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Petrobras Procurement Scandal Goes CSI

Petrobras Procurement Scandal Goes CSI.

After reading yesterday that the Brazilian government is considering offering leniency to the suppliers caught up in the Petrobras bribery scandal, my interest was piqued and I decided to look into the case a little more.

And wow, this one is interesting. It reads like the next HBO mini series; intrigue, bribery, political involvement and enormous sums of money. It’s all there.

But perhaps the most unbelievable twists (certainly the most macabre) were released this week when the congressional inquiry established to deal with the scandal filed for a court order to exhume the remains of the late politician Jose Janene after allegations were made by an unknown source that he might have faked his own death. It has been suggested that the former politician is now living in an undisclosed Central American nation.

Mr Janene was implicated in the scandal by Alberto Youssef, a black market money dealer. Youssef detailed that Janene, who reportedly passed away from a heart condition in 2010, was responsible for establishing the system of bribes and supplier kick backs that has brought the oil giant to it knees.

It’s not the first

Incredibly, this is not instance of a faked death involved in the scandal. Police have submitted evidence to prosecutors suggesting that another third party moneyman faked his own murder by mugging only to later turn up operating underworld business links between Europe and Brazil.

Not surprisingly, this case captivated the Brazilian public. 34 sitting politicians are now embroiled in the controversy. The recently re-elected president, who until now has avoided the controversy, is starting to come under fire particularly around the fact that she previously led the board of directors at Petrobras.

As discussed in yesterday’s Procurious article the scandal has had a dire impact on the Brazilian economy. In April of this year Petrobras estimated that the corruption scandal has cost the company R$6.2 billion or USD $2.1 billion. The company’s stock price has plummeted by around 30 per cent since criminal investigations started a year ago.

We can but only wonder, what comes next?

Transforming Sustainability Strategy Into Action

At Procurement Leaders World Procurement Congress 15 Shelley Stewart, CPO – DuPont, talked about the challenges of embedding sustainability into procurement processes.

Transforming Sustainability Strategy Into Action At World Procurement Congress 15

Why care about sustainability at all? That was the question posed by Shelley’s thought-provoking opening, before making the observation that although different places in the world feel differently about sustainability – ultimately it is an issue that affects all supply chains.

As evidenced by the following statement, sustainability is already hard-baked into DuPont and reflected in its core values: “DuPont is a science company. We work collaboratively to find sustainable, innovative, market-driven solutions to solve some of the world’s biggest challenges, making lives better, safer, and healthier for people everywhere.”

But while it’s nice to be sustainable, is there a real business value, after-all how do you quantify the value of sustainability?

Shelley points out that sustainability provides your business with mitigation strategies to risks in your supply chain. If we’re not doing much for sustainability then it creates a risk in itself.

Shelley says that at DuPont there was a sharp focus on saving targets, and conversely sustainability was in the distant background. Crucially, there was no one in the business for the CSO to call in the procurement organisation to talk to about supplier sustainability. In DuPont’s case they didn’t have a unified approach.

Happily this has since changed and you only need look as far as the company’s EHS programming slogan which once read ‘the goal is zero’ – and now ‘committed to zero’ for evidence of this fact. Shelley notes that DuPont has also appointed a single person to a centralised position to manage sustainability.

What lessons has DuPont learnt?

First you must learn what sustainability really means for you (in the context of your supply chain). However you must appreciate that the answer may be different for each one of your supply chains.

It’s also important to take onboard external perspectives – you will benefit greatly from peer to peer learning.

Specifically in DuPont’s case it was important to remind people that the work wasn’t being started from scratch. There was a foundation to build on, no matter how tentative that may have been.

It’s imperative that you create a unified approach and save yourself a lot of extra work by doing something ten different ways. At the same time “one size doesn’t fit all” – you’ll need to adopt a certain amount of flexibility to be able to understand changes in your supply chains.

Of course you might find that your supply chain and your suppliers are already ahead you in the sustainability stakes. Why not use their learnings to better realise your own initiatives? It is important to stress that sustainability is a mindset, not a checklist – we must encourage people to think differently if we are going to succeed.

5 Megatrends In Technology

At Procurement Leaders World Procurement Congress 15 David Rowan, Editor of Wired – offered a fascinating insight into the megatrends that are making waves in the technology space.

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The emergence of virtual currencies

What does a Video Games company, a Travel company and a Cable network all have in common? You can pay for all their products using a new kind of currency called Bitcoin. It exists only in the Cloud, meaning there’s no central bank. And (as David notes) although much of the news coverage surrounding Bitcoin is focused on the volatility of the prices, virtual currencies like Bitcoin are going to be something quite important. There’s a backbone to the Bitcoin/crypto  currencies called the Blockchain – it’s like a repository of trust, that keeps a record of all transactions.

Decentralised community ownership

Crowdsourcing is big business. Just look to online initiatives like Kickstarter and Indiegogo to see the already game-changing impact these platforms are having. Ideas that would once be looked upon as impossible challenges are now becoming reality in a matter of years, months, even weeks…

As a direct consequence we are seeing a power shift from traditional factories. Communities are now crowdsourcing their own manufacturing, creating  entirely new kinds of businesses. You no longer need to own your own factories, just access to someone with one.

From software to hardware

In recent years 3D printing has exploded. What started as a technicolour fantasy is now being realised the world over – in David’s view, the kitchen is where the 3D printer will really make an impact.

The beauty of 3D printing lies in its immediacy. It turns the imaginable into the tangible – if an idea pops into your head, all you need is a design in order to physically make it.

David makes the point that surprisingly for something so new, 3D printing is already being disrupted. As advancements are made in technology, availability of materials improves, speed of processes increases and costs come down – the 3D printing playing field is shifting and changing.

Internet of Things

You’ll have heard a lot in the press about the Internet of Things (or IoT for short). Hardware is increasingly moving online, aided by the convergence of wireless technology. This all plays into the scenario that IoT presents, and effectively removes the need for human-computer, human-human interaction. As a consequence companies are making connections for things that were once offline.

Due to the rise in availability of ubiquitous, embedded sensors, and as prices continue to fall – everything is now connected and being put online.

Logistics already use sensors in their pallet boxes to track location data, or to issue an alert if goods are tampered with during transport.

Humans becoming machines

Artificial intelligence is turning into a thing – it’s becoming real. A company in London’s King Cross has taught a computer how to not only play Space Invaders, but master it to become the best player in the world. Although it’s not been designed to generate any revenue, it didn’t stop Google from buying the company (and the idea) last year for £400m.

What if your devices could read your emotions? Another innovative startup is answering that call – machines are starting to become more intelligent, and as a result AI is starting to understand what you’re feeling and not typing. You only to have to look as far as apps like Swiftkey to start to see this advance in action – it’s not such a far-flung notion.

What will the Enterprise Bill mean for SMEs?

Tracy Ewen, managing director of IGF Invoice Finance, has provided Procurious with her comments on the announcement of a new Enterprise Bill in today’s Queen’s Speech.

Enterprise Bill announced in 2015's Queens Speech

“Measures will also be introduced to reduce regulation on small businesses so they can create jobs.”

The purpose of the Bill is to:

  • Cement the UK’s position as the best place in Europe to start and grow a business, by cutting red tape and making it easier for small businesses to resolve disputes quickly and easily.
  • Reward entrepreneurship, generate jobs and higher wages for all, and offer people opportunity at every stage of their lives.

Tracy says: “The announcement in the Queens speech today introducing a new Enterprise Bill – giving additional support to SMEs to settle payment disputes – ought to be welcomed by businesses across the UK. To have this Bill included in the speech should give hope to many struggling businesses that the government is serious about the need to protect SMEs and bring an end to the issue of late payments. 

The current payment terms that many suppliers in the UK are subjected to mean that goods delivered today wouldn’t need to be paid for until long after summer is over; a practice that isn’t sustainable, but it is a reality that, until now, SMEs have had very little power to change. The implementation of a Small Business Conciliation Service should protect SMEs against larger and more powerful entities, and should reduce the number of SMEs that fold due to intense cashflow problems.

Whilst acknowledgment in the Queen’s speech has symbolic importance, businesses have been waiting for support from Government to tackle this issue for a long time, so will be watching the progression of this Bill with care and limited expectation.

In the meantime, there are options available that cover the gap between work completed and money in the bank. It’s therefore important for firms to thoroughly review their options and make use of any free financial advice that their own financial partners and suppliers can offer before pressure from large customers impacts their growth or operations.”

How to Re-Energise Your Procurement Strategy In 100 Days

Steen Karstensen, CPO – Maersk, on re-energising your procurement strategy.

Maersk CPO Steen Karstensen

Steen was speaking at Procurement Leaders World Procurement Congress 15 in London.

At Maersk there is a vision, and that vision is represented by the following mantra: “Every dollar spent is spent professionally”.

Maersk believe that in order to be competitive and stay ahead of your contemporaries you need to constantly reinvent yourself. To that end the conglomerate follows a bi-yearly strategy: every second year it takes a long-term view of the business. Steen says that it’s imperative to keep momentum going – you’re either ahead of the game or dead in the water…

Maersk needed to ask “What would my successor do differently?” So we approached Rick Hughes, Procter & Gamble’s Chief Procurement Officer, to create a ‘CPO 100 day plan’. Rick would assess the organisation and come up with a list of actions.

Rick conducted a study that gathered a 360-degree view from Maersk management figures (CEO, COO, Group Strategy Officer), 30+ procurement staff and key suppliers. He brought with him a fresh, candid and apolitical mindset – he was the sort of person that could leverage insights from his vast experience, and had the appetite to change the business.

Maersk also approached the University of Bath to get a theoretical reading of the procurement strategy.

And what did they learn?

There were definite signs of “big corporate syndrome” – Maersk would need to take some of its own cost medicine. How? It would need to simplify work processes as well as organisation.

With the CAPEX Procurement model, the right structure was in place, but now was the time to deliver results.

In terms of category management there was a requirement to upgrade processes, roles and capabilities. Plus a call for investment of senior resources in SRM.

And finally it was noted that important procurement prerequisites were not properly in order, thus an obvious need to standardise and document all core processes going forward.

Success in all of these areas would only be truly possible with deep business integration. Having both the technical function and procurement community reporting into the same place encourages both alignment and innovation.

The challenges re-energised their strategy process and in-turn generated three main (actionable) take-aways:

1. Take a 360-degree view on the organisation

2. Be open to reveal and discuss weaknesses

3. Be bold on actions – also in previously failed areas.

Why is eSourcing adoption and utilization still so low?

The eSourcing alternative

By Jeff Gilkerson, Manager at The Hackett Group thglogo500

 

You would be hard pressed to find a TV viewer that would argue watching a show in standard definition is better than watching in High Definition. Similarly, it would be difficult to find a procurement executive that would argue a manual (excel/word/email) based sourcing process is better than utilising an eSourcing tool. It’s almost universally accepted that eSourcing is more efficient, improves quality/standardisation, and generates better results. Yet, eSourcing tool utilisation and adoption is still lagging. Approximately 70 per cent of large organisations have eSourcing tools. While at first this may seem encouraging, it begs the question: why do 30 per cent of organisations not have eSourcing tools when the benefits are widely known and accepted, the technology has been around for decades, and the tools can be obtained for a relatively low investment?

The picture gets even worse when you look at the actual adoption and utilisation of eSourcing tools in the 70 per cent of organisations that have them. Many of these organisations have “implemented” eSourcing tools, but what that really means is they have purchased the tools and have them available to use. It does not mean that the tools are embedded in the sourcing process, that the staff is adequately trained to use the tools, or that the tools are frequently and consistently used for sourcing projects.

We recently helped a mid-size manufacturing client in the midst of a procurement centralisation to design and implement an eSourcing program. While eSourcing was new to this organisation, some of their challenges and learnings are just as relevant to more mature organisation trying to understand why eSourcing utilisation and adoption has not reached its full potential.

Most eSourcing tool providers will tell you they are easy and fast to implement (some say it can be done in only a few days). However, true implementation of an eSourcing tool is more than just making sure the technology works.

The limits of adoption and utilisation go beyond the actual tool, and lay in a range of organisational and people issues:

  • Change is difficult: Former president Woodrow Wilson once said, “If you want to make enemies, try to change something.” Even if you know it’s for the best, change is difficult. Think of moving, even if it is to nicer house in a better neighbourhood, the process of packing, moving, and unpacking is difficult and not something most people look forward to. Similarly, moving from a manual sourcing process to an eSourcing process requires change on the part of users.
  • Required change: As mentioned, change is difficult, and transitioning to an eSourcing tool is change. Just like all change it requires effort and work. Users have to re-learn how to do things they have been doing for years, explain to direct reports, suppliers, and internal stakeholders why they are changing, and often times modify the process they have become accustomed to. Additionally, many of the things that make eSourcing tools efficient (e.g. templates, auto-scoring) have to be built or configured. This work is required upfront before users start to realise the benefits that eSourcing tools provide. It’s not just about having the technology, it needs to be embedded into the process and this requires work and change.
  • Lack of process standardisation: eSourcing tools provide a great resource to improve consistency in your sourcing process. However, in order to do this there must be a generally accepted sourcing process that is consistently followed throughout the organisation. In our experience, many organisations don’t actually have a standard sourcing process. Even in organisations that do have a documented sourcing process, it is common to find that the process is infrequently followed or applied inconsistently when it is followed.
  • eSourcing provides more visibility: A robust eSourcing tool and program gives management more visibility into the status, progress, and results of sourcing projects. While this is great in management’s view, users may not see this as a positive.

To address the organisational and people issues, procurement executives can:

  • Standardise the sourcing process: Ensure there is only one sourcing process for the organisation and that it is consistently and broadly followed. Just as teaching a young child two different ways to tie his shoes is certain to lead to confusion and frustration, designing an eSourcing program around an inconsistent sourcing process will inevitably lead to confusion and partial adoption.
  • Ensure proper training: eSourcing tools have become significantly easier to use, but for most users it is still change. A comprehensive training should be three-pronged:
    1. Basic Functionality: A “how to” use the tool. This is typically done as a classroom style training (in person or via webex) and focuses on the technical aspects of how to do things in the tool.
    2. Best Practices: Another classroom-style training that focuses on best practices for eSourcing (e.g. questionnaire design, eAuction design & set up)
    3. Hands on: The final piece of the training should be a hands on training in the form of pilot projects. The pilots reinforce the functional and best practice trainings.

Note: When planning the pilot projects, it is important to select the right projects and users. If the project is too simple it will not provide enough depth for the project team and if the project is too complex it may distract from learning the eSourcing tool. Users selected should also be carefully chosen as the early users of the tool will have a significant impact on overall adoption.

  • Develop comprehensive documentation: Ample documentation will ensure that when users have questions after the initial training and pilot phase they will be able to easily find answers and complete their projects. The documentation should be widely available and focus on both the functional “how to use the tool” as well as the business processes.
  • Track the outcomes: Too often an eSourcing program is rolled out with much fanfare, only to quickly fade into the background. To ensure successful adoption of eSourcing tools, it must be tracked and reported. In addition to tracking and reporting the results (i.e. savings) form eSourcing widely across the company, it’s just as important to continuously track and report to the procurement organisation on the use and adoption of the tool.

Comprehensively addressing these organisational and people issues will significantly improve the utilisation and adoption of your eSourcing tools.

What the hell is an Intrapreneur?

What the hell is an Intrapreneur?

You know that anxiety that sets in when you’re in a meeting and someone mutters a new three-letter acronym (TLA) or buzzword you’ve never heard of before? The rest of the room nods and you start to sweat?

Well, that happened to me at the Big Ideas Summit. The term that did it this time was ‘intrapreneur’. So while the speaker continued on with his speech and the audience continued nodding approvingly, I raced to Google the term intrapreneur.

Branson’s been on it for years

Fortunately, it didn’t take long to find a blog by the venerable Richard Branson discussing the term intrapreneur. The blog was from 2011, which sadly for me, quashed my previous assertion that this term was nothing more than a passing buzzword.

Branson’s blog defined the term intrapreneur as “an employee who is given freedom and financial support to create new products, services and systems, who does not have to follow the company’s usual routines or protocols.” Right I thought, it’s basically an entrepreneur who works within a big company. My phone is put away, anxiety levels drop and I’m able to listen to the speaker again.

The more I’ve looked into the term intrapreneur the more I see that it’s become commonplace in many workplaces.

Most articles I’ve read suggest that the intrapreneur revolution is a response to the start-up culture that is currently challenging more traditional business models. As the image below suggests, business models are changing at an alarming rate and it’s not just the small end of town that are in the crosshairs of these new business models – large firms simply must innovate to stay competitive.

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Others have forwarded arguments that the fixation on regimented processes and standard operating procedures (that enabled business to grow and succeed through the 90’s and 00’s), are the very factors that will dictate their downfall in the future. Intrapreneurship is an attempt to turn back this tide and bring flexibility and innovation to large organisations that have previously stifled such efforts.

It works for Gen-Y

Not only does intrapreneurship allow organisations to address new business challenges, it seems to fit pretty well with the next generation of talent.

Gen-Y, the Millennials or whatever you want to call them, have been classified, (perhaps unfairly) as restless and keen to make an immediate impact on the organisations they work for.

It is for these reasons that large firms have struggled to attract young talent as the strict processes and internal hierarchy present in these organisations are a turnoff to the new generation.

This point is highlighted in the Deloitte Millennial Survey that was released in January of 2014. The study found that 70 per cent of Millennials see themselves working independently at some point rather than being employed within a traditional organisational structure.

The question is, can intrapreneurship provide employees at large firms with the autonomy and creative space to change the ‘traditional organisational structure’?

The logistics of supplying humanitarian aid in the earthquake-ravaged Nepal

DHL Disaster Response Team extends stay to aid in the aftermath of the devastation that has rocked Nepal.

Aid being delivered in Nepal
Aid being delivered in Nepal

As earthquakes continue to rock the region and wreck lives for thousands, DHL has pledged to extend the deployment of its Disaster Response Team until the end of May.

The group comprises 18 highly-trained volunteers hailing from Singapore, Malaysia, Dubai, Bahrain, India, Hong Kong, Pakistan, Belgium, and UK.

The DRT was deployed less than 48 hours after the first earthquake struck on 25 April. As the country’s only international airport in a landlocked country, the airport is the main gateway for the international aid community to send relief goods into Nepal.

The volunteers – deployed in three waves – are all trained in disaster management to help coordinate relief aid and improve logistics operations at Tribhuvan Kathmandu International Airport. To-date over 2000 tons of relief aid has been distributed to the victims, including: food, shelter, medicines, water, solar lamps, tools for rebuilding, plastic sheeting, and a 35-ton inflatable hospital from Medecin sans Frontieres,

Faced with an increasingly demanding situation and with limited equipment, the volunteers move goods into centralised airside warehouses run by the United Nations World Food Programme for further distribution by international non-governmental organisations (NGOs).

Gagan Mukhia, Country Manager, DHL Express Nepal, commented on the challenges facing the relief effort: “Some of the huge air cargo pallets initially had to be dismantled before we could move them because there just wasn’t the equipment to unload them as a whole. With the latest earthquake on 12 May, we are still able to continue with our DRT operations as we now have the equipment and systems in place to deal with the ongoing relief effort that Nepal will desperately need for many months ahead. Planes can now be unloaded quickly and aid distributed more efficiently to the Nepalese community.”

In addition to the ongoing voluntary work of the Disaster Response Team, DHL’s Aid and Relief commercial service has moved over 100 tonnes of relief goods for organisations like ShelterBox and Norwegian Church Aid. Additionally, bookings for over 90 tonnes have already been received for the coming weeks.

4 challenges procurement faces & how to overcome them

Results from a newly published study shine a light on an assortment of internal challenges facing the procurement function, as well as its changing role as we enter an uncertain future.

4 challenges procurement must overcome

Xchanging has issued the first results from its 2015 Global Procurement Study of more than 800 procurement decision makers. 

These first set of results look at internal challenges and the new role of procurement, covering misaligned KPIs, lack of internal engagement, capacity issues and skills gaps.

Challenge #1: Misaligned KPIs

Despite the now wide ranging responsibilities of procurement decision makers, 47 per cent name ‘cost savings realised’ as their number one KPI. The top four KPIs listed are all cost related. CSR/Sustainability impact, by comparison, is ranked as the least important at just 1 per cent.

Chirag Shah, Executive Director, Xchanging Procurement comments: “These results strongly indicate that there is a problem with the current KPI structure. Procurement teams are responsible for many business critical functions. From risk management to sustainability impact, procurement is engaged in activities that far surpass its cost-cutter legacy. The metrics against which organisations track procurement’s performance do not line up with what procurement actually delivers.”

Challenge #2: Lack of Internal Engagement

63 per cent of procurement decision makers globally identify ‘internal stakeholder engagement’ as a challenge, with 14 per cent claiming it is as an extreme challenge.

Shah explains: “Procurement’s strategic capability isn’t being understood and because of that, it isn’t appropriately valued. Not only is this causing problems for procurement performance, it is also restricting business success; by not engaging with the procurement team and fully understanding what it can deliver as a strategic partner, companies are limiting their potential for growth.”

CPOs clearly feel more internally valued than procurement middle management; 60 per cent of CPOs feel that procurement is a C-level priority in their organisations compared to 37 per cent of procurement middle managers.

Shah makes a number of recommendations based on the findings: “To improve internal engagement, and properly communicate the value of procurement, procurement departments need to consider tactics such as introducing governance boards, using score cards to track deliverables, leveraging analytics and reporting tools to demonstrate results and even re labelling team members with non-cost centric job titles that relate to their roles, for example ‘Risk Manager’ or ‘International Consultant’”. 

Challenge #3: Capacity Issues

According to Xchanging’s numbers – 80 per cent of procurement decision makers identify ‘procurement team time pressures’ as a challenge, and 20 per cent as a major challenge – implying that the majority of procurement departments are facing major capacity issues.

Surprisingly, in comparison, ‘talent shortage’ is considered an operational challenge by far less respondents, with 59 per cent citing it as a challenge and only 12 per cent as a major challenge.

The number citing talent shortage as a concern drops to less than half (40 per cent) when asked if it’s a problem for the industry as a whole.

xchanging

Challenge #4: Skills Gap

The skills considered most important for procurement professionals are ‘relationship management’ (88 per cent consider important, 59 per cent very important) and ‘negotiation skills’ (88 per cent and 58 per cent).

Significantly, these are also the areas where procurement decision makers identify the greatest gaps in skill set provision; around a quarter cite ‘relationship management’ (26 per cent) and ‘negotiation skills’ (23 per cent) as areas with the greatest gap in skill set provision. 23 per cent also name ‘project management’.

Want to read more? The full report can be downloaded here.

You need a plan: managing risk in the supply chain

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Increased complexity in supply chains means increased risk, coupled with unprecedented visibility from social media and a lowered public tolerance for disruption – in other words, a perfect storm. For my last session of ISM2015 day two, I’ve come to find out about what supply chain professionals can do to weather the storm and become their organisations’ risk-management experts.

Hannah Kain speaks earnestly and authoritatively, with a dry sense of humour. She’s the president and CEO of ALOM, a global supply chain services provider that has been operating for almost 20 years primarily in the electronic and technology space. It’s headquartered in the Silicon Valley and works with tech, automotive and medical companies – in short, cutting edge players that use Kain to solve their complex supply-chain challenges. Kain’s here today not just to lay out the challenges involved in operating supply chains in the age of social media, but to give the audience some solid and invaluable advice on minimising risk.

The context

Procurement professionals have to navigate more layers, more partners and more regulations than ever before. They’re dealing with globalisation, compressed timelines and increased customer expectations around speeds, prices and visibility. Corporate boards and the public are no longer just interested in what supply chain professionals are doing, but how we are doing it. The reason behind this is that procurement is moving from the back to the front of organisations. Visibility has changed, expectations have changed, along with the nature of communications and global immediacy. We’re not used to this level of scrutiny, but it isn’t going to go away.

Brand risk factors include social responsibility, cultural sensitivity, cybersecurity (40 per cent of data breaches happen through the supply chain), personal conduct, customer service, ethics, regulatory compliance, sustainability and, of course, quality. It’s important to understand that we’re all stakeholders in our organisations’ brand, from the board of directors through to shareholders, customers, suppliers, the community and employees.

Social reputation

Millennials are very concerned about the social reputation you have as a company. Kain’s blunt observation that “if you have a poor brand reputation, you have a hiring problem”, made me think of the NSA and its recruitment woes after Edward Snowden.

An example of a well-executed risk strategy was Adidas’ enforcement of its workplace safety policy in 2014. The company drove standards aggressively amongst its Asian suppliers, issuing 66 warning letters, dumping 13 suppliers for non-compliance and rejecting 104 new suppliers over safety concerns. No doubt this was a costly and difficult process but the flow-on effect is a greatly improved public perception of Adidas’ social responsibility, and of course a lessened risk of supply chain disruption through accidents in the supply chain.

Ensuring regulatory compliance is now a significant part of a procurement professional’s role. Kain praises some of the laws that have been passed recently in the US, making the point that rather than seeing regulations as a headache, CPOs should embrace them as a well-structured way to minimise risk. The Conflict Minerals law, for example, exists to ensure raw materials are not sourced from the Democratic Republic of Congo, where rebels are using indentured labour and channelling the revenue to fight a brutal war. US public companies are required to trace the origins of their metals all the way back to the smelter level – in practise this means auditing as many as six levels back down the supply chain.

Similarly, if you sell over $100 million of product in California, you have to certify that no child labour has been used in your supply chain – a very high standard to meet. As with Conflict Minerals, it’s a huge but worthwhile task to audit an entire supply chain. The real headaches start, however, when your company has two suppliers of a product to avoid disruption, or even three – this means the size of the auditing task is doubled or even tripled. In consequence, CPOs are now concentrating their supply base, often to a single trusted supplier. These regulations really delve into the “how” rather than the “what” of supply chains and illustrate Kain’s point about unprecedented transparency.

Retouch-ce_HannahKain277-hi

Kain divides risk-management strategies into two categories; preventative and reactive. Both are equally important and I soon learn that risk-management is a lot more complex than I’d thought.

Preventative risk-management strategies

  • Preventative strategies are best for stable industries, public companies and high-profile organisations with good alignment, a culture of planning, strong conceptual corporate supply chain staff and reward planning.
  • Put in place a SCOR (Supply Chain Operations Reference) model: create objectives, KPIs, measures, targets, KRIs, loss tracking initiatives. Assign numeric value to disruptions.
  • FMEA (Failure Mode Effect Analysis) method: identify failure points and causes, predict the potential frequency of failure, assign numerical probability and severity factors resulting in a Risk Priority Number (RPN), document your mitigation strategy and response actions.
  • Manage based on data: establish a dashboard and a supply chain event management system with alerts and pre-alerts on the state of your suppliers.

Reactive risk-management strategies

  • Reactive strategies are best for fast-moving, smaller and innovative companies with a culture of agility, resourcefulness, entrepreneurship. These organisations reward resourceful fire-fighting and focus on minimising disruptions that have occurred.
  • Have a communication plan on social media: the response should come from senior management level. Acknowledge the problem, know the facts, be truthful initiate a solution and define escalation actions.
  • Poor reaction: Lululemon’s reaction to customer complaints on social media about transparent fabric was to blame the issue on customers’ weight, rather than taking responsibility for the quality. The result? A social media storm, sending the stock price tumbling 15 per cent in one day, followed by a two-year recovery process.
  • Good reaction: In response to reports on unsatisfactory working conditions, Apple’s CEO regularly visits Chinese iPhone suppliers to meet with employees, management and government officials.

Kain’s eight tips for putting out fires on social media

  • Prepare for the worst – have a plan
  • Take responsibility
  • Put consumer and work safety first
  • Respond quickly, sincerely and truthfully
  • Be real – personally respond and take it offline if possible
  • Respond privately to personal inquiries
  • Fix mistakes expediently
  • Arguing with social media users is always a bad idea.

Kain concludes with a reminder that your supply chain and brand are intertwined. Risk is always present and disruptions are inevitable – you need to be both proactive and reactive to minimise and deal with events as they happen.

Founded in 1915, the Institute for Supply Management (ISM) is the first and largest supply management association in the world. A not-for-profit association with 47,000+ members and 140+ affiliated organizations around the globe.