January 2013
Great Lakes shipments down in 2012

The Great Lakes have long been an important shipping route for companies that transport goods by cargo freighters. However, the waterways carried fewer shipments in 2012 - cargo transported via the Great Lakes was down more than 4 percent last year. With the season now over, some shipping officials are wondering how 2013's numbers will compare to those seen in 2012. 

Reasons for the decline 

There are multiple factors speculated to be behind the decline in cargo carried along the lakes. Falling water levels are thought to be one problem, as this makes it more difficult for larger carriers to navigate and makes it impossible for them to carry full loads.This means companies that choose to have their goods transported by water sometimes need to pay for additional shipments if their cargo cannot all be loaded onto one ship and factor the extra shipping time into their processes. However, removing the sediment that causes these low levels is up to the U.S. Army Corps of Engineers, an agency that hasn't yet resolved the problem. 

Limestone was reported to be a reason for the drop, as shipments of the product have slowed over the past few years. With the construction industry still struggling to recover, few are in need of limestone. As markets pick up and the construction industry gains steam, this trend has the potential to reverse.

However, one of the largest reasons for the decline is believed to be the decrease in coal shipments. As Canadian plants begin to phase coal out of their power industry, shipments of the natural resource have dropped sharply. Coal cargo plummeted 25 percent lower than the five-year average in 2012, and could remain low as demand shrinks. 

Other modes of transport 

As shipping products and raw materials via the Great Lakes becomes more difficult and has the potential to become more expensive, some companies may choose to alter their logistical strategies to ensure their prices remain competitive and they are able to get shipments to designated ports in a timely fashion. These supply chain changes may include relying more heavily on planes and trucks rather than cargo freighters. However, some businesses may be unable to disentangle themselves from Great Lakes shipping and may have to struggle in the months ahead to ensure their operations aren't hindered by low water levels. 

Sustainability issues found in Apple's supply chain

Apple has faced severe criticism over its supply chain in the past several years, most recently in regard to its suppliers' labor practices. Amid its ongoing problems with wage issues and supplier switches, the company is also struggling to live up to its sustainability commitments, green initiatives and focus on worker well-being.

The company's Supplier Responsibility Progress Report, released after company-wide audits, revealed there is much Apple can do to increase its sustainability efforts and indicated there were numerous violations of the company's Supplier Code of Conduct found in production facilities. Apple conducted a total of 393 audits, a 72 percent increase compared to 2011, to investigate a range of issues throughout its supply chain. 

"This year - as we have for the past seven years - we're reporting extensively on the problems we've found in our supply chain," read the report. "That includes the tough issues like underage labor, excessive work hours and environmental violations."

Major violations found through the supply chain

Many of the problems were related to chemical handling, a major issue for companies working with substances that could be toxic to humans or the environment. The report found nearly 150 factories failed to properly store, move and handle chemicals used in the manufacturing process, while another 85 did not label hazardous waste containers and storage locations. The data showed 106 factories failed to dispose of hazardous materials in an approved manner and one supplier was discovered to be disposing of waste in a restroom. 

While Apple requires its facilities to check up on air emissions and pollution regularly, the report found 96 facilities did not take the initiative to control emissions at all, and 120 did not have have emission monitoring and control procedures in place. 

However, environmental violations weren't the only problems discovered. There were also plenty of instances of problems with worker health and safety discovered. Eighty-eight of its facilities failed to provide workers with personal protective equipment, such as masks, gloves and goggles. Another 177 facilities failed to provide workers with emergency exits or were not in compliance with emergency exit standards. 

Merely identifying the problems can't eliminate noncompliance. The report claims after discovering a violation, Apple works with its suppliers to ensure they are resolved in the future and don't become common occurrences and further hinder its sustainable supply chain efforts. 

In an industry that was dramatically impacted by the events of 9/11/01 and laden with crippling government regulations spawned from efforts to make air travel safer, Delta Airlines has been consistently out-performing other players in a market ridden with past bankruptcies.

Delta's success seems to stem from an innovative approach, both to the core competencies required to compete in the airline market-space, and through supply-chain optimization. In the spirit of strategic sourcing I will focus on the latter.

In April of 2012, Delta's wholly owned subsidiary, Monroe Energy LLC made an un-orthodox move to aquire an oil refinery in Trainer, PA for use in the airline's Northeast operations. With a spend of over $11 billion on fuel alone each year, the goal of achieving operating cost savings in this area has significant effects on the airlines ability to compete. This decision was criticized by many as naive, with many analysts predicting dire consequences for playing in someone else's sandbox. After all, what does Delta know about oil refinement?

Not surprisingly to some, Delta has come out on top in this endeavor, shipping Monroe's first batch of jet fuel on September 25, 2012,  and realizing investment gains before the end of Q3, 2012. The ability to supply their own fuel has helped with negotiating activities as well, according to Monroe CEO Jeffery Warmann. Speaking at the Global Refining Strategies Summit, Mr. Warmann was confident in the impact.

"We've seen a number of different areas where we've been able to influence the jet fuel price to the advantage of Delta," Mr. Warmann said. ""We don't have to go beg, borrow or steal from various suppliers...If I can supply my own and don't have to take your jet fuel, that's negotiating." 

The most recent development in Delta/Monroe's oil business activities include a recent decision to source crude oil from the Bakken oil fields in North Dakota. The decision is based on the significant boom the region has experienced through advances in rock fragmenting technology, and developing infrastructure to support the sudden interest and business presence in the area. Crude is significantly less expensive, though the pipeline constraints are resurrecting an older oil shipment practice - railroads - which was last used with any frequency in around the time of WWII.
This decision further exemplifies Delta's focus on their supply chain, and improving business practices and processes to optimize their supply and material operations. It almost seems like a no-brainer, and adheres to the old adage: "Strait to the Source." 

Is your business' primary commodity refined jet-grade fuel?
Buy a refinery.
Is the cost of shipping oil across the Atlantic consistently increasing?
Go to North Dakota.

Is your airline focused on the future, and positioning themselves to stand on superior footing in fuel-related negotiations?

You must work for Delta...
Strategic sourcing essential to avoid procurement of conflict minerals

Minerals such as tin, tungsten, tantalum and gold are valuable and essential for companies producing goods like consumer electronics and medical equipment. However, such products are often sourced from the Democratic Republic of the Congo (DRC), much of which is controlled by armed groups that  force locals to work in mines without pay and commit violence against civilians. It can be extremely difficult for large companies to realize they are purchasing "conflict minerals" from these areas and supporting rebel groups, especially if they obtain the minerals through multiple suppliers and have lengthy and complex supply chains.

Conflict mineral sourcing may cost companies 

It has become more difficult for businesses to procure these important components in recent months, as a provision of the Dodd-Frank Act requires companies to reveal whether they use conflict minerals from this area in their products. Businesses that use these minerals must gather information on their sourcing processes in 2013 and file it with the Securities and Exchange Commission (SEC) by May 2014. 

The provision in the law requires businesses to take multiple steps when submitting information to the SEC. Companies must first reveal if they do use any raw materials that could be considered conflict minerals and then determine whether they were sourced from the DRC or a nearby area. Those firms that determine their minerals did not come from this region need to reveal what steps they took to prove their minerals aren't from war-torn regions, while those that do procure minerals from the DRC (and those that cannot determine where their minerals are from) will be required to trace their supply chains, reveal their suppliers and provide a conflict mineral report. 

Strategic sourcing can stop the problem 

Businesses that do currently source minerals from these areas may find continuing to do so will result in problems as increased legislation and requirements aim to limit the problem. This may cause more companies to look for ways they can alter their supply chains to avoid purchasing conflict minerals and reporting their use to the SEC. Implementing policies like strategic sourcing initiatives may help businesses procure minerals without supporting armed groups. Taking steps to improve sourcing efforts can also help a company better optimize its supply chain and ensure all suppliers and logistical operations are working together seamlessly, which can also assist cost savings efforts. 

Another flaw in the human character is that everybody wants to build and nobody wants to do maintenance. - Kurt Vonnegut
Imagine sitting at your desk at corporate headquarters and getting a notification that a buyer at your plant in Boise, Idaho is about to buy a replacement part for a machine that is still under warranty.  You were notified because the buyer assigned a requisition for the part using a company that was not part of the warranty program.  Since you were flagged before the order was placed, you are able to inform the buyer to go through the proper channels and avoid the additional cost. 

Scenario 2: A new admin places an order for office supplies with a company that is not a preferred vendor.  The order is automatically routed to the supplier with the best available discounts and the admin is alerted of the change.
Scenario 3: Your pricing for corrugated boxes is tied to the 42# Kraft index, and changes ever quarter to reflect current market conditions.  Pricing in your order placement system is updated automatically every quarter using the most recent index data, and provides a forecast out for the year based on trending.  It also automatically checks invoices from the supplier to ensure the right price was charged, and kicks back any invoices that reflect the wrong pricing based on current index information.

Scenario 4: Your company recently acquired a business that distributes nuts and bolts.  Your spend cube automatically categorizes orders placed out of that business unit as “Direct Materials” while keeping orders for existing business units as “MRO”.
All of these scenarios illustrate what can be done using predictive analytics (and good data).  Predictive analytics are the future of business, and the future is now.  As I write this blog, pharmaceutical companies are developing chips that will go into a pill to monitor a patient’s condition.  The data will be transmitted to a patch on your arm, and then broadcast to your doctor.  The doctor will be able to monitor your condition in real time, catching trends in your body’s behavior, and potentially correcting problems before they occur.

Insurance companies are using predictive analytics to determine the cost to cover a population, and adjusting their premiums based on the types of exposures they know they are going to incur.
The United States Government is tying systems together on a local, state and federal level, working with healthcare providers and correctional facilities to better predict and prevent catastrophic events, such as mass shootings, by looking for patterns in behavior of individuals that go in and out of those systems. 

“Predictive Analytics” as an industry is going through explosive growth and will likely be the foundation of all software tools, operating systems and electronics in the future.   This rapid pace of growth, coupled with the realization of how much predictive analytics can do, is staggering.  So why don’t you hear anything besides superficial conjecture about the use of these tools in strategic sourcing and spend management?
Probably because most companies are still trying to figure out how to add UN classification codes into their PO data. 

Procurement, Finance, and the rest of the organization have, for the most part, failed to understand the importance of proper systems when it comes to the stuff you buy (as opposed to the stuff you sell).  Further, our industry has failed to develop true best practices on how that data should look, and what should be done with it.  Spend cubes, supplier profiling and UN categories don’t help drive decisions because they only look back at the past, without providing insight into the future.  Information quickly becomes obsolete, and without continuous updates and access to real-time changes, it becomes irrelevant, leading us to bad decisions and manual processes.
It’s clear that the power of predictive analytics can be used to help supply chain and strategic sourcing departments improve the value they bring to their internal (and external) customers.  Until we as an industry can start gaining clarity on what types of data we should be capturing and how we can use it, we will never evolve to a point where these tools are able to help us.

In my next post, I will detail what we need to make the shift to predictive analytics in spend management, including developing a visionary (but also realistic) strategy, hiring the right talent to continuously manage the data (Hint: don’t include the word “buyer” or “contract” in the job description) and most importantly, getting the C-Suite to agree to the investment.
After the much anticipated wait (for some), RIM  finally unveiled its BlackBerry 10 operating system and smartphones. BlackBerry has endured many delays over the past couple years which has forced their once loyal customer base to migrate to other platforms. Throughout 2012, RIM faced several delays and setbacks such as the inability to hit revenue targets, sales were down 40% than the previous year which resulted in the layoff of over 5,000 employees. During the unveiling on Wednesday, January 30, 2013, CEO Thorsten Heins also broke out a new corporate name, debuting the news as quoted:  “ We have redefined ourselves inside and out, RIM becomes BlackBerry! It is one brand, it is one promise.” The launch of BlackBerry 10 is more than just a new software release, it will determine BlackBerry’s fate.

BlackBerry is expected to launch two new smartphones to introduce the BlackBerry 10 OS, a thin model with a touch screen display and another featuring the Blackberry’s traditional keyboard and shape and boasts improvements from past phones, including tweaks for faster web browsing, new hardware features, updated camera, and a larger app library (approximately 70,000 apps at time of launch). Based on the announcements from the unveiling, BlackBerry will launch two devices; the Z10 and the Q10.

BlackBerry Z10:
·  All-touch virtual keyboard that as you type words will pop up, when you see the word you want, you simply flick it into the message
·   Designed by focusing on typical screen gestures and swipes to avoid app cluttering on the screen and to promote a different user experience
·   Similar look to  Apple’s iPhone 5 but slightly larger
·   4.2-inch LCD display
·   2-megapixel front-facing camera which offers the ability to shoot HD videos
·   Offered with a preloaded 8GB class 2 microSD card (Class 4 or higher are required for HD videos)

BlackBerry Q10 (limited details available):
·  Classic QWERTY BlackBerry keyboard
·  3.1 inch display
·  4G LTE

BlackBerry 10 Operating System:
·  Similar layout to other smartphones, lowering the learning curve
·  Ability to sign into multiple email accounts & social networks, with automatic, duplicate-deleting contact merging
·  BlackBerry Balance – separates sensitive business apps from personal ones to promote business use
·  Built-in photo-editing tool that allows you to crop, rotate, reduce red-eye, add filters, adjust contracts, etc.
·  BBM video calling

BlackBerry seems to have delivered a smartphone that will appeal to consumers new to smartphones or looking for an alternate OS, but may not win over current iPhone and Android users. BlackBerry has been known for their personal and corporate security based phones and continues to present their focus in promoting a secure and efficient phone for both personal and corporate use.  BlackBerry was a very popular device for several years, I even wrote a blog in 2012 behind the reasoning I chose to trade in my iPhone for the “updated” BlackBerry Bold (which I now pawned off to my mom for the GS3). Over the past year the increasing amount of smartphones available created the BlackBerry line to stagnate due to competing devices being able to offer much more. The new line of BlackBerry 10phones may be the devices, especially in Q1, that bring the BlackBerry devotees back into the fold.  Do you think BlackBerry still has a chance to make an impact in the smartphone market place? Or has its time come to an end?
Technology changing global supply chains

With advancements in technology being made on a near daily basis, companies are utilizing these gains to help grow their firms, improve efficiency and increase sales. Businesses can also use these tools to better their supply chain optimization techniques, ensure their global operations are running smoothly and be certain things are going according to plan. By holding back and refusing to implement new technology, a company may see itself fall behind and remain unable to compete with others in its industry. 

Mobility makes on-the-go work easier 

More people than ever are using smartphones and tablets, and a good deal of that market is business-related. Companies officials can use mobile devices to receive updates while they're in the field, in the office or sitting in business meetings. When those in charge have access to critical information about delayed shipments, expected production hold-ups or logistical challenges immediately, they can be better prepared to resolve such problems and implement new strategies to avoid them in the future, such as strategic sourcing initiatives and new procurement tactics. Being able to receive updates from anywhere is increasingly important and mobile devices can prove to be a huge benefit if a company is able to use them to get out of a tight spot quickly. 

Social media growth may assist supply chains 

Social media platforms have become increasingly popular over the past years, and companies are now using the networks for many purposes besides keeping up with friends and colleagues. Some businesses are even creating their own networks that function like social platforms, but are in place to better serve the company and ensure information is quickly made available to all employees, suppliers and partners. With networks like these, companies can stay on top of news from suppliers and manufacturing facilities, as well as get continuous updates on processes throughout the supply chain. 

Cloud computing increasing 

Another technological gain helping supply chains is the cloud. Using remote storage systems allow companies to easily keep massive amounts of data, access files from anywhere and learn more about how their supply chains, procurement processes and logistical operations function as a whole. Company officials are easily able to find vital supply chain information by using cloud systems, and the implementation of such a program can also result in cost savings for a business in the long run. 

Supply chain security often overlooked

While many company executives may believe their supply chains are reasonably secure and can easily survive a small disaster, this belief doesn't always hold true in the real world. Security issues can be prevalent at any point in a company's procurement, production or logistical processes and prove to have disastrous consequences for businesses. 

Supplier trust 

A company that purchases electronic equipment to use for businesses processes or as a component in a final product needs to be aware that counterfeit goods are prevalent. A business that procures routers or network management tools from a suspicious supplier may find its systems are easily accessed by unauthorized individuals once the products are installed. This can lead to the loss of valuable business information, sensitive data being leaked and confidential financial records being made available to hackers. 

Similarly, a company that sources memory chips, hard drives or other components for electronic gadgets may inadvertently procure counterfeit components, leading to a problem for consumers who can lose valuable personal information to hackers able to access their devices. It is essential that companies trust their suppliers and have policies in place that ensure their partners are providing quality components. 

Logistical challenges 

Even if a company is certain its strategic sourcing initiatives are sufficiently handling the procurement of essential components, it needs to be well-aware of the security policies implemented at the end of its supply chain. Logistical operations present many challenges to business leaders looking to ensure their security won't be compromised. 

When corporations aim to get their goods to market, they often contract out different segments of their logistical operations. This may appear to result in short-term cost savings, but it can pose a serious security threat in the long run. Having more carriers and workers handling valuable product results in more opportunities for theft or damage, and a company may have no idea at which point in its logistical supply chain the losses occurred, making it difficult for it to pin blame or cut ties with one provider. 

To mitigate this risk, businesses should have a firm grasp of which companies are handling their logistical operations and ensure all individuals working for the carrier have been screened and approved to carry such product. While such security measures may seem unnecessary, they can help prevent a business from incurring huge losses and having to rework its logistical operations in the future. 

Burger King drops horse meat supplier

Fast food chain Burger King announced it will change up its supply chain by dropping a supplier associated with the horse meat scandal currently sweeping the United Kingdom and Ireland. 

Horse meat scandal spreading 

In recent weeks, it was discovered Irish producer Silvercrest Foods was supplied with beef product that contained horse meat. Silvercrest provides supermarkets and restaurants across the U.K. and Ireland with meat, and concerns about the situation have grown. Grocers carrying the merchandise have since pulled it from shelves, which could make it slightly more difficult for consumers to access the products they're seeking. While the contamination won't harm those who ingest the food, it has upset consumers across the region and draws into question the ability of the producer to adequately source its products and ensure they are accurately labeled. It also has many concerned about the reliability, security and safety of the food supply chain and which other products could be mislabeled. 

Burger King cuts ties

Silvercrest has since halted its processes, recalled its products and is investigating how its meat became contaminated. However, this hasn't stopped Burger King, one of the most popular fast food restaurants in the U.K., from severing ties with the company as a precautionary measure even though the chain claimed there was no proof its products contained horse meat and its burgers were produced on separate lines within the facility.

The decision may have been difficult for Burger King to make - in light of the announcement, it admitted some of its popular menu items may be unavailable until its supplier issues are sorted out. This could mean the company will need to find a new and more reliable supplier that can cater to its extensive needs in a timely fashion and ensure any product shortages are short lived. Rival fast food chain McDonald's was reported to not be involved in the scandal, as the company procures its meat from suppliers other than Silvercrest. 

Aside from a cultural taboo that makes some unwilling to eat horse meat, some are concerned about a chemical that may have been present in the animals. Lawmaker Mary Creagh, environmental spokeswoman for the Labour Party, claimed several horses slaughtered in the country just last year tested positive for phenylbutazone. This chemical is an anti-inflammatory drug given to horses, but has the potential to cause cancer in humans. However, none of this contaminated meat was approved for sale in the U.K., and it has been reported there is no evidence phenylbutazone was present in any of the horse meat sent out by Silvercrest.

Apple increases audits, finds supply chain problems

Apple increased its supplier audits in the last year, and has discovered problems in its supply chain, including underage workers, discrimination and wage issues. While some businesses find they can enjoy greater cost savings and supply chain optimization by placing manufacturing operations overseas, such moves are often heavily scrutinized by consumers and fair labor groups. Apple has long suffered criticism for the questionable working conditions provided for employees at its Asian facilities, especially after a string of suicides at one of its factories gained worldwide attention.

Child labor a major problem

Concerns about child labor have long been prevalent in Apple's supply chain. While company executives claim they take the initiative to eliminate the practice in factories across Asia, instances of underage workers have been uncovered. The audits helped Apple discover one of its Chinese suppliers had employed 74 children under the age of 16 - the legal working age in the country. It was discovered the company, Guangdong Real Faith Pingzhou Electronics, had worked with a local employment agency to create false documentation for the child workers. Reports claim Apple has since cut ties with the facility and reported both the factory and employment agency to local authorities.

Working conditions and wage issues still a problem 

In the past, Apple's suppliers have been criticized for requiring employees to work more than 60 hours per week, a practice the company claims to be eliminating. According to Reuters, the company says it has achieved 92 percent compliance with this standard and is taking action against those suppliers that require employees to work longer hours.

However, long hours aren't the only concern critics have. After its auditing process, Apple found many of its suppliers required female employees to undergo pregnancy testing and some factories insisted workers be tested for a variety of medical conditions. 

Bonded labor was also an issue prevalent throughout the supply chain. Many workers accumulated large debts working with recruiters and agencies that provide work placement for a fee. The workers who amassed debts in this manner have their wages automatically taken to pay their fees, forcing them to continue working for little or no money until the amount has been paid in full. Apple now requires its suppliers to reimburse "excessive recruitment fees," or any amount more than a month's wages. It asked its suppliers to reimburse a total of $6.4 million in these fees in 2012. 

If you have ever seen an episode of Mission Impossible, you should know that the beginning sequence inevitably ends with a cassette tape (remember those?) delivering a top secret message, with the ominous final warning, "This tape will self-destruct in 5 seconds..." While many presumed "advances" in spy gadgets seem tied to James Bond, and the 007 franchise, this simple concept of disposing of secret information currently holds the attention of the US Defense Advanced Research Projects Agency (DARPA), who has dubbed this yet-to-be-developed technology as "Vanishing Programmable Resources" (VAPR) In an effort to determine the feasibility of such devices, DARPA is sponsoring a Proposers' Day to invite conversation and insight from the technology community.

With a trend of outsourced manufacturing activities in the electronics market, and the continuous globalization that is especially prevalent in the technology industry, the question becomes: What are the real implications of such devices being developed, and what would they look like?

Device types:

Old School - Tapes/CDs:
The possibility of the intelligence community using self-destructing cassette tapes would be much greater if anyone still owned a cassette player, but in the constantly evolving world of streaming media and near-immediate transference of data, it is not likely that the solution would take this kind of form. In addition to its outdated nature, such devices would require significant destruction methods with controls to ensure the message could not be recreated, or destroyed before being read.

The technology world has long kept a focus on bio-technology, with the Defense Department
already investing in the research and testing of nano-sensor technology, imbedded in the human body.
Prototypes have already been in the works, though DARPA has indicated in their VAPR Proposers' Day information that there has been sub-standard performance of fast-degrading, bio-electronics. 

Information direct:
While the idea of host-imbedded receivers may seem like science fiction, the ability to "beam" information directly to the human brain may not be so far-fetched. Such devices are already being utilized in the medical space to assist with brain signaling for patients with degenerative brain disorders. While this application is somewhat different than the Mission Impossible-style designs for the defence department, there still appears to be the potential to adapt this technology to a defense application.

As with all Defense Department contractors, security is of chief concern, and development of such
devices would require a level of confidentiality. As such, a problem may present itself when
trying to determine how such a device is manufactured, once it is identified. When dealing with
National Security, and confidential information, it is safe to say that offshore manufacturing may
not be an attractive option.

Regardless of the way these devices might be created, it seems to be a straightforward goal, and
one which the technology industry is well equipped to develop. So the next time you notice a
a stranger's Bluetooth melting on their ear, remember to look the other way. Spies don't like being
Reducing supply chain inefficiencies can result in cost savings

Supply chain optimization is critical for many companies. Managing sourcing, procurement, production and logistical operations can be extremely difficult, especially if a business has a complex supply chain that expands across the world. The more complicated and far-reaching these supply chains are, the greater chance they have of including inefficiencies that can be detrimental to a company. 

Eliminating inefficiencies

Many firms may not even realize their processes are filled with inefficient procedures that cost both time and money. However, some automated processes may be able to help some enterprises reduce their resource-draining processes and enhance operations. Automated notifications and orders can be one way for a firm that tends to procure and ship the same amount of materials or product on a consistent basis to cut down on time spent ordering or approving shipments manually. Similarly, automated reporting and document uploading processes can cut down on time, allow businesses to keep better track of important records and maintain maximum efficiency at all times. 

Some inefficient processes the result of global business

However, some inefficiencies may be outside a company's control. A new report released by the World Economic Forum in collaboration with Bain & Company and the World Bank revealed supply chain barriers in the form of border administration, telecommunications and infrastructure put a huge strain on companies and the global economy. The reduction of such barriers could increase the global GDP by 4.7 percent and world trade by 14.5 percent, according to the research. That would be a much larger benefit that eliminating all trade tariffs, which would only be expected to increase global GDP by 2.6 percent. 

Reducing supply chain barriers could effectively save time, allowing companies to ship goods more quickly, deal with fewer regulations and tighten their schedules in order to remain competitive on a global scale.

"Supply chain barriers are more significant impediments to trade than import tariffs," said Bernard Hoekman, director of the World Bank's international trade department. "Lowering these barriers will reduce costs for businesses, and help generate more jobs and economic opportunities for people."

Because these resource-wasting processes are often outside a company's control, it may benefit from eliminating other inefficient processes it can identify and avoid. Doing so offers significant cost savings potential and can result in better business strategies that may give a firm more of a competitive edge in the marketplace. 

Research shows climate change threatens supply chains

New research published by the Carbon Disclosure Project (CDP) and Accenture indicates climate change may post a serious threat to global companies and their supply chains. The recently published data shows 70 percent of businesses believe changes in weather pattens have significant potential to impact their revenue.

Risk mitigation differs among suppliers and purchasers

According to the data, 51 percent of the risks associated with drought or torrential rain, thought to be a result of climate change, are already hindering business operations or anticipated to have an effect in the next five years. These risks have the potential to limit procurement of necessary natural resources, make it more difficult to have essential components shipped and could make it harder for a company to produce all of the merchandise it needs to remain competitive on the market and fulfill consumer needs.

Suppliers are also impacted by climate change, and the study indicates they may be less prepared to handle altering weather patterns than global corporations. Only 38 percent of suppliers have set emission reduction goals, compared to 92 percent of purchasers. This seems to show a higher level of apathy or disregard among suppliers, which could prove to have detrimental effects across the supply chain in the long run.

Unchecked emissions could lead to further erratic weather patterns, droughts and large storms, which could in be negative for both suppliers and purchasers. Suppliers may not be able to send out shipments, which could lead companies to seek new suppliers and alter their procurement strategies to work with more reliable partners in other areas. 

With more companies deciding to limit emissions and implement more sustainable technology, they may do more than help prevent future climate change - they may also enjoy significant business cost reductions from using renewable technology or creating green policies throughout their supply chains.

“This research illuminates fragility in the global supply chain model," said Paul Simpson, CEO of CDP. "The marked difference in the sustainable actions of companies and their suppliers highlights a missed opportunity for suppliers to reduce energy costs and risks. The 61 percent of suppliers that failed to provide information through CDP are an even greater concern since they and their clients are unable to make a full assessment of the substantial climate risks or opportunities they face.”


Slow Sandy recovery hurts supply chains

When Hurricane Sandy hit the East Coast in late October, businesses had to deal with serious supply chain disruptions that caused major problems for companies, consumers and corporate profits. Excessive flooding and damage made it nearly impossible for companies to receive shipments, run their production operations or send their merchandise to market. Some businesses lost merchandise in the storm, requiring them to reorder products and raw materials and put a hold on any logistical operations that carried goods to retailers and consumers.

Even though nearly three months passed since the storm, businesses are still trying to repair the damage done to their supply chains during Hurricane Sandy. 

The American Logistics Aid Network (ALAN) has been working to help individuals, businesses and groups get the assistance they need to move forward and rebuild, but progress has been slow, according to reports. Bureaucratic procedures and slow progress on government funding have prevented those hit hardest from being able to recover their storm-related losses and move forward to conduct business as usual.

The importance of supply chain management

Some companies take great pains to ensure their procurement, production and logistical operations are well managed and cost effective. However, even scrutinized supply chains can be put at risk in the event of a natural disaster, raw material shortage or political unrest. 

Companies that take the time to implement strategic sourcing strategies may find these initiatives prove to be extremely beneficial in both their cost savings potential and ability to allow a business to avoid procurement problems in the event of a large storm. Firms that fail to take the initiative to ensure they will be able to purchase essential raw materials or components may find themselves in an unfortunate position should a disaster occur. 

Similarly, companies with shorter and more flexible logistical operations may also see a benefit to their supply chains in the event of an emergency. When a business has plans that allow it to use rail, ocean and air shipping, it saves itself the hassle of trying to find a last minute transportation provider, which can be difficult and expensive.

Keeping a supply chain short and as simple as possible may also prove to be a smart strategy for business owners seeking to avoid disastrous disruptions in the future. Optimization of these short and efficient supply chains can keep a business from struggling after an event such as Hurricane Sandy.

Wal-Mart aims to drop noncompliant suppliers

Retail giant Wal-Mart recently announced a new zero-tolerance policy its suppliers must abide by in order to keep contracts with the company. Suppliers will now be required to reveal where they subcontract jobs or manufacture goods in order for Wal-Mart to ensure its products are not produced in unauthorized facilities. Previously, suppliers were given three chances to comply if caught working with unapproved factories. The new rule will come into effect March 1 and by June 1, suppliers must have an employee within countries in which they subcontract work to better ensure compliance and eliminate the necessity for third-party agents.

These changes come just weeks after a factory fire in Bangladesh killed more than 100 workers. The facility at which the tragedy occurred was manufacturing Wal-Mart clothing, though the company claimed the work had been subcontracted to the supplier without Wal-Mart's knowledge. The supplier has since been cut off from gaining future contracts with the company.

"We want the right accountability and ownership to be in the hands of the suppliers," said Rajan Kamalanathan, Wal-Mart's vice president of ethical sourcing told The Associated Press. "We are placing our orders in good faith."

It is currently unclear whether Wal-Mart will help its suppliers and subcontractors achieve compliance in terms of safety, health and sustainability standards, or whether it will only require suppliers to work with approved facilities and not conduct checks and upgrade assistance.

Benefits of tracking supply chain compliance

The impending changes will allow the corporation to better track compliance throughout its supply chain and ensure facilities and suppliers are compliant and authorized to produce goods to be sold in Wal-Mart and Sam's Club stores. The strict rules could help prevent future tragedies like the one that occurred in Bangladesh in November 2012. 

Implementing supply chain policies such as this has the potential to result in cost savings for Wal-Mart, as it may no longer need to fund excessive repairs at noncompliant facilities. To ensure suppliers work with only approved contractors, the company will make available a list of unauthorized facilities it refuses to work with. This will ensure suppliers cannot pleads ignorance when caught subcontracting work to an unapproved factory or company.

The new strategy may also further the company's reputation with consumers, as it attempts to make this knowledge known to the public and ensure customers know it takes compliance seriously.


Benetton signs on to green supply chain pledge

Global apparel company Benetton Group recently announced it will join Greenpeace's Detox Program and increase the green operations of its supply chain. The environmental group has encouraged clothing companies and retailers to get onboard with its program to conserve the environment and use fewer harsh chemicals, and thus far corporations such as Nike, Zara and Marks & Spencer have signed on and vowed to greening their processes. 

In order to enhance sustainability, Benetton has pledged to stop releasing hazardous chemicals across its entire supply chain by 2020. The commitment won't just apply to Benetton itself, as its suppliers will also be required to take part in the new measures. In the coming months, the company will release a list of chemicals it plans to eliminate by 2020 and update its list of restricted substances. It has been reported Benetton will also restrict the use of chemicals as information about their impact on health and the environment is discovered.

History of sustainable efforts

Joining the Detox Program wasn't the first move the corporation has made in order to increase sustainability - its high manufacturing standards allow its products to display the Eco Safe logo, indicating they were designed with chemical and mechanical safety standards in mind. In recent years, it has also made sustainable changes such as using water-based ink, limiting packaging and watching emission levels.

Benetton already makes an effort to ensure its procurement practices optimize sustainability. It has a strategic sourcing policy in place to purchase eco-friendly wool and cotton, and much of its cotton in its garments is organic. The company also provides its cotton and wool suppliers with a list of prohibited substances to ensure its garments come into contact with as few hazardous chemicals as possible. 

Businesses can benefit by going green

Even though the move to sustainability may be challenging, the company could eventually see a cost savings benefit. Eliminating hazardous chemicals and using new products could end up being less expensive for the business, slashing the amount spent on certain aspects of processing and manufacturing. 

Benetton's monitoring of its emission levels could also help it in the future as more companies limit the amount of carbon they emit or make the switch to green energy. By cutting back on energy used to power manufacturing facilities and retail stores, the company could find significant business cost reductions and better manage its energy use.

Horse meat scandal calls meat supply chain into question

It was recently discovered that some British and Irish supermarkets have been selling meat products that contained horse meat, leading to outrage among both consumers and government officials. Irish officials discovered horse DNA in frozen beef products, leading many to question how the meat could have gotten into the supply chain.

Safety of the supply chain

Since news of the contamination has spread, supermarkets including Tesco, Lidl, Aldi and other grocers have pulled many of their burger products from store shelves as a precaution. Some of these products were determined to have horse meat content as high as 29 percent. Even though many have claimed the horse meat does not pose a threat to the health of those who consume it, the improperly labeled products could cause customers to distrust the products or avoid them entirely.

Some consumers and farmers have called for supermarkets to better track their supply chains and employ more effective strategic sourcing strategies to ensure consumers are not inadvertently purchasing horse meat products. Concerns over other improperly labeled meat are increasing as the investigations continue and consumers have to search for beef products that do not contain horse meat. However, meat processors insist current techniques are safe and efficient.

"The great bulk of food products, including meat and meat products, are safe, produced to good quality standards and correctly described and labeled by food manufacturers," said Stephen Rossides, director of the British Meat Processing Association, according to The Guardian. "UK consumers can trust the food they buy."

Finding the source

Irish officials believe they may have pinpointed the problem and determined how the horse meat entered the burger supply chain. Testing revealed processing plant Silvercrest Foods was inadvertently importing horse meat from another European country in its ingredient procurement process, though the supplier and its location have not yet been named.

The contamination could be due to an effort by the company to implement greater cost savings strategies. According to the Huffington Post, beef is three to four times as expensive as horse meat. This could mean suppliers are adding small amounts of horse to slash their own expenses.

Silvercrest has since suspended production until it can develop a new testing process to determine its imported ingredients do not contain horse meat and can ensure its products will be properly labeled and consist of beef only.


Apple's supply chain may experience more problems

Apple's supply chain could be feeling pressure from consumers, as sources revealed one of its suppliers will be cutting production for iPad components. Sharp, which supplies Apple with its 9.7-inch iPad screens is rumored to be limiting manufacturing of the parts dramatically, which could mean Apple has plans to produce fewer of the electronics moving forward. Sharp's production is said to currently be running at the minimum level. The news of limited iPad production comes just weeks after rumors surfaced that the company was slashing orders for iPhone 5 components, due to limited consumer demand.

Cutting production

There could be numerous reasons surrounding Apple's limited procurement of the screens from Sharp. The company may be in the process of obtaining a new suppliers, as they were recently reported to be eliminating Samsung as one of their major partners, due to legal battles the two rivals have been involved in. However, the company has not confirmed that it is seeking a new producer for the iPad panels.

Another explanation could be less consumer purchasing, due to limited seasonal demand after the traditional Christmas rush or a preference for other products. While the full-size iPads were highly desirable when they first hit the market, consumers may now be purchasing more iPad Minis, which could have created a shift in customer demand Apple was not prepared to handle.

This unexpected demand change could also be due to the iPad Mini's introduction to the Chinese market and the new popularity of the product within the country. The device's lower price point and consumer appeal could be leading more to prefer the smaller iPad to its larger counterpart. However, reports don't specify if Sharp has slashed its production on the larger screens to increase output of the smaller iPad components.

Increased market competition

Apple could be headed for a struggle as it attempts to compete with other electronics manufacturers that attempt to provide consumers with lower prices and high quality products. Samsung, Amazon and Google are just a few companies looking take some of Apple's market share with their newly released smartphones and tablets. If Apple continues to struggle and limit production due to increased competition, it may need to develop strategies that will lower its cost of production and limit its prices, making its goods more accessible to consumers.

American manufacturing slowly changing

Nearshore manufacturing is one of the latest trends in the production industry, especially for companies that are looking to enhance their cost savings and cut expenses on logistical strategies. While many other countries offer businesses the opportunity to take advantage of low labor costs, bringing production to the U.S. can be extremely beneficial.

Less union power

In recent years, the cost of manufacturing has gone down in parts of the U.S., due to the lessening power of unions in various states. Bringing manufacturing facilities to the States does require some serious consideration, especially for corporations that do take cost reduction seriously and want to relocate to a state with less union presence. Not all operate in the same manner when it comes to labor laws, and union representation can play a large role in the decision of a company to move its facilities to a certain area.

According to The Washington Post, U.S. producers have increased their workforces by about 500,000 workers since the end of 2009. However, union jobs continue to decline and most of these new positions are filled by workers who are not represented by unions. These nonunion employees are often paid less than their union-represented counterparts, lowering the cost of labor in the country.

Even manufacturers that already have domestic operations may find they can lower production expenses by moving their operations to states with right-to-work laws. States like Indiana and Michigan recently passed such legislation in an effort to lure manufacturers to their states and benefit from the new business.

Rising labor costs overseas

As domestic production costs start to become more affordable, overseas manufacturing is slowly becoming more expensive. Rising worker wages in previously underdeveloped countries are taking more out of corporate budgets, and increasing worker strikes and protests are leading workers to earn higher pay. This, combined with the cost of shipping goods overseas for consumers in the U.S., can make it just as cost effective for a company to nearshore its manufacturing facilities.

Material costs also a factor

Aside from concerns about labor wages, manufacturers are also considering bringing production to the U.S. to benefit from the lowering raw material prices. Increased U.S. drilling has made it cheaper for corporations to procure domestic natural gas and oil used in manufacturing, creating yet another benefit for companies looking to both reduce expenses and move operations to the country.

Manufacturing industry faces worker shortage

While offshore manufacturing has become a trend in recent decades and proven to be an effective method for reducing labor costs and keeping up hectic production schedules, many companies are moving their factories back to the United States. Domestic production offers businesses the benefit of a shorter supply chain and lower logistical expenses if they are selling products primarily within the U.S.

However, domestic manufacturing can bring with it additional challenges, one of which is the limited American workforce. While unemployment in the country remains high, many lack the necessary skills or training to be considered for various production positions. This trend could pose a problem for those companies seeking to nearshore facilities or expand domestically.

Lack of skilled workers

According to a report from the Manufacturing Institute, as many as 600,000 manufacturing jobs are going unfilled, in part because applicants are not qualified to handle the requirements of the positions.This could be because many manufacturers are seeking applicants with basic problem solving skills, the most commonly cited problem with current manufacturing employees. This issuehits high skill positions significantly, and the report revealed companies anticipate the most skilled employees will be the most difficult to recruit in the future.

While some companies may remain optimistic about their recruiting outlook, others are concerned about the rapid rate at which current skilled workers are retiring. Many employees in the manufacturing field are at or quickly approaching the age at which they planned to leave the workforce, leaving companies with even more unfilled positions and few qualified applicants to take the vacant jobs.

Taking on these challenges

Companies looking to increase U.S. production will need to address the challenges of a limited workforce when moving factories back to the States. In order to work around the problems faced by other manufacturers, businesses should look for new recruiting strategies. According to the Manufacturing Institute report, many firms rely on outdated hiring and training strategies that can limit the pool of applicants. While these techniques, including informal word-of-mouth recruiting, production facilities could be missing out on the chance to find the quality applicants they seek. By updating these processes to fit new worker expectations, a company may find it has an easier time finding and keeping a skilled workforce that can contribute to its manufacturing supply chain operations.
no image

LG officials recently disputed rumors that the supply chain for the company's Nexus 4 were under strain, claiming its manufacturing processes are experiencing no problems and its production is moving along according to plan. This was the first time the company addressed any supply chain questions concerning the device.
This statement is in stark contrast to the unavailability of the device. Consumers have been unable to purchase the device through the Google Play store or other retailers, causing frustrations for customers worldwide. These product shortages have led to speculation there is a problem within the LG supply chain and that the company is unable to keep up with demand.
Further fueling concerns was a comment made by Google's United Kingdom and Ireland managing director that called LG's supply chain "scarce and erratic," apologizing to consumers for product shortages and claiming the situation was the result of poor communication between the two companies.
While LG did attempt to alleviate supply chain concerns, the companydid not choose to mention the device shortage that has plagued the market or to comment on Google's allegations.
Proper supply chain management essential

Situations such as this highlight the importance of a consistent and efficient supply chain. Companies that fail to completely address product shortages could find their reputation with consumers is damaged in the long run. While it is often important for businesses to be honest with consumers about supply chain shortages that result in massive shortages, such as LG's, such problems can often be avoided entirely by proper management and optimization.
To prevent shortages of raw materials or products necessary in the manufacturing process, corporations may find it useful to implement strategic sourcing measures that will ensure supply shipments are consistent and take into account the importance of business cost reductions. Similarly, many businesses may find it useful to streamline manufacturing processes and shorten logistical routes to ensure products get to consumers in the quickest and most affordable way possible.
Failing to optimize a supply chain can result in damages for a business and cause problems such as production hold ups, raw material shortages and lost sales. One small issue early in the supply chain can lead to more serious and costly problems in the future, making proper management critical for companies with complex purchasing, manufacturing and logistical strategies.
no image
We've been experiencing technical problems with our publishing platform that has caused several very old news articles to get reposted with yesterday's date.   We apologize for the inconvenience and are working quickly to correct the problem.
The levels of ineptitude government officials at all ranks have shown for controlling costs and fiscal frugality never ceases to surprise me. While Republicans maintain they are the party of fiscal conservatism, the only real difference I have seen between their approach and that of Democrats is the amount of hypocrisy that they engage in while overspending.

Case in point, the Governor of Pennsylvania (my home state), Tom Corbett. Since elected to office, Corbett’s primary focus seems to be making our environment dirtier, our children stupider, and our workers poorer, all normal traits of the fiscal conservative. But now, in the name of small government, Corbett has identified that our state run lottery system needs to be outsourced. Before I get into the problems I have with his approach to bidding out this project, let’s review what he chose to outsource.

The Pennsylvania lottery system is one of the best run state programs we have. All proceeds go to older Pennsylvanians (every advertisement informs you of this), providing billions every year to our aging population. This program offsets costs other states normally incur to provide social services to the elderly, including programs that make sure victims of abuse and neglected are supported and cared for. The program is something Pennsylvania can be proud of, and as my father-in-law likes to say, “If it ain’t broke, don’t try to fix it.”

Instead, we are outsourcing it. If Corbett wanted to outsource a program that nobody likes, the obvious choice would have been our state run liquor stores. The program is a revenue producer for the state, but the majority of the population would prefer privatization. Picking the right “low hanging fruit” matters when it comes to outsourcing or any type of strategic sourcing, and if he picked state run liquor stores, he would have been a hero to Republicans and Democrats alike.

So OK, he didn’t pick the low-hanging fruit, but since this is supposedly a cost savings measure for the state, he must have gotten at least three bids, right? Wrong. Frugal Tom gets one bid, from an overseas firm no less, and awards the contract to that company.

At first, this upset me as an American, as well as a strategic sourcing professional. But then I thought, well maybe there aren’t that many Lottery Management Firms out there. The company Corbett chose was Camelot Global Services – an organization based in United Kingdom. A quick Google search finds that there are many other lottery management firms out there, including GTech, Scientific Games, and Northstar Lottery Group (all U.S. based, and other overseas companies such as Intralot and Stride Management. Coincidentally, there’s also tons of information out there about the problems other states had when they outsourced their lottery programs.

The United States economy is based on capitalism. Competition drives capitalism – it makes it work. When you take competition away from a capitalist society, it’s called communism. You don’t have to be a strategic sourcing expert to know that competition drives down costs. Having multiple firms bid not only ensures the best price will be obtained (through negotiations, market intelligence, and competitive leverage) but that the best services and most beneficial terms are obtained. Would anyone go to the dealership and buy a car nowadays before checking around for a better price? Of course not, that would be irresponsible.

But the reality is, Corbett wasn’t trying to be responsible, and he certainly wasn’t trying to drive down costs. So what does it tell you when a government official outsources jobs overseas without the due process that makes capitalism (the foundation of our society) work? It tells me he probably hates America. Commie.
This is my final post talking about last year.  From here on out, I promise I'll focus on the future instead of the past!
2012 marked the end of Source One's 5th full year operating The Strategic Sourceror.  To date, we've logged nearly 2,000 articles, rants and strategic sourcing tips.  We've got hundreds of RSS feed subscribers and thousands of both new visitors and returning visitors.   I hope we continue to produce content that provides you with value.   Feel free to comment below, or contact the editors if you have some ideas for future news, best-practice articles or rants.

Below are the hottest Strategic Sourceror articles of last year.

Most Read Posts that were written in 2012:

Most Read Posts of 2012 (Regardless of when they were written):
no image
Large retailers are often criticized for their strategic sourcing of inexpensive goods produced overseas and sold to American consumers, but Wal-Mart recently announced big changes in its supply chain that will increase its procurement of goods made in the U.S. The company announced the coming changes at the National Retail Federation's annual BIG Show.

The initiative will call for Wal-Mart and Sam's Club to purchase an extra $50 billion in goods produced domestically over the next decade. This will mean increased business for the corporation's current U.S. suppliers, as well as give companies operating overseas the opportunity to nearshore​their facilities and earn more opportunities to provide Wa-Mmart with products.

"At the heart of our national political conversation today is one issue: creating jobs to grow the economy," said Bill Simon, the company's CEO. "We are meeting with our suppliers on domestic manufacturing and are making a strong commitment to move this forward."

Sourcing can lead to savings

The new sourcing initiatives could save the company plenty in procurement expenses, resulting in long term cost savings. While the costs of manufacturing can be higher in the U.S. than they often are in Asia, Wal-Mart may save on logistical costs, as it would no longer have to have goods shipped from across the world. This would also eliminate the time it takes factories to ship products overseas and have them distributed to the company's locations across the country, allowing merchandise to get to market more quickly and better serve consumers.

"Seventy percent of cotton grown in the U.S. is shipped overseas, spun into products like towels, and then often shipped right back here," said Simon, explaining how the process can help the company. "We can cut out two shipments across the world and weeks on the water and cut our costs in the process. We can save our customers money by employing more of their neighbors - why wouldn't we do this?"

Help from several states

Wal-Mart is working not only with domestic manufacturers, but also with state and local governments to increase its commitment to purchasing U.S. products. Simon mentioned the company had spoken with governors and politicians in Oklahoma, South Carolina and Arkansas about its new program and how the states can help it increase its partnerships with domestic manufacturers.
Levi Strauss aims to green supply chain

After recently coming under fire for using potentially dangerous chemicals in its production process, denim giant Levi Strauss has committed to taking such compounds out of its supply chain. In recent months the company has been criticized by environmental group Greenpeace for including phthalates in its manufacturing processes, as such chemicals have been associated with developmental problems and cancer. The report also slammed the company's use of nonylphenol ethoxylates, compounds known to cause harm to aquatic creatures, and contamination of local water sources.

Greenpeace's report on the use of such products sparked alarm with consumers, and Levi's took notice. The company recently committed to eliminating the use of the chemicals from its supply chain, and will prevent their use in production by July 2016. It aims to completely stop releasing them into the environment during manufacturing processes by 2020, making it one of the largest clothing companies to pledge it will be toxin free. 

According to the San Francisco Chronicle, Levi Strauss is one of 11 companies to have signed up for Greenpeace's Detox campaign, which aims to draw attention to sustainability and limiting the use of hazardous chemicals.

Supply chain changes coming

Taking these steps results in large changes for the company's supply chain, not merely the manufacturing end. As the chemicals make Levi's denim more waterproof, stain resistant and breathable, it will need to invest in developing alternatives that will provide consumers with the same properties without the toxicity. Once those other options are decided, the company will need to determine how it will work them into its current procurement policies and conduct research to learn if it is possible to implement a strategic sourcing strategy for the necessary materials.

If Levi's wants to ensure its contracted manufacturers also abide by the new standards, it will need to develop a set of regulations and regularly train and audit its suppliers to guarantee compliance throughout its far-reaching supply chain.

This is not the only chain Levi's has made to its supply chain in recent months. In late 2012, the company committed to creating less waste, and unveiled its Waste < Less denim collection in October. The jeans are a minimum of 20 percent recycled plastic, a step the company is taking to reduce waste, address resource scarcity and promote environmental sustainability.

For those of you that subscribe to Source One's newsletter already, you might have already seen some of these, but come on, they're great infographics, so you know you want to see them again!

It's come to our attention that many of our readers don't realize that The Strategic Sourceror blog is 100% managed and run by Source One Management Services, LLC, who is a leading procurement service provider that specializes in Strategic Sourcing Services and Benchmarking Market Research.  Well, if you didn't know before, now you do. 

As we mentioned in an earlier post, 2012 was a breakthrough year for both The Strategic Sourceror blog and Source One, our consulting practice.    To mark the year for us, we've created the following infographics highlighting some of the prior year's successes.

So thank you for a great 2012.  And please remember to contact Source One if you need any extra strategic sourcing resources in 2013!