All posts by Diego De la Garza

Dollars and Sense: What are we Really Saving?

It might have started with dollars and cents, but what should procurement really be saving now? It’s time to shift the dial.

Photo by Kat Yukawa on Unsplash

For years, procurement was stuck in the old ways of doing business. It was the role of the profession to beat down suppliers and the only consideration was cost, but the proponents of this methodology are fast becoming extinct as procurement undergoes a new evolution. While savings will always be an important element in what we do, the important question we now need to address is: what are really trying to save?

I’ve previously spoken about how strategic sourcing in procurement can help us to change the world, but it’s easy to believe that issues like modern slavery and environmental pollution are still beyond our reach. They’re buzz words or problems too big to solve, they’re issues that are unlikely to find a solution within a single career.

But that’s not true. Every day we’re seeing political mandates, new regulations and social pressures that are driving change at an unprecedented pace. However, the window for change to actually solve environmental issues is closing just as fast – meaning we can’t sit back and focus on cost alone if we’re really committed to making change.

Saving vs the Social Good

When we talk about optimising our supply chains, there will never be a time where cost doesn’t form part of the conversation. Even if you’re not solely focussed on cost-cutting measures, there needs to be the ability to invest in solutions that will drive positive outcomes in the years that follow – and that can’t come without the budget to back it up.

In fact, when we look at how much money we’re able to save through strategic sourcing for large multi-million dollar companies, compared with how much their net value can fluctuate on the stock market from day to day, the savings are actually negligible.

What we’re really able to do when we’re effectively reducing costs within our supply chain is reinvest that money back into the organisation. This macro-level approach to cost-saving lets you support the needs, beliefs or even employees of your company to help bring about changes that will actually have an impact. Whether you’re looking for widespread industry reform or to bolster your own company initiatives, cost will always join the conversation.

Saving and the Successful Supply Chain

At Source One, a Corcentric company, we counsel our customers to constantly be improving and optimising the way their companies develop relationship with suppliers. To get the best results and a positive, long-lasting supplier relationship, there needs to be an element of a partnership between procurement professionals and their supply chain.

Good supplier relationships help to create value for both sides of the agreement – whether it’s a new product, process or an improvement that can make everything more efficient. The key piece of supplier and vendor management that is often overlooked is the ability to be creative and innovative to help challenge the status quo.

We’ve seen that by following and developing procurement best practice, and encouraging our suppliers to think about the problem we’re trying to solve together, we can enable these things to have a bigger impact in a tangible and evident way.

What changes the way a company acts?

Not all companies are started with a social responsibility guidebook in place. The organisational stance on environmental, social or political issues usually develops with time and as such, there is rarely a budget set aside for supporting global issues. New regulations or social pressure can both have an impact on the way a company acts.

Its reaction to these pressures is either going to change the way the company is perceived – in market share or reputation – or it will change how the company will need to do business going forward.

For example, a new worldwide mandate will come into effect on 1 January 2020, where all ships and vessels operating anywhere in the world will be required to use fuel with a sulphur content of less than 0.5 per cent, compared with the current regulation of 3.5 per cent.

While those operating in the shipping industry can change to a cleaner type of fuel, they’ll now find these are more expensive due to increased worldwide demand, likewise they could utilise ‘scrubbers’ to essentially clean their current fuel source, but this will come with its own ongoing investment.

Those who don’t comply with these new regulations will face hefty fines – so no matter which solution each company implements we’re looking at $30 billion dollars worth of investment across the industry.

What We’re Really Saving

This type of regulation will fundamentally change how that company does business as they’ll now have to factor in the increased cost of fuel to operate once it comes into effect. This also presents an opportunity for procurement to support the ability for shipping companies to comply, which will present its own positive solutions to environmental issues, while also absorbing some of the cost or finding other ways to mitigate, diversity or reduce their exposure and help lead the way to a more sustainable future.

Procurement really can make a difference, but these outcomes are best achieved when they’re working with and are supported by our cost saving measures rather than being seen as the antithesis to an optimised supply chain. Sure, you can have one without the other, but by reinvesting in the future of the world around us we’ll find the best way forward.

Source One, a Corecentric company, were one of the key sponsors for the Big Ideas Summit Chicago 2019 and Diego was one of our great keynote speakers. If you want to catch up on Diego’s Big Ideas for procurement and saving the world, join the Summit’s group. Click here to join in and catch up now!

Procurement Can…Save the World

Procurement can do much more than it’s already doing when it comes to sustainability. And together we really can save the world…

Photo by Jessica Podraza on Unsplash

Historically, Procurement’s mandate has involved cutting costs and little else. The reputation for barking orders and slashing spend has led to more than a little resentment within certain organisations. Business units are often hesitant to engage with the function. When they do, they’re typically gritting their teeth and counting down the seconds until they can go back to focusing on their own key objectives.

Reducing costs is a noble cause – and Procurement’s top priority. But it’s just the beginning of what Procurement can offer the business and its customers. With its cross-functional position and unique insights into the supply chain, Procurement has the capacity to fundamentally change the way an organisation operates.

In Part 1 of this blog series, I examined some of the life-saving initiatives that Procurement teams across the globe are supporting. Cracking down on modern slavery and optimising disaster response plans, they’re evolving in their role and making it possible for corporate leaders to serve a higher purpose.

This time around, I want to look into Procurement’s efforts to address even broader issues. In addition to saving individual lives, great Procurement teams can potentially save entire species by working to identify and address worldwide environmental concerns.

Procurement Can . . . Save the Planet

Addressing Climate Change

The most pressing environmental crisis of our time, climate change, has dominated conversations among politicians, business leaders, and consumers for more than a decade. While forecasts vary from source to source, it’s clear that rising temperatures and sea levels present nothing short of an existential threat. From a business perspective, the myriad effects of a changing climate could mean a 10 per cent reduction in profits for American businesses. The planet and its people could suffer even more dire consequences.

The global economy simply cannot continue along the path that’s gotten it to this troubling position. For Procurement, the looming threat of climate change should provide the quintessential burning platform. It’s an opportunity for the function to distinguish itself as the value-added entity and to take the lead in designing a totally new worldwide supply chain.

When most of us think of climate change, we think of greenhouse gas emissions. While it’s somewhat reductive to describe such a broad issue through these narrow terms, addressing emissions is certainly a high-impact way to begin promoting responsibility. It’s not nearly enough to clean things up internally. Even organisations that don’t personally burn coal and oil often rely on supplier networks that make an outsize contribution to climate change.

The Carbon Disclosure

The Carbon Disclosure has found that suppliers often account for four times as many carbon emissions as an organisation’s direct operations. This eye-opening fact has inspired a number of businesses to broaden their approach to sustainable business. As organisations gain additional visibility into their supply chains, they have more and more power to enforce a higher standard of responsibility.

Target, for example, has made supplier-generated emissions an important part of its climate goals. In addition to establishing objectives of its own (including a 30 per cent reduction in emissions by 2030), the retailer is asking nearly every one of its suppliers to begin working toward similar goals by 2023.

One of Target’s direct competitors, Walmart is taking a similar approach. The world’s largest retailer is not merely holding its suppliers accountable for cutting down emissions, but offering additional incentives for those who successfully do so. They’ve partnered with HSBC Bank to introduce a new program that will provide better loan terms to organisations who make demonstrable progress.

Data, visibility, and consistent communication will only become more important as Procurement teams work toward cutting down emission and addressing their contributions to climate change. Still CDP reports that just 35 per cent of organisations are tracking emissions throughout their supplier networks. With the wealth of information at Procurement’s disposal growing in scope and the conversations around our climate growing in intensity, there’s no longer any excuse for inaction.

Fighting Ocean Pollution

Paper straws aren’t especially popular, but they’ve already served a valuable purpose. In addition to getting plastic out of the restaurant supply chain, they’ve forced consumers to confront their own reliance on plastic-based products and materials. Simply put, businesses and their customers buy a lot of plastic and Mother Nature is typically the one stuck footing the bill.

Eight million tons of plastic wind up in world’s oceans every year. With consumption expected to surge, experts predict we could see more plastic than fish by 2050. In certain regions, plastic particles are already outnumbering plankton 26 to 1.

With its central role in material purchasing, Procurement enjoys an obvious opportunity to take the lead in identifying and introducing sustainable alternatives to plastics. In 2017, Dell Technologies announced that it would take an especially creative approach to amending its supply chain. The organisation elected to create an entirely new supply chain dedicated to collecting and re-purposing ocean-bound plastics. This initiative provides a perfect example of the wide-reaching effects an environmental initiative can have.

Post-Plastic World

Providing access to near-endless supply of affordable materials, Dell’s new reclamation supply chain helps the organisation cut down on its material spending, create a slew of new jobs for collectors and recyclers, and (most crucially) provide an example for other business leaders to follow.

They’re already partnering with likeminded organisations through their Next Wave program to build a collaborative supply chain for collecting and reusing ocean waste. They expect to reclaim more than three million pounds of it within the next five years.

Dell’s not the only organisation cleaning up its act to clean up our oceans. Businesses throughout the retail and restaurant sector have also taken swift action to address the question of waste. Walmart, Aldi, and Trader Joe’s are just three of the retailers looking forward to a post-plastic world.

Starbucks and Dunkin’ Donuts, for their part, have made headlines by pledging to provide sustainable alternatives to their single-use cups. Each of these projects, regardless of scope or industry, will rely on strong Supply Management minds to steer the ship.

Procurement Can . . . Do More

It’s an unfortunate reality, but time is running out for businesses to take action and pursue environmental initiatives. In the past, organizations might have hemmed and hawed on the subject of sustainability. Fearing higher costs or the hard work of transitioning to new suppliers, they might have looked for excuses to forget about the environment and focus on something more directly relevant. There’s no forgetting about the environment anymore. Reports from organisations like the Intergovernmental Panel on Climate Change suggest that while businesses and consumers have done a great deal of damage, they still possess a valuable opportunity.

Back in 2015, Nielsen confirmed that more than half of consumers will pay more to do business with environmentally responsible organizations. They want to purchase natural, sustainable products from companies that have made green practices a central component of their missions. The conversations around pollution, deforestation, climate change, and other environmental concerns have only grown more intense in the intervening years. Companies that continue to avoid pursuing the “triple bottom line” (people, profit, planet) will soon find themselves growing more irrelevant, unsuccessful, and even controversial throughout the next few.

I look forward to addressing Procurement’s environmental imperative at the Big Ideas Summit. Last year saw thought leaders describe their efforts to identify alternate materials, repurpose recycling, and make Procurement a more purposeful function. This year, I’ll join the conversation by sharing some of the green initiatives my team has spearheaded throughout the last several years. Want to listen in? Make sure to register as a Digital Delegate today.

Do you want a steer from Diego on what your organisation can do with your triple bottom line? You can access this and much more by registering as a Digital Delegate for the Big Ideas Summit Chicago 2019 next week. Even if you can’t be there in person, you can still be in the room. Find out more and sign up today here!

Procurement Can . . .

To focus on savings alone is to sell procurement short and miss out on its potentially game-changing capabilities.

A good procurement team can save your business money. This goes without saying. Savings are for procurement what risk mitigation is for legal, innovation is for R&D, and new business is for sales. They’re table stakes, just the very beginning of what a well-equipped and well-staffed function should offer the organisation. To focus on savings alone is to sell procurement short and miss out on its potentially game-changing capabilities.

While reducing costs remains the top priority for today’s procurement teams, it’s high time for the function to evolve its objectives and diversify its value proposition. With visibility across the global supply chain, procurement is perfectly equipped to address the monumental concerns that plague the business world. Labour violations, pollution, animal rights, and ethics – they’re all issues as relevant to procurement as cycle times and pricing.

Simply put, procurement is capable of more than saving money. It’s capable of saving lives and it might just help us save the planet.

Procurement Can . . . Save Lives

Stopping Forced Labor

It’s appalling that, in 2019, forced labor is still endemic across various global supply chains. What’s worse is that the United States imports more “at risk” products than any other country in the world. According to the Global Slavery Index, the U.S. brought in more than $144 billion of these products and commodities. They report that electronics, fish, cocoa, garments, and natural resources like gold and timber present an especially high risk.

On a more hopeful note, the nation’s score on the Government Response Index ranks behind just the Netherlands. Still, with as many as 400,000 modern slavery victims within its borders, it’s clear the United States must do more. The scope of the forced labor crisis is such that companies in nearly every industry are touched by it in some capacity. Due diligence has grown both increasingly imperative and increasingly challenging. Organizations like Rip Curl and Badger Sportswear present recent examples of what can happen when an American business fails to gain and sustain visibility across the globe.

Methods for assessing suppliers, monitoring their behavior, and addressing violations must all evolve. It’s more dangerous than ever to settle for a low price or select a provider based on an incomplete set of considerations.  Supplier capacity, for example, is a more nuanced issue than Procurement may have previously considered it. Under-resourced suppliers might partner with unscrupulous organizations if they’re faced with demand that outstrips expectations. The onus also falls on procurement to provide better, more accurate forecasts to avoid such a situation. Data won’t just provide the means to secure better pricing and anticipate consumer tastes, but to eliminate human rights violations.

Forced labor is a shared issue that requires a shared response. It’s up to organisations who purchase high-risk commodities or operate in high-risk regions to collaborate with their competitors. Joining groups like the garment industry’s Fair Labor Association or the Electronic Industry Citizenship Coalition, they can elevate industry wide standards and recognize organizations for setting particularly excellent (or particularly poor) examples.

Supporting Disaster Relief

Few things keep supply chain managers up at night like the specter of extreme weather. As an increasingly volatile climate threatens shipping lanes, roads, and storage facilities, disaster preparedness has become a year-round concern – even for organizations that do not operate in “high risk” areas. In 2018, hurricanes alone caused more than $50 billion in damages throughout the Americas.

Crucially, it’s not just the business world that suffers when hurricanes, earthquakes, and other natural disasters strike. Damaged roads and lost power leave consumers without access to necessities like clean drinking water and medications. Sometimes they’re without these essentials for months at a time. Beyond repairing their own supply chains, well-prepared procurement teams can participate in a broader, more socially responsible form of disaster relief.

Accurate, proactive forecasting makes it possible for businesses to continue serving their communities even in the wake of natural disasters. In addition to avoiding disruptions of their own, they’ll ensure consumers experience minimal disruption. Remember, supply chain hiccups are often more deadly than natural disasters themselves. This was the case when Hurricane Maria struck Puerto Rico back in 2017. Experts estimate the vast majority of deaths were caused by interruptions to the supply chain for health care and life-saving medicines. In a sense, disaster relief efforts failed because of “final mile” complications.

Evolving technologies will prove essential for extending these supply chains and mitigating the human cost of extreme weather. Unmanned aerial vehicles (drones) promise to play an especially active role. While drone-based deliveries for food or Amazon packages tend to dominate the headlines, recent pilot tests suggests they may soon serve a higher purpose. In the aftermath of Maria, non-profit Direct Relief partnered with Merck, AT&T, and other providers to test the viability of medication delivery drones. The drones provide temperature-controlled storage for sensitive materials and come equipped with real-time monitoring to adjust their flight paths as necessary. With each party providing their own expertise and resources, the pilot tests provide a case study in socially responsible collaboration.

Procurement Can . . . Do More                                                                                                                            

In the past, organisations may have neglected to invest in sustainable and responsible initiatives. The fear of higher costs and harder work likely stayed their hands. Businesses need to stop asking whether or not they can afford to behave ethically. They should ask, instead, how much longer they can afford not to. More and more, consumers are growing tired of inaction. They’ve also grown increasingly wary of inauthenticity. Where simple greenwashing might have sufficed in the past, new generations of consumer are increasingly skeptical and unforgiving when it comes to corporate behavior. The most recent Deloitte Millennial survey found that a quarter of young consumers don’t consider business leaders trustworthy, less than half consider them ethical. They’re not the only ones. Across every generation, the desire for ethical, responsible business practices has evolved into a demand.

In my next blog, I’ll look at how procurement teams across the globe can (and already do) lead the way on sustainability. Eliminating plastic, identifying sustainable alternatives, and reducing emissions, the function is equipped to set and enforce a new environmental standard.

In the meantime, why not register as a Digital Delegate for this year’s Big Ideas Summit Chicago? You’ll enjoy the chance to sit in on thought leadership presentations from some of the Supply Chain’s most thoughtful, innovative, and successful professionals – all without leaving your desk.