’s about 15 years too late!

 

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The online magazine 1IT Enterprise recently published a special issue on some of the emerging predictions about Big Data in their latest ediction.  Many of the enterprises working in this space are still thinking about how applications can access data in the cloud, how cross-cutting applications can move from data centers to cloud-based computing, as well as how mobile messaging will become part of your daily life, exploiting GPS capabilities while accessing your calendar.  Some apps are already doing this, such as Waze which reminds you to leave early for an appointment on your calendar if traffic is particularly heavy.  In addition, museums and other locations will no longer need audio guides, as they can provide this through updated cloud-based audio files.  I provided some of my earlier predictions about procurement and supply chain analytics (pp. 42-43), but what really struck me about this special issue is the number of different industries and experiences that will be impacted by the growing digital revolution.  There are stories about how utilities will be alerted to intra-grid disruptions, how airports will change customers’ experience, how bricks and mortar stores can get more walk-by people to convert into in-store customers, and a host of other examples.

The confluence of digitization of objects, cloud-based computing, mobile computing, GPS and sensor data, and the growing connectedness of individuals to the digital economy is resulting in some incredible changes in the way we live our lives.  Are we ready for this change?   And have we thought about how to design our supply chains to deal with these new market forms?

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This month’s Inside Supply Management published by the Institute for Supply Management features an article announcing the launch of a study being undertaken by the Center for Advanced Purchasing on the evolution of procurement analytics.  I am leading the study along with Tom Choi and two of our students, Jaikishen Venkitaraman and Shweta Murthy, working at the SCRC.

The study seeks to address the following questions regarding the rapidly changing and often “hyped” world of analytics and how it relates to the procurement function:

  1. What types of problems and questions faced by procurement executives can benefit most through the application of analytical solutions (e.g. innovation, strategic cost management, risk mitigation, etc.)
  2. What forms of cognitive solutions are emerging to drive real-time decision-making and predictive sourcing capabilities? (Examples include mapping product and service genomes, “block chains”, embedded procurement solutions, elimination of purchase orders, buyer assistance, and other solutions).
  3. What sources of data must be developed and adopted to support these analytical solutions? (Supplier analytics, technology trends, risk metrics, social media, open source data, etc)
  4. How can cognitive solutions enhance the end-user experience and improve service levels?  Examples include visibility, capabilities, knowledge management, cost reduction, contract compliance, risk, and flexibility in the face of uncertainty?
  5. What changes in the procurement process will be required to enable integration of analytical solutions? (Re-engineering procure to pay systems, working with “dark data”, that represents 80% of the unstructured data in the ecosystem, etc.)

There are an incredible number of procurement platforms. At last count – we found 160 different analytical platforms targeting procurement. That number has probably doubled. In particular, cognitive tools are emerging as new ways of tapping into specific questions that may exist that are driven by the business.  Most of the current tools focus on spend analytics – but relatively fewer are focused on contracts, risk, and supplier life cycle management.  Cognitive tools are still largely on the horizon.

The goal of cognitive tools is to automate the processes of searching for prospective suppliers through online catalogs, evaluating suppliers with respect to multiple attributes, screening qualified suppliers and completing the purchase order, preventing specification ambiguity.  This relies on an agent-based purchasing system to act as a substitute for the role of the human decision-maker. These agent-based systems can support purchasing managers in a series of strategic and tactical purchasing decisions, as opposed to traditional OR techniques such as the analytic hierarchy process and multiple attribute theory can handle only a single optimization problem of purchasing decisions (e.g., supplier selection for a specific award).

However, to be able to use cognitive analytics, requires the ability to “ask the right question”. This is where the bridge between the stakeholder and the analytics provider must be made by procurement.

The best way to address this is to pilot analytics one step at a time. This is not something you can jump into overnight, buy the software, and start using it! The journey needs to progress in stages, and these are accompanied by organizational learning. Organizations must think about their capacity to absorb the new analytical approaches – and this means education, experimentation, training, and pilot projects.

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The recent bankruptcy announcement of Hanjin, a major shipping line, on the Friday before the last Labor Day long weekend, was a shock to everyone working in the global logistics shipping industry.   However, the announcement should not have come as a surprise, as the ocean cargo market has been suffering for some time by a condition of overcapacity, low rates, and a flat global market.  Many ship builders and ocean carriers overextended themselves while the economy was growing, and these expectations resulted in a huge amount of investment that has resulted in too many ships and carriers competing for too little cargo.  This challenge has been also impacted by the growing discontent on the part of retailers and customers who are unhappy with the trend towards larger slow-steaming ships, which leaves more inventory on the water for a longer period of time.

Since Hanjin Shipping Company of South Korea filed for bankruptcy protection last week, the WSJ reports that dozens of ships carrying more than half a million cargo containers have been denied access to ports around the world, as there are doubts as to who will pay the docking fees, container-storage, and unloading bills.  Some of the ships have even been seized by creditors!

Since then a number of actions have occurred to “fill the gaps”.   Splash 247 reports that South Korea’s Hyundai Merchant Marine (HMM) and compatriot carriers Korea Marine Transport, Sinokor Merchant Marine and Heung-A Shipping have formed a vessel-sharing alliance that plans to fill in for bankrupt Hanjin Shipping.The consortium, named the Mini Alliance, will deploy 15 vessels on four routes from South Korean ports to Singapore, Malaysia, Indonesia, Vietnam and Thailand from the end of September.  Also, American Shipper reports that a federal bankruptcy judge on Tuesday granted Hanjin Shipping’s request to have its rehabilitation in bankruptcy court in Korea be recognized under the U.S. bankruptcy code.    Judge John K. Sherwood of the U.S. Bankruptcy Court in Newark, N.J.  ordered Hanjin to keep vessels in the U.S. once they’ve been allowed to discharge cargo to protect the interests of maritime lien holders.

Meanwhile, Hanjin ships are sitting out in the water, cannot come to port, and crews are beginning to face shortages of food and water.  My own interviews with people in the field suggest that this is a problem that is not going to go away when Hanjin is fixed.  For instance, Hyundai (the big ship builder) recently went through a reorganization, and did not want to merge with Hanjin because of their own financial condition.  Two other massive shippers, Maersk and CMA, recently announced hundreds of millions of dollars in losses in their last quarterly financial announcement.  Steam ship lines are all suffering from over capacity and downward pressure due to fuel prices.  Many of the ships are leased, and the revenue from shipping is not enough to cover the lease and turn a profit.

It is also interesting to note that many of the major retailers seem to be shipping early this year.  Although retail shipping revenues seem to be up, many of the retailers seem to be moving towards a “black November” event.  Major retailers are spread across multiple shippers, and although Hanjin accounts for only about 3.2% of global container capacity, it still has resulted in more than half a million containers sitting on the ocean.

Other companies that provide drayage and other services are also sitting holding onto empty Hanjin containers – and there are questions on who is going to pay for the shipments?   One executive notes that “Holding the containers is at least a way of holding them “hostage” in return for payment!”  But it will become very interesting very soon….especially as the massive influx of containers begins to unjam and come in time for Christmas!

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A recent discussion with my colleague Tim Cummins at IACCM suggests that an increasing number of oil and gas companies are exploring alternatives to traditional “lump sum bid” contracts, that are typically used for large oil and gas construction projects.  This is largely due to risk aversion and the unpredictable nature of new project environments, as well as the uncertain geographic terrain that lends itself to a time-and materials contract structure.

There are multiple categories with commercial models that include lump sum, time and materials and others, but construction projects such as new pipelines, preparation of new drilling sites, and others are the biggest ones.  This format places the bulk of the risk on suppliers/contractors.  In this case, they will include the project risk elements, and include a surcharge in their lump sum, which is generally in their favor.  However, it is a risky strategy.  

Alternatives to lump sum bid include:

1.)   Gain share or cost savings sharing mechanisms;

2.)   Alignment of contractual terms and conditions (i.e. indemnifications, liabilities, warranties, insurance, etc.) to reflect realistic risk scenarios [to optimize associated cost];

 Such alternative contracting models are more agile, as they can adapt when there is uncertainty over scope, goals, or achievability.  They may be outcome-based, performance based, or payment occurs based on results.

These various approaches have some overlaps and in particular they all point to the need for more collaborative governance and performance mechanisms. In some cases, they also need to recognize the overall value being generated and consider risk / reward allocations based on that potential. For example, if you can cut drilling time by half, but pay a 50% premium to the drilling company, does that make sense based on the overall economic benefit from faster production?

 Oil and gas companies need to give more thought to risk terms such as those described here and in strategic relationships, particularly in the current volatile market. But a more immediate and practical approach may be to balance them with terms that reduce the likelihood of negative events occurring – essentially through what we term ‘relational contracting’.  This in turn requires that attitudes to the role and value of the contracting process need to shift.  This is beginning to happen, but as we know, change takes time!

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I spent a fascinating day visiting the Materialise 3D Printing headquarters in Leuven, Belgium yesterday. In the process, I and the team learned a great deal about the realities of 3D printing, as well as the myths, many of which the team at Materialise helped to debunk.  Materialise is one of the world leaders in 3D printing technology, and we learned a great deal in spending our time with the Belgian team on this visit.

Areion

First of all, 3D printing is not new; it has been around for more then 25 years, and is a fairly robust technology. The terms rapid prototyping, 3D printing, and and additive manufacturing are all terms for the same process. Second, 3D printing is not as simple as the hype would have you believe. In fact, there are three stages of 3D Printing.   First, design engineers need to design the parts for 3D printing. This is an important first step, as we learned that there are particular issues to consider when designing parts for 3D printing. First of all, 3D printing is NOT good for high volume, very large parts. The sweet spot are parts that are too complex for injection molding, as well as complex steel and aluminum parts that require a very smooth surface that won’t work well for casting. 3D printing is also used to create parts that are then developed for casting production, especially for prototype development (such as aerospace components).

Soup Art

Soup Art

The second part is the software. Materialise designs software that will work on any type of machine, and in fact, sells their software to competitors and large companies. They sell to 3D printing parters that manufacture components and engineering. Materialize has been in business for over 25 years, and is continuously improving their software capabilities.

Third is the actual 3D printing production. There are several technologies here, and the most common of these is sintering. In sintering, layers of plastic, aluminum, or other materials are spread onto a plate, and are about 0.1mm thick. Next, ultrasound lasers sinter or “melt” the layer of plastic or steel.   The entire plate then moves down into a box, and the next layer is added. At the conclusion of the process, the entire box is full of plastic powder, with the components in them. Each box may have many parts that are layered geometrically into it like a 3D jigsaw puzzle, and this is done to maximize the productivity of the process.

magics_nester2We had a great tour of the facility, and got to observe the laser sintering processes, as well as the steel production areas. The machines may take 1-3 days to produce a single box of parts, which means the operation runs 24-7.   The company has grown to have design and engineering offices all over the world, and is expanding in a number of areas. For example, it has a whole set of designer furniture and lighting products, produces customized insoles for Adidas, aerospace prototypes, and even takes orders from consumers who can submit their own design for 3D printing. As we looked at the different types of parts and components produced (shown in the figues below), I was truly amazed by the number and variety of parts produced. I was especially impressed by the medical healthcare components. We saw how a customized hip implant component was being produced and custom fit for a patient, and then surgically implanted in the patient. The hospital would take an MRI to get the dimensions and detailed scans are used to then custom fit the hip implant. The bone will then grow into the implant and integrated into the bone structure. They also can create models of hearts based on CT scans, so that surgeons can “simulate” a difficult operation prior to the occurrence using the model of the heart sintered into plastic. The risk is much lower as the physician has practiced on a model of the heart in a black box.

large-76_RA_implantmedium-294_RM_DSCF0497_2

The primary benefits of 3D printing are to shorten product development time to market. The ability to rapidly and cheaply produce prototypes based on a design is instrumental and less cost then injection molding, and works best for low volume (e.g.one-off) products that are complex to produce. The technology is also ideal for mass customized, one-off products, where there is a custom design with variability, such as customized medical devices. For example, when a manufacturer of hearing aids began to use 3D printing to produce devices that were customized for people’s different ear tube shapes, he set the standard for the industry. Today 99% of hearing aids are produced using 3D printing. Software scans the shape of the ear, and you can receive them in a very short time.

The team at Materialise emphasized that there is indeed a sweet spot for 3D printing that is growing. Injection molding is better for high volume products that are not complex, but the real benefit of 3D is that there is no additional incremental cost as complexity is increased in the design of the part. It makes no difference to the machine time. The only limits are material and technology and time. If you need the part in a day, it is not suitable, as it is a slow manufacturing technique.

Spare parts for machines are a potential growth area. The technology is attractive to oil and gas where down time costs millions of dollars. However, the technology is not yet able to produce titanium parts next to the equipment in minutes that would be able to be used. This is projected to be possible perhaps in a 5 to 10 year window. Materialize does keep dedicated machines for dedicated materials to avoid contamination, ensuring there is one machine for each material. Workers are also assigned by machine, so they can better understand how to manage that machine – and the management of machines and dedicated expertise is assigned to each machine so they understand the parameters and characteristics of each machine.

Other areas where Materialise is growing is in customized glasses for Hoet and Baweome, 3D printing software for a new line of HP printers, carseat prototypes for Toyota, miniature toys for Primo, and even customized 3D printed dresses for Lady Gaga and the New York Fashion Show!

The future of 3D printing in the world of supply chain management is growing. While the potential for MRO and spare parts production is possible, there may be other areas where emerging applications will begin to pop up in the years ahead. I may be working with the Materialise team on research in this area soon, so stay tuned…

Other Interesting Links:

Products and Services for Engineering professionals: http://www.materialise.com/products-and-services/products-and-services-for-engineering-professionals-0

The Factory for 3D Printing – Certified Manufacturing: http://manufacturing.materialise.com/certified-additive-manufacturing

Some interesting online video’s: http://www.materialise.com/check-out-our-videos#25th%20anniversary

Visuals last World Conference in 2015: http://www.materialise.com/blog/tag/materialise-world-conference/  and  https://www.flickr.com/photos/materialisenv/sets/72157649882523704

 

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I had the opportunity to accompany a group of executives from Anheuser Busch Inbev on a tour of Nike’s global distribution facility in Leuven Belgium this week.  Shipments arrive from Nike’s network of global manufacturers in Asia, including footwear, apparel and equipment.  Containers arrive at the port of Antwerp, and are transported by truck to a nearby inland terminal (BCTN) next door to Nike.

Nike DC

Shipments may also arrive by barge via the canal from Antwerp, and we also had the opportunity to see how these containers were being unloaded  by BCTN into the terminal.  This terminal receives about 5000 containers a day, of which about 50 are for Nike.  In turn, these containers sit for about 5 days before being transported to the Nike distribution center next door and stocked inside the DC.  The DC serves as the hub for Nike’s global e-commerce business, and orders taken from Nike.com are shipped to consumers all over the world from this DC, including North America.

The choice of Leuven, Belgium as the site for Nike’s DC may seem like an odd one.  The decision to centralize Nike’s distribution network was made back in 1992, and was launched by the Maastricht Treaty that launched the beginning of the European Union.  At that time Nike had 32 DCs located all over Europe, designed to accommodate the tax structures and limitations of the complexity of this region.  The formation of the EU created a single economy that launched an analysis into the right distribution model.

A distribution scenario planning ensued that involved understanding the total cost and mix of products.  Numerous scenarios were run, and it was found that a centralized model significantly reduced warehouse and inventory costs, while only marginally increasing total transportation costs, leading to a significant overall savings.  The ability to consolidate split shipments to 32 DC’s into single shipments into a single DC resulted in a significantly improved scenario.

The choice of Leuven as the logistics campus was made for several reasons.  The location has access to great ports, including Rotterdam, Antwerp, and Zeebrugge, as well as access to other European DC’s and the Benelux rail terminals.  The canal runs immediately past the campus, and provides barge access.  I also noticed that unloading was being carried out using a Hyster-Yale machine, (another one of our SCRC partners, shown below).

Port

Hyster Equipment

Barges proceed down the canal from Antwerp.  Our tour guide informed us that barges are limited to having two containers high due to the depth of the canal and the bridges.  However the government of Belgium is scheduled to raise the 20 bridges along the canal to enable an increase to 4 containers high on barges, which will effectively double the volume of this campus!

The Nike campus is used for distribution to Russia, Saudi Arabia, as well as samples for sales reps, business promotions, and returns are all processed at the facility.  The DC ships 220M units annually, with a total of 213,000 inline SKU’s.  They ship in quantities from 1 to 1000 units, and are continuously improving their performance. A really impressive operation!

 

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A new post discussed the development of a sustainable procurement standard developed by the International Standards Organization.  ISO 20400, Sustainable procurement – Guidance, has just reached a second draft international standard stage, meaning interested parties can submit feedback via their ISO member on the draft before final publication in 2017.

It’s about time that the concept of sustainable procurement has a standard established around it.  There have been many calls for such a standard, but very little has been done that is specifically related to procurement.  Although previous standards for environmental sustainability such as ISO 14000 did have some impact, the role that procurement plays in establishing the environmental and carbon footprint of organizations is significant.

There are many facets to how this can occur, but it is indeed a long time coming, although sustainability has been at the top of many corporate agendas for some time. More and more companies are emphasizing environmental performance as a critical component of business strategy. As such, environmental objectives are often finding their way into the discussion when it comes to setting category strategy objectives. A green category strategy is one that explicitly includes environmental features and actions, including (but not limited to):

  • Redesign of the product
  • Substitutions of environmentally friendly materials
  • Reduction of harmful materials
  • Extension of the product life cycle
  • Support for giving more business to environmentally conscious suppliers

Examples of differences in traditional commodity strategy objectives, and environmental objectives are shown in the table below:

Commodity Goals

  • Reduce cost of purchased commodity by 10 percent in two years
  • Reduce defects of purchased commodity from 10,000 parts per million (PPM) to 1000 PPM in one year.
  • Improve on-time delivery of purchased commodity to 99 percent with a one day window over the next three years.
  • Integrate state-of-the-art components within the next six months.
  • Align our company with the leading edge supplier over the next year.
  • Create a motivation for Supplier X to work with our engineers in new product development.
  • Have suppliers work directly with our customers on specifications.

Environmental Goals

  • Reduce content of harmful substance to zero in all products within six months.
  • Establish dollar savings goal of X for disposal of old parts.
  • Have 10 percent of the supply base ISO 14001 compliant.
  • Ensure that no new parts contain the 57 hazardous substances documented in our policies, and that volumes for existing parts be reduced to X PPM.
  • Ensure that all new product packing materials comply to recycling goals.
  • Ensure that all suppliers are disposing of metal molds for mass production in an environmentally appropriate manner

Moreover, “green” category strategies go beyond “checklists” and rely on environmental management systems that identify procurement specifications, process requirements, and value stream analysis/waste stream impacts. Supplier assessment systems require audits of suppliers’ processes to identify waste streams and environmental practices. Supplier development processes target potential waste areas and create incentives for moving towards a low-waste, mutually beneficial long-term relationship. Government databases are accessed to identify suppliers who have current EPA and government fines, violations, and safety incidents. Finally, environmental objectives are integrated into contractual requirements, raising the environmental performance bar for all new suppliers to meet. This area of supply management will continue to be more important in the future.

the other facet around sustainability has to do with labor and human rights in the supply chain.  The SCRC has developed a set of criteria for evaluating the extent to which companies adhere to their code of conduct in this regard.  The availability of a code of conduct for suppliers is what we consider to be the basis of a good supply chain social program. Many approved codes of conduct exist (e.g., the UN code of Global Compact, the ILO’s convention, and the Global Reporting Initiative). For the basis of our framework we assessed if the code of conduct followed the guidelines specified in these and similar conventions. Since the conventions are very broad we narrowed down in our framework the elements of the various codes of conduct we need to cover.

Having a code of conduct is not sufficient; there should also be a method of ensuring compliance and ramifications for non-compliance. The framework measures the level to which companies ensure that their suppliers comply with the framework, how well suppliers work with the company to fix issues, and exiting relationships if issues persist.

A key mechanism to ensure compliance with the code of conduct is to ensure that it is part of the contract. Companies ideally should modify existing contracts by adding a clause for existing suppliers and update their standard code of conduct for future suppliers.

Having the code of conduct is essential but more important is monitoring companies to ensure that they are indeed adhering to the code of conduct. Most companies put in remediation processes when monitoring exists. A re-auditing process needs to be established to ensure that the remediation measures are working the way they should work. There should also be independent evaluations by reputed monitoring organizations to independently verify the company audits without being biased by results.

Evaluation and monitoring does not add much value unless results are reported. Ideally, detailed results of internal evaluation should be reported on the company’s Intranet. External evaluation should be publicly reported on the company’s website or through a link from the company website to the independent monitoring agencies website. This will provide the transparency stakeholders are looking for.

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We hear the words “innovation” as a source for growth in the economy over and over again.   New ideas on how to manage business processes, digital technologies, ways of delivering value to customers, and supply chain linkages are all areas where we are likely to see new forms of innovation occurring.  But what will be the true source of innovation?  Will it come from big companies in the Fortune 500?

Hardly.  In a recent e-book I co-wrote with IBM, we argue that the real source of innovation in the global economy will be fostered and developed by small to medium sized suppliers.  If small companies are the source of innovation, we argue, then it makes sense to establish a process for companies to think about how they will nurture and develop these ideas into a commercial success.   The e-book provides a 5 step approach that is based on countless interviews I’ve conducted with executives, dating back to an NSF study we conducted  back in 1999 and which we wrote a book on.

Supply chain innovation can occur in multiple forms:

  • New and improved products, including features, technology, or open new markets applications that can provide significant ground-breaking market penetration
  • Service innovation, including market facing innovation services, bundling of services and products, and services that enable the business to be leaner, faster, or lower cost.
  • Supply chain process innovation, spanning new third or fourth party logistics capabilities, order fulfillment, risk management, or other forms that are innovative and create supply chain value.

As organizations look to their suppliers to jumpstart product and process innovation, having the right information on unmet customer needs, emerging supplier technologies and capabilities that fill these gaps, and information on the capability of suppliers to execute on innovation projects is becoming key. In effect, procurement data on supply market technologies serves as the catalyst that drives the innovation process.   This occurs through a five step process:

  1.  Defining the customer need.  Procurement and supply chain must work with the new product and service portfolio team to team to identify the gap in the current product or process portfolio and the specific set of customer outcomes. It may also involve identifying future technology developments that have a potential application in the current product or service offering.
  2. Seek the right suppliers for the innovation project. This involves identifying current suppliers in the portfolio through Supplier Life Cycle Management tools, as well as potential future suppliers that are not in the portfolio that may have emerging technologies or capabilities.
  3. Assess and validate the capabilities of those suppliers you want to work with.  This is a systematic approach for ascertaining the capability of suppliers that are likely candidates. This may include data mining, conducting detailed research, including supplier life cycle management data, conducting in-depth performance reviews, and other approaches.  Once a supplier has been highlighted as a potential innovation partner, there is a need to discuss specifics around the project. These discussions are often challenged by a lack of trust on the part of both parties, with many unanswered questions related to ownership of IP, economics around the new product, ability to meet timelines, and other factors.
  4. Engage and collaborate with suppliers on technology development. This stage involves having more in-depth discussions with suppliers to explore the opportunity in more detail, and discover the likelihood of creating a strategic partnership once capabilities have been established. Co-development activities require a high degree of trust and communication to be successful, and this stage of the process involves often delicate positioning and exploration of the landscape of opportunities, scenario development, and building the foundation for a successful project.
  5.  Guide the relationship to a successful outcome, paying attention to the “soft” elements.  As the innovation development project is kicked off, careful project management and monitoring of KPI’s, project targets, deliverables, and milestones is key to managing a successful outcome.   Regular communication and updates are key to keeping the project moving in the right direction, as well as post-commercialization relationship management.   It is important that companies think clearly about their motivation for working with the supplier, and be able to envision the type of relationship they desire and the level of access required early in the process. In many cases, buying companies have a single approach mandating exclusive access to all of the supplier’s potential insights, and this heavy-handed approach may not always produce effective outcomes.

The e-book provides a concise approach, based on my interaction with a number of automotive, manufacturing, and service industry companies that have been down this road.

A key ingredient for success is a change in culture in buying behaviors.  The figure below shows the key characteristics of buying companies that suppliers are looking for when they seek partners to help commercialize their innovation.

Supplier Innovation copy

Procurement has been focused for so long on cost reduction as the major form of value that they have often overlooked innovation as a capability that is involves its key constituents: internal stakeholders, suppliers and customer. New forms of value creation (includes end to end cost savings) will require looking beyond traditional approaches of strategic sourcing, and requires an orientation of supplier engagement to drive revenue generating opportunities. Examples of such opportunities include improved demand management, product segmentation and expansion, new technologies, exploiting the digitization of products and flows, and working capital savings. To generate such forms of value creation, procurement will need to tap into a key source of new ideas and creativity: their suppliers.  Especially in a flat economy, which we are likely to continue to see for the foreseeable future….

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