June 2014
Leveraging sustainability through supplier relationship management

Employing a sustainable strategy necessitates a thorough assessment of the procurement process and assiduous scrutiny of supplier practices. Although effective, this approach puts pressure on an already complicated process. 

Yet, companies are managing to scrutinize their partners one by one, figuring out whether or not they can adequately inform the public that their products are fairly traded, ethically grown or manufactured and transported with ecological considerations. 

Easier said than done 

As can be expected, putting this approach into practice isn't simple. Business process outsourcing appears to be a viable option, especially for companies that want to employ ethical procurement strategies but often bite off more than they can chew. 

Ceres and Sustainalytics conducted a 2014 survey of 613 publicly traded enterprises in the United States, discovering that more companies are developing standards for their suppliers to follow. Last year, 43 percent of businesses exercised such measures, compared to 2014's 58 percent ranking. 

Keeping partners informed 

One of the ways in which corporations are getting a better hold over global sourcing is by issuing report cards. The study acknowledged the strategies of computer processor developer Intel, which grades its suppliers based on metrics created by the Global Reporting Initiative. 

"Just as you would grade them on cost and quality, we grade them on sustainability," said Michael Jacobson, director of Intel's Corporate Responsibility Office, as quoted by the source. "Based on those gradings, it is going to impact their ability to do business with Intel." 

For the CPU maker, this process is essential. If careful scrutiny of all supplier practices isn't employed, the minerals used to manufacture Intel's signature products could potentially be sourced from militaristic organizations that profit off the mining of essential minerals. 

Setting up guidelines 

Keurig Green Mountain, a brand known for providing consumers with ethically grown coffee, has developed a solid method of promoting sustainability, SupplyChainBrain reported. By setting guidelines for its partners and contracting procurement services to conduct thorough reviews on a regular basis, it has been able to solidify its reputation as an environmentally and socially cognizant organization. 

Keurig's Senior Director of Sustainability Monique Oxender also acknowledged that the suppliers themselves are required to validate their practices on a yearly basis. She acknowledged some of the goals the organization has in store for the future, aiming to:

  • Make 100 percent of K-Cup packs recyclable
  • Decrease greenhouse gas emissions by 25 percent
  • Accomplish zero waste-to-landfill at all operating manufacturing and distribution facilities. 

Taking proactive measure to promote ethical strategic sourcing is a solid approach toward exercising sustainability. Employing the expertise of outside observers is also a good practice to consider. 

Brad Carlson, a leading supplier relationship management expert, will present on SRM in a webinar hosted by nextlevelpurchasing.com
Source One's resident SRM expert Bradley Carlson will appear on NLPA's FREE Conference Preview webinar today at 11:30AM EST.

As a lead up to the NLPA's Annual Conference, held this September in Pittsburgh, PA, and for those unable to attend, today's webinar will feature Carlson's supplier relationship management expertise, as well as experts on Procurement Project Management and Stakeholder Engagement. Carlson will use today's webinar to discuss the merits of Supplier Relationship Management and the processes behind developing and maintaining such a project within your own organization.

To view today's webinar, please click here.
If you are not already a member of the Next Level Purchasing Association, you may join for free to view today's webinar. 

For more information on the NLPA Conference, please click here.

For more information on Source One's Supplier Relationship Management program, and to download our FREE SRM Insights Report, please visit http://srm.sourceoneinc.com.

Strategic sourcing: Skilled workers or automation?

The U.S. manufacturing industry is expected to take a major hit over the next couple of years. Skilled labor is becoming more scarce as the years progress, leading some manufacturers to turn to either advanced automated technology or vendor resource management tools, which can help companies find temporary or long-term personnel to match specific job requirements.

The choice isn't necessarily black and white. While automation has been lauded for expediting workflow and eliminating minor inefficiencies, the machinery still needs to be maintained by people with expert knowledge of how it works. In response to this puzzle, managed IT services companies have advised manufacturers to use analytics tools, which can identify minor faults that are easily overlooked. However, this creates the need for employees who are especially computer-savvy. 

California's woes 

According to the California Economic Summit, the Council for a Strong America released a report in early June that asserts California will face a deficit of 2 million trained workers over the next 10 years. It's estimated that about 50 percent of those personnel will require bachelor degrees in specific fields. The technical sector in particular is anticipated to take the strongest hit, primarily because young people aren't interested in IT, factory machinery or other similar jobs. 

"We've been looking for a quality control inspector and quality engineer for three months," said Walker Corporation's Vice President and General Manger Michael Bermudez. "We need candidates who have good problem-solving skills and a basic understanding of how to provide leadership on the manufacturing floor."

Baby Boomers leaving the scene 

IndustryWeek reported that an average 10,000 baby boomers turn 65 every day, many of whom are retiring from manufacturing jobs and leaving factories empty-handed. Those who are still working in the industry have struggled to adapt to vastly new production technology that may change the nature of their original positions in general. 

For this reason, the Obama administration made an announcement in April that granted $500 million in funding to programs that encourage industry and community colleges to expand instruction programs geared toward younger U.S. constituents. 

A healthy blend 

Vendor resource management tools could be leveraged to attract both high school and college students with technical proclivities. As far as manufacturing analytics goes, InformationWeek noted several universities - Columbia University, Louisiana State University and Bentley University - that offer Master's degrees in data scrutiny, providing those in the production economy the opportunity to reach out to prospective graduates.

Nuclear fuel advances could change strategic sourcing for power plants

Although nuclear power offers countries with limited natural resources a feasible alternative to coal-burning power plants, there's an incredible amount of danger associated with the technology. Procurement services often help energy companies obtain necessary safety gear, but it's evident that a new form of fuel is needed. 

Current methods

According to Manufacturing.net, uranium dioxide, which powers the majority of today's nuclear reactors, is compressed into small pellets that are stacked into a hollow metal tube. The container is made of zirconium alloy, a material that resists corrosion and can sustain large amounts of heat. 

Nuclear facilities require extensive cooling mechanisms to make sure that nuclear material doesn't overheat and thus damage the cladding, or covering. However, these protections can sometimes be compromised. The source referenced the Fukushima Daiichi plant accident, outlining the steps that caused the center to break down: 

  • Tsunami waves knocked out Daiichi's cooling system.
  • The steam caused by the evaporating water reacted with the zirconium alloy.
  • This cohesion caused a chemical reaction that produced explosive hydrogen gas, resulting in several explosions. 
  • Harmful radiation was released into the surrounding area. 

Although the circumstances surrounding the Daiichi plant are unique, natural disasters shouldn't be disregarded when concerning safety. Energy companies with a stake in nuclear power facilities may begin to label zirconium alloy cladding as a liability, obligating the operators of said centers to redirect strategic sourcing to include metals that won't create hydrogen gas or other explosive chemicals. 

Government response 

Claims Journal reported that the U.S. Department of Energy is now spending more than $30 million to foster innovation of nuclear reactor design and material implementation. The purpose of the organization's endeavor is to develop nuclear fuel that is more damage- and melt-resistant in intense scenarios. If researchers prevail, it could give plant personnel more time to prevent an accident from turning into a meltdown. 

Solutions in motion 

The news source acknowledged a number of notable projects. The Electric Power Research Institute is trying to see if cladding made of molybdenum is a good alternative to zirconium alloys. The former metal is known for maintaining durability even in the face of extreme heat, so implementation appears to be a viable option. 

Some believe that more radical design changes are necessary. Brent Heuser, a nuclear engineer at the University of Illinois, is working with his team to implement "self-healing" fuel, which possesses additional materials that move to the surface of a fuel rod during an accident to form a secure cover. 

If these research projects prove successful, supplier relationship management tools may be leveraged by power companies to procure new materials that improve safety conditions. 

How cloud computing is improving logistics, procurement process

On the surface, cloud computing offers organizations the chance to aggregate, share and analyze more information. The question is, how can this convenience take the procurement process to the next level?

Simplifying complexity

Global sourcing isn't a difficult concept to grasp, but it's incredibly hard to put into practice. A single enterprise could have thousands of direct and indirect connections with suppliers located across different parts of the globe.

SupplyChainBrain interviewed UPS Vice President of Supplier Management Tom Boike, who noted that cloud computing can bring clarity to a befuddling, intricate web of relationships. How is this made possible? By being able to aggregate a plethora of digital information on every partner.

Exercising sustainability

Consumers and enterprises pay more attention now than ever to the organizations with which they're conducting business. The Internet has made it easy for people to find out whether a company's practices are detrimental to the environment or indirectly support global conflict. There are two ways in which cloud computing can help organizations employ sustainable practices:

  1. Greater energy efficiency: According to a 2012 study conducted by the Natural Resources Defense Council, because cloud environments are powered by the shared server capabilities of multiple organizations, they use less energy than conventional data centers. In addition, because workloads can be assigned to multiple participants, cloud technology can be powered by variable energy sources such as wind and solar.
  2. Better oversight of best practices: By allowing themselves to collect more data from different sources, organizations can quickly identify trends in how companies interact with the world around them. For example, a diamond seller could use cloud computing to collected data on all its suppliers and then see whether or not those partners are sourcing minerals from conflict areas.

Increasing port efficiency

According to Forbes, the Chinese city of Ningbo, a bustling logistics hub with nearly 5,000 companies that have a stake in the port's success, recently installed a cloud infrastructure with the help of IBM. As a result, the number of idling vehicles has decreased while the flow of goods was expedited.

The news source noted that the system enabled enterprises participating in the program to install GPS sensors on all of their trucks. This enabled one company to reduce idle time by nearly 80 percent, accumulating about $157,000 in savings.

Electronic procurement services offer corporations the same solace as cloud computing by connecting them with millions of potential suppliers around the world. Experts offer the software and tools necessary to obtain the correct cloud platform solution and make the most out of it.

Global sourcing: Considering future disruptions in Southeast Asia

Even professionals who are new to the procurement process understand that sourcing goods from a single supplier isn't a good strategy to employ.

Between social upheaval in distant countries, raw materials shortages, unpredictable labor costs and shipment delays, large enterprises need to maintain hundreds of relationships to ensure they can achieve inventory fulfillment.

The Vietnamese protests: A learning experience

Strategic sourcing professionals have continuously pointed companies to Vietnam to procure furniture, electronics apparel and other goods. Thomas Russell, a contributor to Furniture Today, noted that the country has been an instrumental player in the household amenities industry. In 2013, the nation produced $2.2 billion in shipments, double the amount of Canadian exports in the same time period.

Recently, Vietnam's protests over the construction of a Chinese oil rig in the South China Sea disrupted the country's outflow of goods. Although factories were shut down for no more than a few days, companies with ties to manufacturing companies in Vietnam anticipate shipment delays lasting one to two weeks.

Redirecting attention

In a world that favors speed and efficiency, two weeks of postponed deliveries can have a profound effect on a company's bottom line. That's why many businesses are leveraging supplier relationship management applications and other assets to solidify relationships with companies operating in nations that are less prone to experience disruptions.

Russell noted that the disruptions sustained by enterprises doing business with Vietnamese producers have caused some to turn to Mexico. The Central American country witnessed an 11 percent increase in furniture shipments to the United States last year. Ultimately, consumers don't care about overseas conflicts when it comes to obtaining goods.

Mexico: A rising star?

Despite the fact that trade relationships between the U.S. and Mexico have increased by 30 percent since 2010, Russell maintained that Mexico isn't going to take the No. 1 slot any time soon. Marketing analysis has shown its rise in the furniture industry will be hampered by the following:

  • A lack of expertise in production design
  • A deficit of manufacturing capabilities

However, the nation does offer an attractive alternative to procuring goods from overseas. In addition, U.S. raw materials such as oak, cherry and pine can be easily transported across the country's southern border.

Apparel's outlook: Optimistic, but cautious

Just-Style recently cited findings of the United States Fashion Industry Association, which surveyed multiple C-suite professionals working at leading apparel brands, as well as retailers and wholesalers that sell clothing products. While 89 percent of respondents expressed positivity regarding the next five years, 81 percent are concerned about rising costs, but only anticipate moderate price increases.

Survey participants also acknowledged the need to better manage distribution risks and remain competitive. Because production and sourcing expenses are anticipated to increase over the coming years, many apparel companies may turn to procurement services that can help them figure out where to solidify material acquisition operations.

Having a diverse portfolio

One of the ways fashion enterprises can combat disruption is by sourcing from multiple organizations. This doesn't necessarily include forming relationships with several manufacturers in China (as every one of them will likely be impacted by national issues), but instead relies upon developing connections with companies headquartered in different parts of the world.

Just-Style noted that 84 percent of USFIA respondents procure goods from Central America and the Caribbean Basin. In addition, 76.9 percent source in the U.S., but the majority of those entities are retailers (82 percent) as opposed to importers and wholesalers (55 percent).

Ultimately, diversifying a portfolio appears to be the safest bet for organizations with global sourcing concerns. Although one country may offer goods cheaper than the rest, a single nationwide event could result in significant consequences to the procurer's end of the bargain.

Metadata analysis can provide numerous cost savings when used responsibly

The majority of people in the United States are producing and distributing data on a near-constant basis. Some of this is intentional - traditional methods like conversations and writing and newer digital methods that, at last count, were used primarily to distribute pictures of cats and Starbucks orders. But a majority of this data sharing is unintentional or passive.
This unintentionally shared data, alone as individual bits of information, is typically insignificant - the length of a particular phone call, or the temperature outside when a particular purchase was made. But when combined in the right way, these individually insignificant pieces of unintentionally shared data can form a workable data set fit for analysis. This workable set, whether pulled from willingly or unintentionally shared information, is what is known as "metadata" - technically defined as "data from data". 

Compiling and analyzing metadata is becoming a must-have skill and is shaping the future of services and products. Google Maps predicts traffic effectively, and helps users around the U.S. plan their speedy travel routes,  by gathering speed information from the millions of GPS-equipped Android smartphones in traveller's pockets. In a recent article on ThomasNet's Procurement Journal, we discussed how university groups are looking at Twitter patterns and Google searches to generate predictions of unemployment rates months before government studies confirmed their accuracy. 

But the ethical questions surrounding the gathering of some of this data are hard to ignore. While no personal information is collected, the sheer amount of data collected, when paired with innovative and comprehensive analysis techniques, allows analysts to develop profiles that might are as good as what would be revealed through personal disclosures. This is the crux of the NSAs highly publicized, and highly questionable, data collection practices - in which they attempted to leverage large-scale metadata analysis to identify potential terrorists and terrorist plots. 

These ethical questions aside, cities around the country are now beginning to collect and leverage metadata to further improve their infrastructure. This past week, Chicago announced their intention to install sensor networks across their streetlamp network to monitor all manner of environmental and human factors, including pedestrian movements (via cell phones). While this has the potential to do good - adjusting streetlight timings, predicting neighborhood and population shifts, adapting public transportation patterns, etc. - it also has the ability to do harm. 

And these benefits and concerns carryover to organizations wishing to gather and make use of their own metadata. Whether gathered from a well-managed telecom network or a from a thorough analysis of all contracts and invoices, the metadata within your own organization can be helpful or harmful. And it's important to establish policies on data analysis, and quell internal concerns about data gathering, if your organization wishes to effectively implement a collection program that stays within the law and within your employees' good graces.

The use of metadata within the office can do everything from saving money on your telecom spend to effectively diagnosing redundancies and inefficiencies in workflows and processes. However, these benefits are moot if your workplace morale drops, or you cross the line and get sued. 

To spearhead savings initiatives and to provide businesses greater control over their spending and supplier relationships, Source One has provided benchmarking services to clients across many industries.  Benchmarking provides businesses visibility into different spend categories through the evaluation of active agreements, examining contractual terms as well as pricing structures.  To date, Source One has helped clients compare price points and identify areas of improvement, while equipping businesses with best practices and knowledge to leverage during negotiations and obtaining more competitive and standardized agreements with new and existing suppliers.

To explain how this is achieved, Source One has developed an infographic that walks through the various components and objectives of the benchmark report.
What is the procurement process? How is it affected by violence?

As many enterprises partake in global sourcing, the procurement process has become incredibly fragile. Hundreds of connections between just as many suppliers can be suspended due to a minor disruption in a single link within the distribution chain. 

Scrutinizing the Iraqi conflict 

A slight misinterpretation of demand for particular goods will send a rift through supply, but what happens when violence surrounds a single material source? According to Manufacturing.net, despite what many critics would initially assume, Iraqi oil prices haven't increased as a direct result of the actions spearheaded by Al Qaeda splinter, the Islamic State of Iraq and Syria. 

Abdullah Al-Badry, secretary general for the Organization of the Petroleum Exporting Countries, noted that Iraq's output has held steady at 95 percent. However, the price-per-barrel increased from $110 to $115 due to fears regarding the conflict taking place in Iraq's northern regions. 

Combating commodity expenses 

Although a shortage of petroleum hasn't occurred, it's important for enterprises to acknowledge what a price increase will mean for the consumers to whom they're ultimately delivering gas. IndustryWeek contributors Sunil Chopra and ManMohan Sodhi noted that it all comes down to how supplier relationship management tools are utilized. 

The two writers acknowledged that when fuel costs rise, corporations should consider developing distribution operations that cater to specific regions. Decentralizing the procurement process to reduce transportation expenses is a good approach to take.

Prepare for the worst 

Sodhi and Chopra acknowledged that many firms are apprehensive of reducing risk because they automatically assume that this tactic results in a dramatic drop in productivity and efficiency. The two experts asserted that assuming the likelihood of a disruption occurring is greater than what analysis would suggest is a good way to minimize risk. 

Another option is lowering the concentration of resources. Pooling more assets than what's necessary can leave distribution more vulnerable to unanticipated occurrences. For example, Toyota lost billions of dollars in sales during its February 2010 recall.

Essentially, the car manufacturer sourced too much of a common automotive component from a single supplier. If it had procured the same type of item from multiple companies, the losses would have been a fraction of what they were. 

Staying connected 

Remaining cognizant of all market activities can help companies appropriately anticipate major disruptions such as the Iraqi conflict. Weighing the pros and cons of outsourcing to a business process specialist that accurately charts current events and their effect on the global economy is a good task for any enterprise leader to undertake. 

How to leverage business process outsourcing as a competitive advantage

Today, global enterprises are finding it incredibly difficult to gain a tangible competitive advantage. Repeatedly scrutinizing familiar practices often grows monotonous, making it hard for organizations to identify patterns that can transform operations. 

Therefore, some executives have turned to business process outsourcing, hiring professionals with critical, fresh perspectives on current undertakings. Every company has a unique approach, offering consumers something that other entities cannot deliver. 

Finding how and where to invest 

When capital's amassed, it's often difficult to prioritize where to allocate it. Are more resources given to research and development? Are new divisions and teams assembled to launch mission-critical initiatives? Does an organization create new positions to help lead those departments?

The aforementioned questions are usually asked when companies are looking for ways to extend their reach over the marketplace. IndustryWeek noted that the bidding wars characteristic of a COO and CFO relationship have spawned growth, but not the kind that differentiates an organization from its competitors. The source exemplified rapid technology adoption, asserting that many businesses simply integrated new software and hardware because other companies were doing so. 

What makes a business different 

Adaptation is necessary for a business to survive, but following the pack won't distinguish it from its competitors. A study of 200 public enterprises conducted by Booz & Company discovered that companies are most successful when a clear goal of how to strategically assign resources is realized. Typically, the organizations with the most success focused on investing in what made them stand out from competitors. 

That's what an outsourced market research analyst can help companies figure out. It's easy for professionals with an unbiased attitude to assess a company's situation among contending businesses and identify what makes them different. Figuring out what's extraordinary about a business can help its leaders grow in their own way. 

Pay attention to daily processes 

Although primary decision-making lies in the hands of C-suite personnel, the day-to-day operations of their subordinates can't be ignored. DBNY Mellon MD of Client Service Delivery David Palmieri recently spoke with Computer Business Review, asserting that a thorough assessment of whether or not lower-level employees are ready for change is imperative. 

A worker's ability to perform his or her job will likely change if a major shift in investment is about to occur. Keeping employees informed and regarding their feedback when making the decision will eliminate unforeseen issues from arising. 

Global sourcing: Which countries, what products?

Manufacturing economies distributed throughout the globe are incredibly diverse, catering to different markets. Some countries are better equipped to supply certain goods to particular buyers while others try to hold a position by producing a wide variety of products. 

For those in charge of procurement, strategic sourcing can help them figure out which companies produce the quality items at the most affordable rates. Factory processing isn't the only factor that's scrutinized. Transporting the goods and time-to-market must also be evaluated. 

Increasing activity 

According to AllAfrica, a report by the United Nations Industrial Development Organization discovered that global manufacturing output increased by 5.1 percent in Q1 2014. Economically sound nations aren't the only entities that have witnessed positive growth. Productivity in emerging countries rose by 9.4 percent. 

"Higher growth in the production of durable goods, such as household equipment, electronic goods and motor vehicles, indicated rising consumer confidence in long-term stability," asserted UNIDO, as quoted by the source.

The Chinese puzzle

As far as who is producing a lot of what, recent reports may befuddle those in charge of scrutinizing the procurement process. While UNIDO claimed that China's manufacturing activity increased 13.1 percent, IMPO contributor Tia Nowack maintained that the country is likely to face challenges in the industrial economy due to:

  • Expedited wage increases
  • Ubiquitous, detrimental smog
  • Competitive pay rates in overseas nations 

Government intervention 

Yet, these factors shouldn't shadow the fact that China currently stands as the world's largest industrial player. PC World noted that the country's government recently outlined a plan to develop its chip manufacturing sector. Last year, China imported $231 billion worth of integrated circuits to build smartphones, PCs and other similar devices. Now, the nation wants to turn that number on its head. 

"Speeding up development of the integrated circuit industry represents a fundamental requirement to improve the IT industry and will raise the nation's level of security," said China's Ministry of Industry and Information Technology, as quoted by PC World. 

High-quality specialty machinery 

Nowack recognized that Germany has solidified its place as a signature component of high-value goods. Industrial equipment and automobiles are regarded as the country's primary products. European manufacturers have improved in general - Nowack referenced the Markit Eurozone Manufacturing PMI, a measurement of production activity, which has risen consistently over the past nine years. 

Weighing the capabilities of European, Chinese and other producers can be confusing. However, hiring procurement services to establish connections between manufacturers' operations in different parts of the globe will lead a company toward growth. 

Can’t wait until the 2014 NLPA Conference in September to hear what the prestigious lineup of speakers plan to share? If so, don’t fret!  NLPA will be hosting a “conference preview” webinar so that you can get a sneak peak of the scheduled presentations. This webinar is scheduled for Monday June 30, 2014 at 11:30AM Eastern US time and features Source One’s own Brad Carlson, Director of Supplier Relationship Management (SRM).
Carlson will be sharing his SRM insight, including some of the research shared in his recently published report, “Building the Case for Supplier Relationship Management.” As a respected expert in the area of SRM, he understands the unique value these programs can bring to both suppliers and businesses, maximizing their relationship and return on investment.

The topics of the webinar include procurement project management, supplier relationship management, and winning over stakeholders. It is not only open to professionals who have already registered for the conference, but also people who are considering attending or are unable to attend and want to insights from the impressive set of speakers.

For more information, check out President & CPO of Next Level Purchasing Association, Charles Dominick’s, blog with further details.
Four ways to create a sustainable procurement process

The rise of multi-tier, flexible distribution processes has made it easy for enterprises to grow lax when it comes to exercising sustainable practices.

Keeping an eye on 1,000 suppliers or more certainly isn't easy, but there are four ways organizations can develop a more efficient, eco-friendly procurement process.

1. Hit the breaks, evaluate 

Instead of panicking over possible negative public perception and frantically opening communications with multiple vendors at once, take a step back and figure out how to make strategic sourcing as manageable as possible. CRedit360 Business Development Director Matt Scott noted that connecting with disparate supplier contingencies one at a time is a solid first step. 

In this respect, it's in an enterprise's best interest to start at the finish line and trace its way back to the original equipment manufacturers and raw material producers. Scrutinizing companies operating at the beginning of the distribution chain will help businesses answer the following questions:

  • Do they operate in countries notorious for corruption?
  • What are the primary energy resources they use?
  • Do their labor practices reflect government standards? 

2. Proactively engage with supplier relationship management 

In addition to observing from the outside, Scott acknowledged the importance of speaking with all organizations contributing to the procurement process. Not only should sourcing specialists ask about environmental policies, but also about how OEMs and other business plan on implementing eco-friendly practices. Don't be afraid to push some buttons. 

3. Spawn a culture that favors sustainability 

The mantra "lead by example" works well here. While an enterprise participates in the corporate arena, focusing on environmental best practices and positive labor operations will encourage those around it to take the same measures. 

Companies want to establish relationships with profitable, socially cognizant entities because it helps them develop a positive public image. Gaining consumer favor is difficult in the current landscape, especially when contending with global competitors. 

4. Connect with nonprofits 

Numerous societal issues have incited the creation of multiple charities and nonprofit organizations dedicated to improving worker conditions and discouraging negative corporate environmental impact.

GreenBiz recently spoke with Ursula Wynhoven, general counsel and chief of governance and social sustainability at the U.N. Global Compact, who noted that connecting with such entities will help foster sustainable strategic sourcing. 

By following the aforementioned steps, enterprises will be well on their way to fostering best practices. A part of remaining competitive involves being aware of the consequences private entities have on global sourcing. The key is to make those repercussions positive. 

Market research can be centralized around a company itself or its products and services. Some may be tasked with research to learn about their competition, identify suppliers, discover market trends, or understand their target audience. In fact, market analysis is a key component of a successful strategic sourcing project. It establishes a structured, fact-based approach to your initiative.

There are two different types of market research that you can conduct in order to obtain the information you need - primary and secondary research. Primary research has been originally conducted by you, your company, or your group directly from the sources required. Secondary research is the analysis of pre-existing research relevant to your specific needs. Before you begin your project, you will want to select which type of research styles to use to establish the necessary process and tasks.

With primary research, the subject matter is uniquely suited to fit the needs and requirements of your project goals. Some of the most common mediums for primary research include surveys, interviews, focus groups, and experiments or observations. There are both advantages and disadvantages to conducting your own studies, which must be weighed when determining if primary research is the best approach.


  • Specificity - Information gathered is tailored for your purpose.
  • Control - You have ultimate control over the method and guidelines of your project or study.
  • Cost - Performing your own surveys, interviews, etc. is an expensive task.
  • Resources - Primary research demands a great deal of time and materials in order to be conducted properly.

Unlike primary research, secondary research is the process of finding sources already available and then organizing and summarizing this information in a way that is meaningful for your purpose. This may mean looking through journals, online sources, and databases for previous research that pertains to what you are looking to understand. Just as with primary research, there are advantages and disadvantages.

  • Cost - Secondary research is typically free with the multitude of information available on the Internet, internal databases, and articles.
  • Accessibility - Internet searches provide you with a wealth of results to review for relevance.
  • Time - Looking through all of the information available online can be a tedious task requiring a great deal of time and energy.
  • Relevance - Without control over the original study, the results of pre-existing information may not be relevant to your topic.

The decision between primary and secondary research boils down to the uniqueness of you research objective and the level of control you wish to have over the study. No matter what your overall goal may be, it is still important to understand your options when it comes to types of market research and the pros and cons of each.

At Source One, we are frequently asked to conduct market research projects for our clients for a variety of purposes and produce customized research reports based on our findings. For example, we conducted a project for a global manufacturer to help identify suppliers. The manufacturer had limited resources to conduct the research on their own and needed help to determine existing sources of supply that their competitors may be using, as well as conduct a general assessment for a new market they were attempting to penetrate. Source One conducted in-depth research into the local manufacturing market and developed a detailed report outlining companies that could manufacture products in-house and do assembly work, companies that could perform part of the process, as well as subcontractors for additional processing.

Outside consultants, such as Source One, have the ability to use internal databases, industry intelligence, and partner resources to conduct research which otherwise may not have been available as a resource. Consultants have the ability to alleviate some of the burdens of conducting research in-house by acting as the research team on the client's behalf.

Subject matter and objectives are unique to the research project; therefore it is important for organizations to understand the different types of research they can conduct and develop a clear strategy for how it will be conducted. 

Photo courtesy of : researchvistas.com
China's LED manufacturing shows how public policy affects procurement process

Whenever companies spearhead strategic sourcing initiatives, executives pay close attention to which original equipment manufacturers operate in countries exercising public policies that favor commerce. 

The more difficult it is for producers to turn out their products, the harder it is for entities procuring those items to sell them at a price consumers will favor. Even people residing in developed nations prefer to purchase quality, affordable goods. 

Prioritizing public support

There is such a thing as poor public intervention as well. If a government fails to conduct thorough marketing analysis before giving certain manufacturers funding, it could result in significantly negative consequences. For example, if authorities give money to companies that produce headphones, but global demand for such products is low, enterprises creating headphones will operate at a loss. 

According to The New York Times, China's 2013 light-emitting diode (LED) sector used to be an industrial policy nightmare, with subsidies from state-owned banks and local governments going to waste. Luckily for the nation's economy, demand for LED lighting is burgeoning, with factories operating to their full potential.

Although Chinese officials failed to make an accurate prediction as to when LED demand would skyrocket, China's backing of the industry is a boon to enterprises looking to source such products from the country.  

Heating up global competition 

As far as global sourcing of LED technology is concerned, China appears to be reigning supreme. The news source acknowledged that Chinese manufacturers are highly capable of producing strong, low-wattage LEDs used for TV and cellphone backlights - effectively making those products much cheaper. 

Producers of devices such as smartphones and tablets favor this outcome. The more affordable the components used to assemble the units, the more companies can lower the pricing of these commodities. 

No longer a luxury 

The Star Tribune reported that consumers are seeing LED light bulbs priced at $12 or less, offering different subsets such as soft white, incandescent, bright white and fluorescent. That's a considerable difference compared to what consumers paid back in 2010, when such products cost $40. 

Although it may not compare to bulbs that cost no more than $2, a 60-watt incandescent can save consumers about $125 per unit. In addition, a wider variety of LED lights have been introduced to the market, giving shoppers more flexibility. 

"This summer is a good time for consumers to discover LED," Mark Voykovic, a merchant for Home Depot, told The Star Tribune.

It's easy to see how cheap, mass production of certain goods can trickle down to benefit customers across the globe. 

Leverage strategic sourcing to improve fair trade

Companies throughout the world have utilized strategic sourcing services to exercise best practices, particularly when it comes to fair trade. Consumers are more cognizant now than they ever were of the hardships workers from around the world have faced.

Global sourcing is incredibly complex, involving millions of connections between enterprises large and small. It's best to imagine these relationships as a vast, intricate web of communications between organizations headquartered in separate parts of the globe. Therefore, figuring out which companies are exercising best practices is quite difficult to achieve.

Fair Trade fails to impact African nations

The School of Oriental and African Studies, University of London, recently published the results of a four-year study, "Fairtrade, Employment and Poverty Reduction in Ethiopia and Uganda." The research consisted of interviews with freelance farm workers in the countries who made the lowest wages.

The endeavor discovered that even when fair trade premiums were given to farm owners - from small family-owned establishments to large plantations - their workers failed to receive any aid. Even benefits such as modern toilets were only designated for senior managers. In addition, money that was meant to be used to educate lower-tier employees' children was used to fund teacher housing projects.

Better transparency

In light of the aforementioned issues, it's evident that organizations attempting to employ fair trade need better oversight of ground-level operations. Getting farm owners and villages to allocate resources in an equitable manner is no easy task, but paying close attention to how funding is distributed can go a long way.

That's where procurement services comes into play. Vice News referenced a conundrum SOAS researchers discovered: A fair trade certification may enable a grower to move his cow out of his own living area, but he could also use the extra capital to hire child workers and pay incredibly low wages.

In this respect, business process outsourcing can help enterprises identify which farm owners are most likely to exercise best practices. It's hard for organizations to pay full attention to all supplier relationships, but an expert specializing in just such a field can solve the problem.

Allaying consumer concerns

The fact that SOAS' study and commentary on the issue were published on the Internet just goes to show how easy it is for people to find information. A company connected to the research, or any other dissertation regarding poor fair trade practices, would likely be disregarded by consumers looking to support reputable enterprises.

Telecom optimization services can find significant cost savings

I cut my cell phone bill by 34% this past month, but to do it, I had to swallow my pride. If it sounds weird, that's because it is, so let me explain .

My dad was an electronics repairman for most of the '80s and '90s - up until electronics truly became commoditized and planned obsolescence became a thing - and has been involved in the electronics trade his entire working life. Because I got to go to trade shows with him, and spent most of my formative years in his shop, I too have a penchant for electronics. Specifically computers and gadgets. I am my family's and social circle's resident tech support guy. I am who tells people what electronics to buy. I am that guy.

Not surprisingly, I fancy myself a power user.

When T-Mobile announced the G1 - the first Android phone - I signed up. I had carried a smart phone for years, but mostly for the built in applications. The ability to get online at any point wasn't really a concern. Plus, my job at the time was at the stage where I didn't want to be available 24/7. When Apple and Google went head to head, with loads of web apps being produced in the process, my stance on data changed. So, when I got my G1, I also signed on for unlimited data.

I've kept unlimited data on my phones since then, always paying a premium. When data limits and bandwidth caps were implemented a few years ago, I carefully planned around them. When the mobile companies made low data options the primary, and started to hide the unlimited options, I stayed aware and always found it. I was master geek. I was a power user. Cloud storage. Pandora! ESPN streaming!! Avian creatures with flared tempers!!!

I needed my unlimited data, for I was going to use infinite amounts of the stuff! 

As of April, I was paying around $90 (after taxes and fees) a month for a single line of unlimited talk, text, and data. POWER! At the time, my carrier - Sprint - was heavily promoting their oddly named, more-oddly promoted "Framily" plan. For $55 or so, you got unlimited talk and text and 1GB of data. To bump it up to unlimited data, which I surely would be doing, got it to $85 after taxes and fees. So I could save $5 by switching.

But that $35 savings available by going down to 1GB was appealing. In addition to being a power user and gadget freak, I'm also one of the biggest cheapskates most thrifty people you will ever meet. So, I looked at my data usage. Could I really survive on one gig of data a month? Surprisingly - to me, anyway - the answer was yes. Wholeheartedly yes. I looked at my data usage since I joined Sprint, and just to be safe, I looked at my old paper bills. In the past five years, I went over 1GB of data exactly twice - once when I thought it would be a good idea to backup my info to the cloud and wipe & restore my phone while on vacation (it's not a good idea to do this, btw) and again when my daughter was born and I was taking and sending so many photos I was essentially streaming a slide show for a month.

The reason for this traditionally low data usage pattern is two-fold. One - Sprint's coverage in and around Philadelphia, and that's all I'm going to say. Two - the preponderance of WiFi. I have WiFi at home, and when I leave the house, the greater Philadelphia area is full of Xfinity WiFi hotspots accessible to all Comcast/Xfinity subscribers. When I go to work, we have arguably the best WiFi connection I've ever used. There are approximately two hours out of every day (more if I go out to dinner or something) where I do not have access to reliable WiFi, and that's when I'm driving.

This is akin to something we do here at Source One - the telecom savings, not the life story or the pop culture references. We audit usage over a set period of time, and then slot users into the most appropriate plans for their usage profile. It's a process called optimization and it can be deployed for wireline services as well as wireless. The goal is to rightsize telecom operations and ensure that everyone gets the service they need for the lowest price possible, eliminate the threat of overages while not paying for unused services or bandwidth. It is a balancing act. And sometimes, this can cause issues with people who "absolutely have to have unlimited data" when they see they've been bumped down to a lower bandwidth plan. But the beauty of optimization is that there is hard data to back up who gets slotted where - and if a company is serious about saving money, then they should be acting on hard data and not on the emotions of a "power user".

So, I swallowed my pride, cut my data allotment, and saved a good chunk of money. Source One can do the same for your company - across your entire user base. It's worth looking into.
How procurement services can help companies with M&A

Although the capital exists, organizations sometimes lack the expertise or wherewithal to reach the goals they set for themselves. As a result, many look to either partner up with or buy a separate company.

A group of executives may be cognizant of what's needed to progress to the next level, but figuring out which of thousands of businesses to team up with may come as a challenge. Vendor resource management can provide such professionals with the insight necessary to parse through the often befuddling world of mergers and acquisitions.

Brace yourselves

Absorbing or partnering with another company will involve the cohesion of two separate sets of financial and physical logistics operations, as well as other assets. Michael Glessner and Alexander Tang, two senior-level professionals for Kalypso and contributors to Manufacturing.net, outlined a couple of the pain points procurement services will help corporations prepare for:

  • All software solutions, such as enterprise resource planning and customer relationship management tools, will need to be re-implemented so that two merging companies can work seamlessly.
  • Existing business processes will need to be reorganized to fit a model that best benefits two parties.

External facilitators can help

The two Kalypso executives noted that hiring separate professionals to coordinate the transaction and ensure that all future goals are met is a good idea. Having a disparate entity observe a merger or acquisition from the outside and scrutinize what plans need to be adjusted can keep the transaction equitable for participating parties.

Assemble a team dedicated to future endeavors

There's a reason why two businesses choose to combine forces. Whether they're aiming for higher success or simply want to solidify their positions in the marketplace, it's important to create a design department to draft out a new business model.

Before any contracts are signed or assets are merged, it's imperative that enterprises exercise complete transparency. If any opacity exists on either end of the deal, then the drawing board needs to be consulted again.

A prime time for M&A

According to CNN, 2014 has already yielded M&As worth $786 billion in the United States, $297.8 billion more than all of the transactions that occurred last year.

The news source pointed toward low interest rates and large reserves of monetary resources on hand as catalysts for this activity. Businesses operating in the U.S. or interested in merging with U.S. enterprises should consider capitalizing on the environment while it remains favorable.

EU regulations may cause auto makers to buy emissions reduction tech

Global warming has authorities from different parts of the world implementing and updating greenhouse emission standards on a consistent basis. This proactive behavior has caused vehicle manufacturers to reassess their strategic sourcing practices, inspiring many to implement technology that can help their products scale back on emissions output.

Europe tightens the reins

According to Reuters, European Union legislators took considerable steps last month to push car and truck companies operating within the EU to implement more fuel-efficient engines. The automotive sector wasn't the only market to receive attention - the European Commission is looking to improve energy consumption across numerous industries.

Despite the EU's strict regulations on light vehicles, heavy-duty units have yet to receive such attention. European Climate Commissioner Connie Hedegaard noted that the organization will implement a plan to effectively monitor the greenhouse gas output of larger trucks by the beginning of next year. She maintained that the strategy would "save operators money and make the EU less dependent on imported oil."

On track, heavy-duties not in tandem

Although EU nations are on the right track to meet the organization's goal of reducing emissions from new cars to 95 grams of carbon dioxide per kilometer, greenhouse gas production rates of heavy-duty vehicles grew by 36 percent between 1990 and 2010. The Commission noted that HDVs account for nearly 25 percent of road transportation discharge.

The EU's plan to pay more attention to HDVs will likely influence manufacturers to procure new technology to build more fuel-efficient engines. Employing supplier relationships management tools to find companies from around the world that produce emissions-reducing units is a good start.

Implementing a new asset

IndustryWeek reported that a team of chemists working in Paris recently invented a substance that removes carbon dioxide from natural gas, making fuel more green-friendly. The scientists used a process called "polymerization," a process that leverages carbon powder punched with microscopic holes infused with nitrogen or sulfur atoms capable of turning carbon dioxide gas into physical form.

In contrast to current carbon dioxide extraction methods, the Paris team's process can occur under normal temperatures. One of the greatest benefits of polymerization is that it's cost-efficient and allows the gas to be reused.

The source noted that the technology has been patented, but it is not currently in use. Once the material is mass-produced, car manufacturers will be able to factor in the substance into their procurement strategies, making their vehicles more climate-friendly.

E-procurement helps product development take non-linear approach

The primary reason why professionals leverage digital technology is that it enables them to streamline communication. In regard to product development, the design department, marketing team and spend analysis crew can assemble more frequently, breaking linear operations. 

Moving away from sequential processes 

Ajay Chavali and Kevin Prendeville recently wrote an article for Technology Evaluation Centers, maintaining that linear production opens up manufacturers to sustaining grievous damages.

For example, marketers may be advertising an item that was originally supposed to perform task A, when a problem in the design process caused engineers to remake it to conduct task B. As a result, product delivery is suspended and customer satisfaction decreases. 

This conundrum has convinced producers to exercise a more holistic mindset powered by digital property. Prendeville and Chavali noted that analytics and cloud technology are helping organizations stay more connected with each other, eliminating miscommunication and enhancing the quality of their deliverables.

Acquiring material 

Whether a company's developing software or aircraft, it needs to ensure it has the necessary assets to complete lengthy projects. 

If engineers don't have the appropriate materials to construct a prototype or a team leader realizes he or she needs a subordinate specializing in engine electronics, procurement tools must be utilized. 

What is e-procurement? It's a solution that provides strategic sourcing personnel with a fast, efficient way of obtaining products for re-sale, in-house usage or refinement. For example, a person working for an aircraft manufacturer would leverage the program to compare suppliers' ability to delivery affordable, quality turbine parts. 

Obtaining the required talent 

If workers essential to the product development operation cannot be found in-house, HR should leverage vendor resource management tools to hire employees possessing the appropriate qualities. Some of the characteristics these professionals should have include:

  • Thorough knowledge of the industry
  • A willingness to communicate with non-team members
  • An understanding of how to effectively use digital technology 
  • The ability to proactively share insights with those outside of their departments

Preparing for the future 

According to MIT News, Massachusetts Institute of Technology mechanical engineering professor Warren Seering hopes to help students in his Product Design and Development class figure out how to collaborate with people possessing different backgrounds.

Business, industry and engineering students all work together in teams of six to eight to create a marketable item by the end of the semester. Seering maintained that a manufacturer's success depends on the cohesion of professionals each possessing a unique point of view. 

If an enterprise's various department heads regard the materials acquired through the procurement process with a unified approach, production endeavors will be conducted more fluidly. 

One of the largest marketing associations in the world, The American Marketing Association (AMA), has published an article by Source One Senior Project Manager, Kathleen Jordan, surrounding criteria necessary to achieving value in an agency relationship. In her piece, “Top 10 Criteria to Consider When Evaluating our Advertising Agency,” Kathleen explains the unique nature of an advertiser and their agency of record and how this partnership requires special measures to ensure success. (Spoiler alert) these criteria include: (1) talent and functional expertise (2) account management (3) industry/category experience (4) executional excellence (5) strategic thinking (6) creativity (7) innovative and/or technologically advanced (8) cultural fit (9) adaptable to change and (10) demonstrated commitment to working with other agency partners.

While selecting a new agency partner or evaluating a current relationship, Kathleen elaborates on criteria that are key to achieving a sustainable and rewarding relationship. Even as a partnership continues, these criteria have further applications outside of the initial selection phase: they are also useful in performance evaluations and involving new additions to a team aside from the current agency partner.

Sit back and enjoy this article gathered from years of experience in catering to these types of relationships. It may come in handy the next time you evaluate a set of new or existing agencies.
Last week, you may have seen our “Keeping up with Pharma:Resources Strategic Sourcing Experts Use to Stay Informed” Strategic Sourceror blog post. Source One’s team of experts was able to identify some helpful outlets to reference that cater to the fast paced industry but are also relevant to the reader’s specific area of interest. To add to that, we’ve developed this simple infographic as a reminder of the key elements from the blog post. Check out the infographic below and hopefully you’ll be successful in any future ‘puzzles’ trying to piece together pharma/strategic sourcing resources.

Market research analyst shows remanufacturing to be a boon to companies

IT hardware manufacturers use an incredible amount of precious metals to create top-of-the-line products. From personal computers to data center servers, production can weigh heavily on consumers, as well as the environment.

As a result, many IT companies and other organizations participating in different industries are employing remanufacturing as a form of strategic sourcing. The practice reduces the cost of producing goods by using various components of old equipment to help assemble new machines. In addition, it allows companies to implement other sustainable initiatives.

Complexity is worth the payoff

The Association for Operations Management (APICS) recently released "Examining Remanufacturing in Supply Chain and Operations Management," which discovered companies that integrate remanufacturing into their operations spawn greater distribution complexity. The practice allows those same organizations to lower expenses related to the procurement process.

For example, a computer manufacturer may recognize that computers built as long ago as 2003 have internal hard drives that can still be used in new machines. In order to capitalize on this opportunity, the enterprise may collect old, slightly damaged but salvageable PCs constructed after 2003, remove the hard drives in one facility and then send them for remanufacturing in the next.

Setting up sustainable practices

In regard to electronics, creating more materials just to build upgrades can have a detrimental impact on the environment. Precious metals used to create motherboards, random access memory cards, central processing units, smartphones and other instruments aren't necessarily abundant.

Approximately 35 percent of APICS respondents claimed that remanufacturing is a critical method of adhering to sustainability requirements outlined by government officials. By alleviating pressure on suppliers obligated to provide raw materials to equipment producers, improved labor practices and reduced ecological shock can be realized.

Setting an example

According to Forbes, Dell recently introduced the OptiPlex 3030 All-in-One desktop, which possesses a case made out of at least 10 percent closed-loop, post-consumer recycled plastics. The computer maker supports a wide-reaching electronic waste aggregation initiative that collects tarnished, returned or outdated machines and remanufactures them to create cheaper products for consumers.

The source noted that Dell hopes to use 50 million pounds of recyclable materials - including plastics and IT hardware - to create its signature products by 2020.

Dell has a strong relationship with Wistron GreenTech, a division belonging to one of the PC developer's original design manufacturers. Wistron takes the collected computer parts from Dell customers, strips them down to their basic materials and funnels them into the fabricating process.

Remanufacturing is a viable practice, making global sourcing more environmentally sound.

In a recent article by Supply Chain Management Review, Robert Rudzki states that Supplier RelationshipManagement (SRM) adds unneeded complexity to the supply management process.  Mr. Rudzki is right that SRM can be complex, but for large organizations that rely heavily on third party suppliers, the regulatory environment demands a logical, ‘auditable’ program to demonstrate a strong governance of the supplier network.  Given that, the beauty of an SRM program is it’s entirely scalable in nature.  By segmenting the supply base according to risk, potential strategic value efforts can be placed where needed to gain maximum return.  At its core, an SRM program is much more of a cultural shift in management attitude towards suppliers. The goal is to develop a set of common practices with the aim of collaboration for best value.  Tools and oversight models abound, this work becomes much easier for practitioners.  So it’s really about finding the right mix of tools and activities for your firm to maximize return.

However, to simply assert that something is complex in nature does not mean that it’s not a worthwhile endeavor.  The evidence is overwhelming — firms who invest in SRM programs achieve a significant ROI.  In fact, companies considered to be on the leading edge of SRM best practices see an average of 20x return on investment versus those who only ranked average.  Bottom line: adopting the best practices possible for your organization can yield a significant return.

It is logical to expand the role of sourcing beyond the buying portion of the supplier life cycle.  Sourcing departments and CPOs have realized the need to move into post-contract, value-generating activities in the form of SRM.  SRM takes the previous sourcing attitude of relying on competitive pressure and lowers bid and replaces it with working collaboratively with suppliers to understand their strengths and needs, reduce waste, and redefine specs all in the name of gaining efficiencies for both parties.  So I think the question is not about whether SRM adds unneeded complexity, it’s about how to easily scale it for your firms goals and willingness to invest.  A strong, well defined pilot program can help to promote the SRM benefits.

Source One Management Services, LLC is a highly experienced strategic sourcing and procurement consulting firm, working as an extension of their clients’ teams and supplementing their time, expertise and resources with experience, market intelligence, technology and people. For more information about our Supplier Relationship Management services, download our SRM Insights Report at srm.sourceoneinc.com.
Business process outsourcing, digitization is imperative for retail sector

Retail industry participants are encountering intense pressure from consumers to satisfy demands that simply can't be fulfilled with traditional practices. A number of merchandisers have considered business process outsourcing and radically digitizing all facets of their operations, from inventory record-keeping to financial management. 

High maintenance? 

The reason why? Customers expect more of the corporations with which they interact. Companies such as Amazon have set high standards for their competitors because they've offered people what used be considered luxuries: free shipping, two-day delivery and a seemingly endless selection of goods. These amenities are now regarded as part of the deal, causing stress in back-end operations like strategic sourcing. 

Brick-and-mortar stores haven't been exempt from abiding by these stringent standards. According to Multichannel Merchant, a report from Forrester Consulting discovered that 71 percent of shoppers anticipate being able to view in-store inventory online, while 50 percent of them believe it's perfunctory to buy products online and pick them up in store. Although these provisions may appear to be somewhat frivolous, the marketing analysis found that 73 percent of respondents were "likely or very likely" to visit a local outlet if they could see what items were in stock on the Internet. 

How expectations affect back-end operations 

In order to provide people with this level of transparency, it's evident that organizations require more oversight on all operations. Ultimately, a business strives to support the needs of the customers to whom it is trying to cater, so it's imperative that questions such as "What is the procurement process?" can be answered by each and every staff member. Personnel should not only understand the concept, but how the practice impacts the consumer's end of the bargain. 

Achieving such oversight isn't impossible. McKinsey contributors Shahar Markovitch and Paul Willmott noted that a radical overhaul of all business practices is necessary. A healthy mix of outside insight, advanced software and real-time fulfillment combined with a focus on personalization and solidifying connections with global partners can go a long way in improving the overall function of an enterprise. Furthermore, these applications will help companies meet the "unreasonable" demands of consumers. 

It's worth it 

Restructuring an entire business model is no easy task, but with the appropriate technology and expert guidance, the hard work is sure to pay off in the long run. Markovitch and Willmott noted that digitization can help cut costs by up to 90 percent because the time required to process information and make decisions is significantly reduced. Not to mention, organizations will be better able to satisfy the desires of ever-critical customers. 

LNG companies factor spend analysis into infrastructure

The abundance of natural gas and shale oil throughout newly discovered North American reserves has prompted energy companies to revisit transportation methods. As it stands, a lack of railways and pipelines is dampening efforts to supply different corners of the continent, as well as other areas throughout the world. In order to construct necessary infrastructure, spend analysis on the appropriate materials must be conducted, and outside oversight on lengthy projects may be required.

Investing Daily reported on Deloitte's annual energy conference in late May, at which the firm's own John England asserted that an incredible amount of midstream architecture is required to adequately supply people residing in North America.

Investing in new infrastructure

This demand has incited an unanticipated need to begin construction on new railways and renovate old ones. Investing Daily acknowledged marketing analysis from the Interstate Natural Gas Association of America Foundation, which discovered that investment in natural gas transference required to satisfy projected 2035 needs is expected to average $14 billion per year.

"We have massive gas fields but we can't get that gas to market," said England, as quoted by the source.

The rail solution

England noted that rail transportation shouldn't be disregarded. Locomotives can support influxes of short-term demand, such as the spikes experienced in the winter months across northern parts of the U.S. and all over Canada.

One of the obstacles hindering rapid construction of more train-based assets is safety. Both Canadian and U.S. authorities are examining container faults, a lack of communication between first responders and rail crews as well as shipping speeds.

Preparing for current, future need for LNG

SupplyChainBrain noted that BNSF Railway will spend nearly $5 billion on infrastructure this year, $1 billion more than the corporation did in 2013. The enterprise plans to renovate and maintain existing networks, as well as set up new logistics hubs and construct facilities that have future transportation needs in mind. Steve Bobb, BNSF's chief marketing officer, lauded railways as an efficient option to deliver goods to consumers over long distances, and noted that solidifying rail connections for future generations is essential.

"The good thing about providing our own infrastructure is that we get to determine where investments are made and we have the financial ability to make those investments," said Bobb, as quoted by the source.

BNSF's efforts, combined with the expertise of procurement services and other rail companies, are sure to help professionals find a way to efficiently deliver LNG and oil to different parts of the continent.

In today’s Managed Healthcare environment, providers are constantly seeking ways to increase membership levels and improve their service offering while lowering coverage costs. In addition, legislation and government oversight has enticed providers to adopt more creative mechanisms to stay competitive. One of these mechanisms is the incorporation of specialized “fitness and wellness” incentive programs to their senior health insurance plans. These programs are intended to offer a more robust and improved set of benefits to members, which make their coverage options more attractive in the market. Wellness programs allow subscribed members and policy holders utilize the facilities and services of participating gyms and fitness centers.

While target audiences have been receptive to these offerings, the inclusion of these benefits has also raised costs of membership maintenance to providers. By leveraging strategic sourcing best practices, providers have been able to reevaluate these plans, restructure their pricing model, and capitalize on the value of wellness programs by enhancing their plan offering and improving member health while reducing membership maintenance costs.

In one instance, Source One was engaged by a large health insurance provider with the need to reduce the cost of their Wellness Program. Source One performed a benchmark analysis that compared the structure and pricing model of the existing program to others of similar nature. The main focus of this effort resided on pricing rationalization and the identification of potential savings opportunities, in order to lower the monthly cost of the operation while increasing program utilization.

At the time of the engagement, the compensation structure was complex, it was based on a compound pricing model inclusive of a monthly administrative fee known as “Per Member, Per Month” (PMPM) fee, and a “Per-Visit” fee. The monthly PMPM fee total was determined via a stepped calculation, which applied a tiered rate to the amount of eligible members per threshold. Based on these fees and total membership volume, the provider was being given an allowance of monthly member visits to participating facilities at no additional cost. However, once this monthly allowance was surpassed, the Per-Visit fee was paid for every member visit in excess of that allowance. This pricing model was both complex, and uncommon.

Upon conducting a preliminary pricing review and diligent research, Source One’s market intelligence demonstrated that using a tiered PMPM fee model was representing tens of thousands of unwarranted fees on an annual basis, and that not only did the current pricing calculation not obey a typical pricing model observed by other health insurance providers; but it also evidenced that the PMPM rates themselves were higher than fees given to providers with similarly sized memberships.

During the market analysis phase, it was established that the Per Visit fee was in fact substantially lower that fee averages observed outside. However, it was also determined that Per-Visit fees were not representing any portion of the client’s monthly or annual spend. The reason being the utilization allowance was never been exceeded, in fact, utilization levels were assessed at less than twenty percent of the monthly visit allowance. To Source One, the realization of this situation immediately became an opportunity to explore a win-win situation.

The benchmark analysis resulted in Source One presenting the provider with a solution for their upcoming contract renewal. Recommendations were provided around shifting from a stepped PMPM monthly calculation to a straight calculation solely based on total membership. It was also clearly established that reducing the PMPM fee, would directly decrease the monthly cost of the program. But more importantly, a case was presented that in addition to shifting to a lower/reduced PMPM fee to below market levels, a higher Per-Visit fee should be considered and the utilization allowance removed or decreased substantially.

While this recommendation seemed unorthodox at the beginning, it was agreed that increasing the Per-Visit fee to market average levels, and eliminating or substantially reducing the utilization allowance, provided the maximum benefit potential; primarily because under this model, the monthly revenue to the Wellness Program supplier would largely depend on member utilization, and consequently, the supplier would be intrinsically motivated to promote their program amongst members in order to make up for reduced revenue caused by a lower PMPM fee.

By promoting the program and increasing awareness, member utilization levels would increase accordingly. This expected increase on utilization represented a key opportunity to our client to reduce direct membership maintenance costs on the back end; as it was reasoned that as members took advantage of the benefits of the program, their health would improve ipso facto, thereby reducing the number of filing claims and consequently lowering member costs to our client.

The premise of a symbiotic correlation between a reduced monthly cost for our client, improved health levels for its members, and increased potential for profitability for the supplier warranted the support of the provider’s internal actuarial group to validate this strategy and measure impact levels. In addition to these tangibles, shifting responsibility and accountability of the program back to the supplier provided additional soft benefits, as it enabled service levels to be monitored under tighter controls and increased transparency on supplier performance. Not to mention any additional benefits generated through member satisfaction and widespread service adoption.

The negotiating leverage that facilitated presenting these requests to the supplier was gained based on market intelligence that demonstrated that competitive markets were opening up as new suppliers were allowed to compete in an environment that had been previously monopolized.

Source One’s recommendations around pricing and processes were deemed innovative, and our insights on current market conditions provided the necessary platform for the provider to execute on those recommendations and conduct effective negotiations. By weighing the cost of service and the benefits it would bring to the provider and its members, Source One discovered a viable path to decrease the cost of member maintenance, which led the insurance company to closer alignment to its strategic goal of offering more competitive healthcare plans at lower costs.