Leveraging strategic sourcing to reduce product recalls

Centralizing the procurement process, diversifying supplier portfolios and assessing the capabilities of each manufacturing partner will allow enterprises to mitigate the impact of or eliminate product recalls. 

The expenses at hand

Recalls aren't a laughing matter. Bloomberg Businessweek listed some of the most expensive requests for returns throughout history: 

  • In 1982, 31 million bottles of Johnson & Johnson's Tylenol were recalled, costing the company more than $100 million. An order for the bottles to be returned was incited after seven people around in the Greater Chicago area were killed after consuming tablets laced with potassium cyanide. 
  • Bridgestone/Firestone recalled an estimated 6.5 million tires after Ford Explorers and Mercury Mountaineers equipped with those tires experienced tread separation. Not only did Bridgestone spend $440 million on the ordeal, Ford's bill amounted to a whopping $3 billion, not including the $600 million in lawsuits incited by individuals who either sustained major injuries themselves as a result of the tires or were taking legal action on behalf of deceased relatives.
  • In 2004, Merck, a pharmaceutical company, recalled arthritis drug Vioxx after research discovered that people who had been taking the drug for at least 18 months were likely to suffer heart attacks and strokes. First, Merck lost $725 million in potential Vioxx sales. Then, three years later, the company paid $4.85 billion in settlements, resolving a whopping 27,000 lawsuits.

As one can see, the human and monetary costs associated with recalls can be quite ugly. From what can be gleaned by these two incidents, purchasing management professionals should not only assess what materials are going into the products they're selling, but how item design can impact customer safety. 

Keurig making a reassessment 

Coffee machine manufacturers aren't exempt from request for returns, either. According to IndustryWeek, Keurig Green Mountain is recalling an estimated 7.2 million single-serve hot coffee brewing units due to a previously unnoticed burn risk. Apparently, users have reported being scalded because of a malfunction that causes the machines to spray hot water. The recall requests owners return their Keurig MINI Plus Brewing Systems, model number K10, with serial numbers beginning with 31.

What can be learned from this incident? While the parts used to assemble these machines should have been scrutinized more carefully by designers and procurement specialists, the construction of the units should also come into question. Blueprinting may not be a direct concern of the purchasing department, but it's a phase that should never be taken for granted.

What do Gen Zers want out of a car?

What does the consumer segment have to do with procurement? The better question is: What doesn't it have to do with procurement?

In order for purchasing management professionals to deduce what materials or products their employers need to make finished goods, they must deduce what consumers want from the company they work for. The marketing department can be a huge resource in this regard.

Ford Motor is one enterprise that's trying to figure out what it needs to do to appeal to the next wave of customers. For the automotive manufacturer, that contingency is made up of people belonging to Generation Z, also known as "Gen​ Zers," according to IndustryWeek.

Who are the Gen​ Zers?

According to Sparks & Honey, Gen​ Zers are those born from 1995 to the present. Many would assume there are a wealth of similarities between Gen​ Zers and millennials, when in fact the source maintained that numerous differences exist between the two. A slide show created by Sparks & Honey depicted the following insights regarding the younger generation:

  • Gen​ Zers enjoy the feeling of making a difference, so it's safe to assume that they would purchase products from a company that conducts itself ethically.
  • Approximately one in four Gen​ Zers are living in poverty, which has made them more resourceful.
  • Many Gen​ Zers have seen their older siblings move back home after graduating college, making them recognize that traditional choices don't guarantee success.

What does this have to do with cars? From a preliminary standpoint, one can speculate that Gen​ Zers aren't necessarily going to fall into buying vehicles with features they may deem as "excessive."

What has Ford found?

Ford research complements Sparks & Honey's almost identically, also finding that Gen​ Zers aren't ones to skimp out on conducting research. For example, one instance found that Gen​ Zers are "acutely aware of where ingredients come from and find more enjoyment in how their meals are prepared."

Take this attitude toward cuisine and reposition it toward the automotive sector. As was mentioned earlier, Gen​ Zers are cautious about their investments - they're not going to pay top-dollar for a new vehicle just because a salesperson says that car is fantastic. In addition, ensuring the materials used to manufacture that automobile were sourced under ethical circumstances (in regard to social and environmental concerns) is a likely priority of theirs. In summation, Gen​ Zers will look for cars that are reliable, will last them a long time, are fuel-efficient and responsibly produced.

Right on the heels of Sony's run-in with hackers, the US cyber security firm, Cylance, is calling attention to the threat Iran poses in the digital landscape. Hackers aren't a new phenomenon, but the threat of cyber-attacks on American businesses is getting more common and potentially much more devastating than ever before.

It's easy to see why company leaders sweat over their own security these days -- but what about the security of their vendors?
As early as last summer, the International Maritime Bureau (IMB) called attention to the threat hackers pose to supply chains. Their message? Supply chains are more than just vulnerable; they are being actively targeted by criminals to disrupt business. So how can we tell if our supply chains are in danger? More importantly, how do we begin to uncover and fix tech-based weaknesses?

To start, here are 5 ways to tell if your suppliers are putting you at risk -- and what you can do about it:

  • Update your supplier vetting checklist. Dig deeper into your key suppliers, and add cyber security concerns to your vetting process. What software do suppliers rely on to deliver goods and services? Be sure to research vulnerabilities in any off-the-shelf software they use. If you discover any, make sure to find out how your suppliers mitigate such risks internally. 
  • Look for potential "weak links." Remember Target's payments system fiasco? Your security is only as strong as those you grant access to, and your suppliers' flaws are your flaws, too. How much access do vendors have to your systems, and what security training do their front-line employees undertake? What would hackers have access to on your end if suppliers' systems get compromised? Make sure any supplier facing openings in your security plan are properly walled off from sensitive internal systems. A solid SRM program provides a plan for formal risk and control processes management within supplier relationships. Even if your internal security precautions are flawless, independently operated third parties can sink your defenses -- especially when they are keyed into your core business processes.
  • Redundancy is key. As the IMB notes, transportation systems may face extra attention from hackers. Unfortunately, most attention goes to physical security rather than cyber security in this sector. Do you have transportation and logistical backup plans in place in case primary routes are disrupted? Redundancy can be costly and a tough sell to upper management, so focus on the damage an outage would have.
  • Test, test, test. Nearly every company has tech-based disaster recovery procedures in place, but too many fail to test them regularly. When was the last time IT fully tested your plan? If they haven't done so recently, coordinate such tests now. Circling back to strategies #1 and #2, require suppliers to disclose their own disaster recovery report cards on a regular basis as well.
  • Develop internal partnerships. Speaking of the IT department, now is the time to bolster relationships with your CIO and get him or her in on supply chain initiatives. Too often, tech departments are only concerned with keeping security strong in their own house. Considering how much impact the outside world has on your supply chain, it makes sense to have external team members work closely with suppliers to manage tech risks before they come knocking.
While it may be impossible to know exactly what cyber threats will crop up next, one thing is for sure: Security will only become more important moving forward. Now is a great time to shore up your defenses and those of your partners.

Image courtesy of: freeimages.com

Product counterfeiting: A key concern of the modern supply chain

Despite the tools available to procurement officers, counterfeit goods still plague retail supply chains.

When a person pays top dollar for a brand-name product, he or she expects to receive that item - no exceptions. Therefore, if a knock-off product were to be delivered to that individual's home, the retailer that posted the item on its website would likely have to contend with legal action.

It's a prospect that merchants would rather avoid, yet it's a reality many of them experience on an annual basis - especially during the holiday shopping season. Purchasing management and supplier relationship assessment serve as the first lines of defense against product fabrication.

Counterfeiting: the basics 

According to the International AntiCounterfeiting Coalition, the United States Department of Homeland Security seized counterfeit goods valued at $1.7 billion at U.S. borders and ports in 2013. The IACC maintained that consumer demand for certain products and inadequate supply is inciting the demand for fabricated items. Globally, the trafficking of such goods is growing steadily on an annual basis.

The source noted that counterfeiters typically exploit consumer desire for affordable goods. Overall, this practice negatively impacts the retail industry and its customers in a number of ways:

  1. Poses a physical danger: More often than not, counterfeit products are made with substandard materials, some of which may not be approved by regulatory bodies. This means that some substances may cause harm to children or even adults. 
  2. Puts your identity at risk: Retailers that sell counterfeit goods may actually embed malware throughout their websites that steal payment card information once an order is submitted.
  3. Supports child labor: Counterfeit goods are often made by suppliers that don't report to any authorities that proactively assess environments for human rights abuses. At times, child labor can fall through the cracks. 
  4. Bolsters organized crime: The IACC linked sales profits from counterfeit merchandise to underground criminal figures and even terrorist organizations. 

Obviously, these reasons are enough for enterprises to take action that eradicates counterfeit goods from their supply chains. 

E-commerce company taking a stand 

As companies such as Amazon offer their customers a wide variety of goods, from electronics to furniture, it's easy for poor procurement practices to let fabricated items fall through the cracks. It's a factor that Alibaba Group, a Chinese enterprise that runs China's most popular e-commerce marketplace, Taobao, has taken into consideration. 

Reuters noted that Taobao "has unwittingly become one of the largest counterfeit trading sites in the world," but noted that Alibaba isn't ignorant of this factor. Alibaba CEO Jonathan Lu told the press that the company bears a "serious responsibility in this fight against counterfeits." The executive isn't just talk, either - in January 2013, Alibaba invested $161 million in an effort to identify and eradicate counterfeit products from its websites. 

Has the investment led to anything tangible? The source acknowledged Alibaba's reports that stated the company has successfully blocked more than 90 million products from its e-commerce marketplaces. While this is certainly notable progress, China's State Administration of Industry and Commerce discovered that an estimated 10.6 percent of all goods sold through Alibaba's websites were either fraudulent or suspected of being fabricated. 

What's the best approach? 

Never leave a supplier unaccounted. For companies such as Taobao and Amazon, which offer merchants the opportunity to sell products through them, conducting a thorough review of their sourcing practices is a must. Although there's an argument to be made that such a tactic would cause some retailers to refrain from using those venues, it's a measure that can ensure a marketplace's reputation or practices are never scrutinized for the worst. 

We’ve kept busy building out our upcoming calendar of events for 2015, and despite a range of critical topics for the year, we keep coming back to one driving focus - the power of internal procurement support and how this trend is actually strengthening external supplier relationships as well.

When procurement and diverse departments join forces, both parties benefit by taking advantage of each other’s proficiencies. Once an organization realizes the value of internal connections, shifting focus externally to suppliers is a short jump away. To deliver true value beyond simply cost savings, a supplier-based approach is key to advancement.

In a nutshell: procurement teams who can leverage strong internal and external relationship building will thrive, while those that won’t are in for a bumpy new year.

Toward that end, Source One will be sponsoring and speaking at four major events this year: the ISM Philadelphia January Dinner Meeting, Medical Device Strategic Sourcing Conference, ProcureCon Indirect East Conference, and ISM 2015 Annual Conference.

January 8th at the Philadelphia Institute of Supply Management (ISM) Chapter Meeting

Brad Carlson, Director of Supplier Relationship Management (SRM), and David Pastore, Director of Technology Services, will show how procurement can increase collaboration with distant departments to create more value for both groups. After procurement has gained the necessary support, pursuing strong supplier partnerships opens the door for both organizations to leverage the others’ competencies and skills and have the best resources available. Brad and David’s focus will cover categories including SRM program development, establishment of alliances between procurement and IT, risk mitigation through visibility into supplier activity, and prioritization of suppliers instrumental in strategic value.

January 26th and 27th at the Atlanta, GA Medical Device Strategic Sourcing Conference

Joe Payne will present some of the challenges and unique sourcing approaches available to the medical device industry. Exacting state and federal regulations leave no room for medical device manufacturers to cut corners, despite growing stakeholder pressure to continually cut costs. Many organizations have sought SRM programs in order to keep quality high and maintain an edge in pricing. The clarity provided by these programs into supplier operations also helps uncover the next level of supplier value. According to Angel Estrada, VP of Quality and Regulatory Affairs for Zimmer Surgical, “Supplier quality is becoming more complex. We have all seen the globalization of the supply chain and the growth of outsourcing. For many of us, supplier quality used to mean managing raw components and now it can mean managing outsourced finished goods. Some suppliers own the entire production process and the device manufacturers are merely distributors who supply their label. We used to focus on supplier qualification, incoming inspections and certifications of compliance. Now, with the vertical integration of suppliers, supplier quality has become much more complex and more regulated.” Close collaboration is the key to managing these complex issues: this key concept is the driving focus of Source One’s presentation.

February 11th to the 13th at the 8th Annual ProcureCon Indirect East Conference in ChampionsGate, FL  

William Dorn, VP of Operations at Source One, will lead round table discussions focused on maximizing the resources for sourcing and procurement professionals. A recent Strategic Sourceror article points out that procurement professionals can best maximize resources and gain the most visibility and internal support through setting the stage themselves. For example, "If you think that you are a second-class citizen versus direct procurement, then you are going to get that reaction," stated Brian Davy, head of non-production procurement at Jaguar Land Rover. "We're not the poor relation of direct purchasing, what we do is fascinating and varied." Making the strategic sourcing of the indirect procurement team attractive to other departments is key to attaining the best materials for a business and growing your indirect or direct procurement practice to its maximum potential.

May 3rd to the 6th  at the ISM 2015 Annual Conference

Our speakers, William Dorn, Vice President of Operations and Diego de La Garza, Sr. Project Manager, will discuss partnership effectiveness when sourcing from Mexico. This presentation will address collaboration through a global perspective and provide tips for how to develop a firmer understanding of how to identify and uphold qualified supplier relationships.

We’re aiming for a busy year ahead with a full event agenda, and we’re looking forward to delivering with the latest innovations in sourcing strategy and supplier relationships. If you plan to attend any of these events, let us know – We’re always up for the chance to meet personally to exchange ideas with professionals who share the same interests as our team of strategic sourcing enthusiasts. Please contact myself, Heather Grossmuller, at hgrossmuller@sourceoneinc.com to schedule a meeting.
The ascension of procurement: From spend analysts to innovation strategists

Downplaying the integral role spend management has in a company's operational flexibility isn't appropriate, but restricting procurement officers from conducting tasks other than benchmarking and expenditure analysis may be hindering your business from achieving the growth you're striving to attain.

The versatile capabilities of a procurement officer

In a way, procurement specialists are multi-talented individuals. First, they can consider the demand incited by customer contingencies with a creative eye and deduce that certain market segments may feel the need to purchase certain products in the near future. This insight enables them to collaborate with research and development experts to determine how the enterprise can satisfy demand for those items with adequate supply.

Once the R&D department blueprints a commodity that target audiences will value, the procurement team can act as liaisons between R&D, the financial department and suppliers to figure out:

  • Which materials will be needed to create those new products
  • Which suppliers are well-equipped to manufacture those items in a cost-effective manner
  • The transportation costs associated with distributing the goods from factories to the market

It's this level of attention that procurement management experts put into the development of a new or innovative product that has placed them higher on the totem pole of business value. These professionals are being considered as key contributors to organizations' growth - competitive differentiators in their own right.

Standing at the center of business expansion?

The IBM Institute of Business Value conducted a study of chief procurement officers, surveying 1,000 senior procurement leaders working at billion-dollar-plus enterprises in 41 countries. The organization's research found that enterprises committed to procurement strategies are almost twice as likely to find new innovations, which can be used to position themselves as industry leaders. Overall, IBM focused on how CPOs are evolving from their roles as cost-control gatekeepers to positions as key contributors to enterprise ascension. IBM noted CPOs are achieving this aim by conducting three primary endeavors:

  • Assessing the broader goals of the enterprise as opposed to focusing only on purchasing concerns to determine how their roles can help achieve those ends. The top-performing CPOs are twice as likely to assess ways in which revenue growth can be driven and competitive advantages realized.
  • Serving as a diplomat between their companies and partners to identify leadership opportunities. IBM's research found that 92 percent of high-performing procurement management experts look for tactics that will allow them to add value to external supplier and stakeholder relationships. In addition, 52 percent of the best-in-class CPOs have collaborated with suppliers to develop new technologies to improve their businesses. These professionals also examine the expectations of internal stakeholders and customers.
  • Embracing new innovations to improve the value of their organizations. Data-driven tools are apparently all the rage among senior procurement executives. Enterprise resource planning has been the technology of choice among these experts, but the sophistication of these systems expands every year. For instance, data analysis functions have become critical components of what makes a good ERP solution, and 41 percent of CPOs have integrated analytics into their decision-making processes.

"The most advanced CPOs are proving that focusing on the nuts and bolts of procurement processes is not enough to bring real value to the business," said IBM Director of Strategic Supply Management Terrance Curley. "True procurement leaders who see the bigger picture can use their unique vantage point in the organization to drive innovation, grow revenues and expand competitive advantage."

It appears we've reached an age in which the procurement officer does more than examine expenses and the market value of certain products. Through strategic sourcing and other approaches, these professionals are elevating their organizations past their competitors, or at least trying their best.

3 Latin American countries procurement officers should pay attention to

The pace at which Latin American manufacturing is estimated to grow isn't particularly fast, but the past three years have shown stability in this regard.

Low-cost country sourcing is generally the norm among purchasing officers, but the general sentiment among those in the production sector regards Latin American companies as viable partners. The MAPI Foundation found that Latin American factory output is expected to increase 2.1 percent throughout 2015.

That being said, note every country south of the United States border possesses a robust manufacturing economy. There are three nations procurement specialists would do well to pay particular attention to.

1. Mexico 

From what MAPI discovered, Mexico wasn't a strong contender two or three years ago, as its gross domestic product grew by a lackluster 1.1 percent in 2013. In contrast, Mexican production increased 3.2 percent between January and April of 2014. This health was supported by the following factors during that same period:

  • The automotive sector's output grew 11.5 percent.
  • Manufacturers specializing in basic metals expanded production 11.8 percent.
  • Rubber and plastic companies are benefiting from the vehicle making economy.

As far as next year is concerned, MAPI asserted that Mexican manufacturing output will increase 4 percent throughout 2015. 

2. Argentina 

At first glance, Argentina doesn't appear too strong of an option, as its manufacturing industry shrunk 3.7 percent from January to May of this year. MAPI found that this contraction was due to a 20.8 percent production decline in the nation's motor vehicle sector. Not to mention, the nation is currently experiencing some credit problems - one of them being that the U.S. Supreme Court decided that Argentina has to pay an estimated $15 billion in holdouts. 

Yet, this isn't stopping Hero MotorCorp, an Indian motorcycle producer, from setting up operations in Argentina, noted ZigWheels. Next year, a pre-built factory in Columbia is expected to become operational. 

3. Brazil 

A conversation about Latin American manufacturing isn't complete without Brazil. MAPI's report showed that output in the food and beverage and automotive sectors contracted in the second quarter of 2014. In fact, the only industry that managed to stay on its feet was the electronics and computer economy. 

Brazil has the labor to sustain large-scale manufacturing economies, but the reason why it has failed to receive the productivity boost it requires is due to its current economic model. The nation's design attempts to fabricate demand through tax incentives, but the supply simply isn't there to satisfy it. 

Selecting an advertising agency to tackle a branding project is surprisingly difficult with the broad range of available options. Without a previous relationship, it can be challenging to understand if an agency partner will not only be the best cultural fit, but also produce work that meets expectations. According to a previous Strategic Sourceror post, “A Method to the Madness: How to Trim Your Potential Agency List,” there is a proven approach to ensure you are considering all necessary factors based on your brand team’s needs.

One of the most important practices is to ask the right questions at the right time. This, however, is easier said than done. To add some guidance to this advice, the following infographic will demonstrate a three-phased approach that has been proven to allow a measured method in narrowing options. To avoid a one-dimensional agency selection, the process outlined in the below infographic can help avoid reaching a hasty decision. To learn more about enhancing your agency selection methodologies, Source One's agency sourcing experts are experienced in identifying the best fit partner.

Collaboration and attention towards the mindset of employees are major themes in the growth of procurement as a practice. When the connection between organizational goals and procurement effectiveness is realized, companies can save internal resource strain by creating efficient procurement processes that optimize ROI, boost morale, and engage cross-departmental goals. As Source One prepares to speak during the Institute of Supply Management (ISM) January meeting on the 8th, they are eager to relate this concept to the IT and SRM spaces, and allow supply chain professionals to realize the power of mindset in advancing procurement.

David Pastore, a Source One Director, will be discussing the topic of IT and Procurement collaboration and the value this brings to organizations. IT and Procurement have not always share the same goals and objectives. IT is looking to implement the newest technologies in order to streamline processes, while Procurement is looking at how to impact the organization's bottom line. However, by working together, these two departments can help to achieve significant value for an organization through revealing overlooked operational efficiencies. Pastore's presentation will lay the groundwork for how to improve collaboration between these two separate departments. By working together, IT is able to better communicate to Procurement their wants/needs in new technology. Procurement can work within these parameters to find the most cost effective solution, improving the organization as a whole.

Brad Carlson, Director of Supplier Relationship Management (SRM), is slated to discuss the topic of risk management through SRM and how supplier collaboration can lead to optimal value from these connections. In today's world, risk management is a crucial component to any business' strategy. Government bodies are developing more laws and regulations that organizations must comply with in order to continue operating. Data security is becoming a greater concern than ever before for organizations and consumers alike. For these reasons and more, organizations need to be able to stay on top of each of these concerns; otherwise they may face financial penalties or other damaging repercussions. Carlson's "Risk Mitigation through Supplier Relationship Management" presents a risk-based approach to SRM to better manage third-party risk in organizations. By segmenting suppliers based on the areas of greatest risk, sourcing can focus their attention on high-impact suppliers and assure that regulatory and security requirements are being met.

For more information about the January Dinner Meeting, visit ISM-Philadelphia's webpage. For those interested in discussing these two topics in more detail with either Brad or David, please contact hgrossmuller@sourceoneinc.com.

Image courtesy of http://www.ism-phila.org/
What will manufacturing procurement look like in 2015?

Coordinating material distribution with reliable suppliers and purchasing equipment to keep facilities updated are two objectives procurement officers will strive to complete in 2015.

This isn't much different than any other year, but the landscape on which these practices are completed is due to shift in a particular direction. For one thing, nearshoring to low-cost production economies will likely continue. 

Global economic factors a major concern 

While it's easy to segment manufacturing economies by country, it's important to assess the industrial sector from a global perspective. For years, the West and the East have primarily behaved as consumers and producers, respectively, with U.S. developers contracting Asian production companies to fabricate the goods they design. 

Now, an atmosphere of uncertainty is causing procurement officers to rethink a model that has persisted over the past 30 years. Manufacturing.net spoke with Manufacturers Alliance for Productivity and Innovation Foundation Director of Economic Studies Cliff Waldman, who acknowledged the rapid growth rate of industrial investment but wondered as to how long the 24 percent year-over-year increase will last. 

"With U.S. domestic policy being somewhat less uncertain, investment strength in the New Year will depend quite a bit on the perilous state of the global economy and whether a number of critical regional issues can be resolved," Waldman told the source. "Deflationary concerns in the Eurozone, the continuation of a slowdown in China [and] an economic crisis brewing with Russia are all risks for business investment and U.S. manufacturing."

Reshoring will continue, but it won't be big 

From a spend management professional's perspective, reshoring makes sense in some respects, but such experts are proceeding with caution. IndustryWeek's John Zegers noted several areas manufacturers assess before implementing domestic operations

  1. Transportation and energy expenses
  2. Current and projected demand for products
  3. Rising labor costs in China and developing countries
  4. Whether the required talent is available 
  5. Taxation and regulations
  6. The accessibility of capital
  7. Currency value fluctuations and stability 

Given the current state of the U.S. economy and its resources, it's expected that reshoring operations will focus on the development of the nation's natural gas sector. Zegers referenced a PricewaterhouseCoopers report showing that shale gas extraction could add 1 million U.S. production jobs from now until 2025. For instance, one U.S. steel manufacturer recently invested $100 million in a Midwestern facility to satisfy demand for tubes and pipes needed in processes associated with shale gas.

The steel producer example cited above is one example of how domestic natural gas producers are connecting with U.S. suppliers to reduce transportation costs and ensure timely delivery. Whether or not it foreshadows a mass reshoring arrival is debatable. 

Companies investigate supply chains for slavery

It's a situation the average business professional may regard as something out of a Hollywood film. Still, it's evident that instances of slavery go unnoticed, and many of the people exploiting free labor establish legitimate connections with companies hungry for cheap goods.

This kind of behavior has motivated procurement management officers to carry out thorough assessments of their supplier relationships. However, merely conducting an investigation of a supplier's practices is just the first step - purchasing experts must also examine the contacts of their partners and how they conduct operations.

Modern Slavery Bill sparks inspections 

In the United Kingdom, the nation's Parliament is currently reviewing the Modern Slavery Bill, which contains a clause that obligates large organizations to submit reports detailing their efforts to ensure slavery isn't persisting within their supply chains, Supply Management reported. Baroness Butler-Sloss was quoted as stating that she believes the bill will be passed into law by Feb. 2015. 

Butler-Sloss spoke at a Westminster Legal Policy Forum on the proposed mandate in London earlier this month, where she asserted there were between 13,000 and 15,000 slaves residing in the U.K. It is believed the Modern Slavery Bill will put a significant amount of pressure on gangmasters who are controlling these citizens. 

How will it impact organizations? 

The Modern Slavery Bill is all about transparency, and as such, it will require businesses to scrutinize multiple areas within their procurement processes and supply chains. Butler-Sloss outlined how much of an impact this clause will have on their operations. 

"Primark sells clothes. They need to find out not only who makes the clothes, but who produces the material," she told Supply Management. "You need to go right down the supply chain, sometimes 10 or 12 areas, to see the business who's making what's sold in this country."

Education a key step in fulfillment 

In order to satisfy the mandates within the Modern Slavery Bill, some companies are already taking measures to ensure their suppliers are not sourcing goods from slave drivers. For instance, Supply Chain Standard noted Sainsbury recently teamed up with the Gangmasters Licensing Authority to instruct Sainsbury's personnel on how to identify labor exploitation in farms, pack houses, factories and processing plants. 

GLA CEO Paul Broadbent informed the source that the organization's partnership with Sainsbury demonstrates the latter company's commitment to routing out slavery wherever it may persist. The Modern Slavery Bill signals a time in which procurement officers will soon transform into investigators in their own right. 

Thirty years ago I was a new college graduate with a Bachelor’s of Science degree in Management and Organizational Behavior. I remember feeling that I was prepared to do almost anything and at the same time almost nothing at all.  What was I going to do and how do I start?

Armed with my newly earned degree I hit that pavement looking for a job.  (Back in the eighties this basically meant reading the “want ads” in my local paper and talking to people who were already working – the original thought process behind “networking”).  I came across an ad for a Purchasing Clerk at a local manufacturing company. So I mailed my resume in and a week or so later received a phone call to come in for an interview.  I was offered the position immediately upon the conclusion of the interview.  Although I was given a typing test and had answered a few questions asked by the manager of personnel I really had no idea what the position would entail.  I quickly learned that I would be typing, filing and answering phones for the department that ‘bought stuff’.    

The Purchasing department consisted of a manager, four buyers, an expeditor, three clerks and a secretary. The training I was given was how to correctly type a purchase order, file and answer the phone.  Within a year we would advance from typing purchase orders on an electric typewriter to entering them into a computer system via a 2 lb. keyboard and a CRT (cathode ray tube) monitor.  What a huge leap in technology this was.   It was unbelievable how inefficient the process of simply creating a purchase order was.  I recently mapped the process and it was comical how cumbersome and time consuming it was.  The same piece of paper would travel back and forth to the same desks several times. First, a requisition was received from the Production Planning department and it had to be approved by a buyer. The buyer would then forward it to a clerk. The clerk would request a drawing (or blueprint as they were called) from the Office Services department, type the order, send it to another clerk to be proofread and then back to the buyer for his signature.    The order, a 5-part form, would then be returned to the clerk to be distributed.  A copy would be mailed to the supplier, the Receiving and Accounting departments would each get a copy and two copies were maintained in the Purchasing department.  [A side note to this 5-part form is that if a typing error occurred the form would need to be removed from the typewriter, erased from all 5 pages and then returned to the typewriter correctly aligned to continue.]

In 30 years the changes that have taken place in the Purchasing arena are enormous.  Simply looking at the then and now of the functionality of my first job the changes are clearly recognizable.

First of all, Purchasing is now only a small portion of what has become an entire industry, Supply Chain Management.  Today I would have graduated with a more specific degree.  The options available for an education are impressive:  Logisitics, Planning, Procurement, Supplier Relations to name just a few.  Not only are degrees available in Supply Chain but certifications from accredited institutions and groups are available to a much greater extent.

The entire interview process that I went through was one simple question and answer period with a typing test, all coordinated by the Personnel manager (now known as Human Resources).  Today, even an entry level position would require a rigorous interview process.  If you are fortunate enough to have the education and specific experience an employer is looking for, you might land a pre-screen on the phone or Skype. Clear that, and you’d likely have a first in-person interview where you might even be tested on your commodity knowledge or ability to navigate Excel like a pro.  Crush that interview and you’ll probably get a second and quite possibly a third interview. By the end of the process an applicant will probably have met with no less than five individuals.  For good measure, throw on a requirement for a background check and drug screening before a final offer, and now you can work in purchasing. However, the good news is, there are no shortage of jobs available!

A 10-person Purchasing Department for a small-to-medium manufacturer is simply not needed today.  If for no other reason the tasks that I was performing have become obsolete.  It is highly unlikely to have an individual doing nothing but typing, filing and answering phones – and why would another individual proofread someone’s work? 

And lastly, Supply Chain Management has become much more efficient in all of its processes.  Not just as per this simple example but in all tasks both in an office environment and the manufacturing floor. Today a process would be mapped out to look for non-value added steps (inefficiencies) and the process would be reviewed for any possible improvements. A specific plan would be implemented and periodic reviews would take place to assure that the intended outcome was achieved.

So yes, things may have appeared simpler back then, but they were also laughably bad compared to today’s standards.  We can actually look back at the redundancies and inefficiencies and come to the conclusion that when it comes to the evolution of purchasing, the old days should not be called the “good” old days.

Photo courtesy of: www.primalperks.com
What can Cuba and the US offer each other?

After a trade embargo that lasted more than 50 years, the United States has finally decided to bolster diplomatic relations between itself and Cuba. 

While it's easy to say the trade possibilities are "endless," that isn't necessarily the case - IndustryWeek noted that the U.S. intends to enforce regulations that will "keep trade and investment relations under tight controls." That being said, procurement management firms aren't writing off the possibility of sourcing raw or finished materials from the Caribbean nation. 

Investment and trade will largely be dictated by what Cuba can offer the U.S., and vice versa. While governmental involvement can't be ignored, the key to the economic success of both nations will depend on whether business experts from both nations agree that establishing relationships with one another will be profitable on a long-term basis. 

What are the restrictions? 

According to IndustryWeek, stringent regulations will likely prevent any serious collaboration among U.S. and Cuban oil, hospitality and automotive enterprises. Lately, the latter contingency has been initiating efforts to establish relationships with Latin American production firms to benefit from low-cost manufacturing - a practice known as nearshoring. However, it appears the U.S. automotive industry will not have a presence in Cuba, at least for the foreseeable future. 

A complete dissolution of the embargo didn't occur for a number of reasons, one of them likely being a general air of apprehension between U.S. and Cuban professionals. Typically, when trade between two previously contentious nations opens without any restrictions, the criminal class exploits opportunities in protection, smuggling and other underground activities. 

Opportunities appear attractive 

Still, the investment opportunity in Cuba is estimated between $5 billion and $10 billion if the regulations imposed by the U.S. are completely abolished, according to Gary Hufbauer, a member of the Peterson Institute for International Economics' senior research staff. He assured Agence France-Presse that the tension as a result of the embargo is sure to relax as time progresses and profitable relations become established.  

"This is only the beginning of a long path to normalization," said Hufbauer, as quoted by the source. "For the most part, U.S. firms are still blocked, not only by U.S. sanctions, but also by the heavy hand of the state in Cuba."

What's being permitted? 

An official statement from the White House maintained the accord will allow Cuban citizens to gain access to "lower-priced goods," which the administration asserts will improve the standard of living within Cuba. In addition, U.S. banks will be able to orchestrate accounts with Cuban financial firms, which will simplify money transfers and make it easier for Cuban citizens to use U.S. debit and credit cards. 

The telecommunications sector is expected to receive a significant boost as well. The White House stated that U.S. telecom companies are allowed to begin constructing assets in Cuba for both telephone and Internet services. From there, it's up to Congress to decide how much of the 50-year embargo should be lifted. 

Can Cuba sustain an industrial sector? 

As of now, the Cuban manufacturing economy has been rather lackluster, but this is likely because it has failed to receive investment from foreign enterprises - a factor that won't change until major revisions to U.S. regulations are made. 

Arch Ritter, a contributor to The Cuban Economy, noted that Cuba "risks becoming a typical small Caribbean Island, exporting services and some resources, while importing almost all manufactures." Two of the reasons why the Cuban industrial sector isn't healthy are listed below:

  • Soviet-era technology and equipment cannot compete with modern implementations.
  • Re-investment in the manufacturing economy's assets wasn't prevalent before 1989, and collapsed with the demise of the Soviet Union. 

In some ways, the U.S. may be the answer to these problems. 

Manufacturers, ERP and the cloud

A plethora of factors are contributing to the rise of cloud-based enterprise resource planning, one of them being the integration of Internet-connected devices into factories. 

Installing electronics throughout manufacturing facilities means the enterprises in charge of those centers are going to have a lot of data to store and process. As opposed to using one system to collect the information, a second to analyze it and a third to present it in an intelligible manner to personnel, allowing a single solution to perform these actions is much more practical. 

The cloud, visibility and opportunities 

Why aren't legacy or on-premise ERP systems capable of conducting the same activities as cloud-based solutions? "Scalability" is often a phrase associated with cloud computing, and for good reason. Not only can the software proprietor expand storage capacity to accommodate incoming information from devices and other sources, it can also access more computing resources to process that data and allow users to take advantage of a variety of features. 

Most importantly, a manufacturer's procurement department could benefit immensely from this build. A cloud ERP can be accessed by every employee within an organization who has permission to do so. In this case, a spend management consultant could log into the ERP and assess information produced by individual or multiple factories. From there, the professional could glean the following insights:

  • Whether factories equipped with new machinery are operating more effectively than others
  • How many units are produced on a daily basis across national operations
  • How material deliveries impact production rates

Bottom line: Cloud ERP solutions allow procurement officers to identify opportunities. According to Corey Rhodes, Amber Road's vice president of the Americas, failure to recognize instances in which new innovations or profits can be taken advantage of prevent companies from gaining competitive advantages. 

"Companies miss a lot of opportunities to innovate because they lack the agility to respond and execute when an opportunity presents itself," said Rhodes in a SupplyChainBrain video. "Sometimes they don't see an opportunity that is right there in front of them.

Some hesitation 

One of the main reasons why manufacturers may not be quick to jump on cloud-based ERP technology is involves the investment they have put into on-premise solutions. TechTarget's Tony Kontzer referenced a Gartner survey of leaders at businesses generating between $10 million to $10 billion in annual revenue. Of the 30 percent who maintained ERP solutions will remain on-premise, almost all of them were working in the manufacturing sector. 

When an executive thinks of procurement management, he or she most often considers management of direct product or service purchases. Yet, in many ways, corporations are themselves consumers, obtaining whatever necessary assets required for operations to run as smoothly and efficiently as possible. Whether office supplies, fittings and fasteners, or disposable tools, indirect materials can present a large potential for cost savings. This is no surprise to the attendants of ProcureCon Indirect East 2015 being held February 11-13 in Florida. Source One looks forward to attending and sharing our thoughts on how to refresh the ideals of the indirect materials procurement process. One key area companies can see an optimized indirect procurement practice, for instance, is through gaining organizational support.

"If you think that you are a second-class citizen versus direct procurement, then you are going to get that reaction," said Brian Davy, head of non-production procurement at Jaguar Land Rover. "We're not the poor relation of direct purchasing, what we do is fascinating and varied." Making the strategic sourcing of the indirect procurement team attractive to the room of
C-suite executives is part of attaining the best materials for a business. A corporation cannot function on raw monetary capital alone, which is why it needs to be invested in both physical and intangible products that can improve the overall functions of the workplace.

There are many cloud computing solutions that aid in the process of streamlining communication between departments—a strong component of gaining organization-wide indirect procurement support. Pat Garrehy, CEO of Rootstock Software and contributor to Manufacturing Business Technology, noted that enterprise resource planning can offer companies the opportunity to reduce excess inventory from 20 to 30 percent, as it provides them with a better way to manage raw materials, parts and finished goods. Ultimately, a cloud-driven ERP solution allows indirect obtainment teams to anticipate product requirements, leading to firmer commitments with predictable lead times.

In addition to widespread support of indirect procurement, there are significant cost savings opportunities associated with ERP and procurement software that can manage and organize information, preventing the need for multiple spreadsheets and email messages coordinating inventory.

Source One loves to discuss this area, as it is the foundation of their publication, Managing Indirect Spend: Enhancing Profitability Through Strategic Sourcing. If you have any indirect procurement thoughts and you’d like to exchange ideas at ProcureCon Indirect East this year, please contact us at hgrossmuller@sourceoneinc.com and we can schedule some time to meet.

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As corporations continue to strive for ways to stay innovative, offshoring repeatedly comes into play. While a large portion of my daily work involves spend analysis, this evaluation cannot always be a long term solution without shifting and innovating operations. Offshoring becomes a viable option for organizations that see potential in relocating a business function to another country where it is less of a cost strain to operate. However, offshoring can come with serious pitfalls if the team is not managed correctly. Project Managers must figure out how to adapt to be successful in these new collaborative environments.  Presented are a few tips to assist in effectively managing an off shore team:

Maintain a 360 Understanding of the project at hand. Consider which lifecycle model is appropriate for the methodology at hand. You also should consider any unique deliverables that will come from the project. Transparency must be maintained at all times in this type of collaborative setting. 

Use time differences to your advantage. Offshoring presents the opportunity for work to continue to be completed beyond ‘work hours’. If tasks and deliverables are effectively laid out ahead of time, there should be no reason why work should not be able to continue. Time differences can also be used to make sure tasks are properly delegated ahead of time.

Be aware of communication barriers. Even with both parties able to converse fluently, things may get lost in translation, just as with internal projects. It is more important to plan accordingly and have a means to document all crucial details for future reference.

Be aware of scope creep. By maintaining a 360 understanding of the project, challenges like this can be well managed.  Even if you are new to a particular industry, by fully understanding the project, you are far less likely to underestimate the complexity of it.  It is also important not to simply exceed the scope with the false belief that you are adding value. This can especially complicate things when working with an offshore team. 

Manage risks proactively. Thanks to constant technological advances, physical distance is no longer a principal problem for offshore teams.  Risks now come down to how effectively the process is managed. While it is impossible to prevent all risks, building a team that is able to promptly handle any unforeseen threats will aid in cutting down the severity of such problems.  It is vital to identify risk early and openly communicate about any possible risks with your team, both internal and offshore. 

Acknowledge progression. While many of the tasks at hand may seem trivial to the overall picture, it is important to take time to thank everyone for their involvement. 

Offshoring is often viewed negatively because individuals believe these outside parties are there to "take their job”. This is also a common assumption that people believe with procurement.  In reality both procurement and offshore teams are utilized so that corporations can continue to free up internal resources to use in higher priority areas. Offshoring can present an opportunity for team members to continue to focus on their core competences.

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Want sustainability? Revisit your supplier relationships

A company's supply chain is only truly sustainable if its suppliers' leadership is equally committed to the cause.

If just one partner fails to implement operations that disacknowledge environmental or social considerations and neglects to use resources efficiently, the enterprise procuring goods from this entity will have an incomplete sustainability strategy. 

Finding out what you need to know 

In order to ensure each supplier is conducting sustainable practices, organizations need to make concerted a effort to obtain intelligence regarding B2B relationships. IndustryWeek's Sara Greenstein maintained that a failure to acquire a comprehensive view of the supply chain can not only hamper positive environmental or social movements, but can cost businesses an incredible amount of capital. She cited three instances in which procurers suffered as a result of the actions of their suppliers:

  • Apple's reputation encountered some setbacks in 2012 when investigators uncovered unfair and unsafe employment practices by Chinese manufacturers that were producing iPhones. 
  • Mattel was forced to recall nearly 1 million toys in 2007 due to lead paint used by its supplier in China. 
  • In 2012, Nintendo received poor marks regarding its efforts to ensure it wasn't directly or indirectly sourcing conflict minerals. 

Greenstein asserted that these grievances occurred because the aforementioned companies failed to gain full control over their sourcing. She maintained companies can resolve this issue by implementing more stringent policies regarding suppliers. For example, during the request for proposal process, the purchasing department could implement a clause that obligates suppliers to submit regular reports detailing sourcing, labor and environmental practices. 

Developing supplier metrics 

Jessica Wollmuth and Velislava Ivanova wrote a piece for GreenBiz acknowledging the importance of establishing standards to impose upon suppliers. The duo recommended using a simple benchmarking questionnaire or self-assessment document. In addition, companies should connect with their suppliers' other customers to deduce whether hidden problems are falling through the cracks. 

Wollmuth and Ivanova also noted that organizations can take advantage of industry-specific questionnaires. For instance, electronics and IT hardware enterprises can access the Electronics Industry Citizenship Coalition Self-Assessment Questionnaire while those in the drug sector can make use of the Pharmaceutical Supply Chain Initiative Self-Assessment Questionnaire.

For example, Pacific Gas and Electric uses the Electric Utility Industry Sustainable Supply Chain Alliance survey to identify how well its suppliers are performing in regard to greenhouse gas emissions production, a key issue that is impacting many electricity providers across the United States. 

Source One is proud to announce that it is sponsoring the 1st annual Medical Device Strategic Sourcing Conference in Atlanta, Georgia this upcoming January 26-27, 2015. With the upcoming conference and recent recalls of medical devices over the past few months, Source One has been paying much attention to the spend category.

With heavy pressure to cut costs and boost efficiency, the U.S. medical industry has been stressed by additional costs brought about by injuries due to use of recalled equipment. With these recent developments, the FDA has been heavily criticized for their medical device approval procedure and its effectiveness. To reduce costs of not only medical device manufacturing but also ensure adequate testing on finished products to prevent any recall controversy costs, medical device manufacturers must seek out the highest quality materials from a reliable source for a competitive price.

A recently emerged trend has companies contracting with suppliers in Mexico and other Latin American countries over low-cost Asian countries to accommodate these needs. While the reasons are numerous, many companies assert Mexico's highly-educated workforce, infrastructure upgrades and ability to avoid import tariffs in certain countries have driven the shift.

According to a recent whitepaper by The Entrada Group, companies are able to achieve a competitive edge by sourcing medical device components from Mexico as opposed to other countries due to rising health care costs and the pressure to meet competitive price levels.

If a medical device company plans to sell its products in North American markets, but endeavors to keep costs down, Mexico presents a perfect compromise, the whitepaper concludes. First, a medical device company must decide what the total deliverable costs of sourcing the product in another country will be; while many Asian countries undoubtedly provide low-cost labor, there are often bigger costs incurred in transporting those goods to North American markets.

According to Doug Donahue of The Entrada Group, “With Mexico’s introduction of the Maquiladora business model in the 1960s, and the enactment of significant national trade agreements such as the North American Free Trade Agreement (NAFTA), Mexico continues to be a prime supplier of products for sale to the U.S. and other global consumers.”

Although each scenario has its relative pros and cons, the nearshoring trend is a notable development worth keeping an eye on for medical device manufacturers. Source One looks forward to the Medical Device Strategic Sourcing Conference to hear industry insights and share our observations of the market. If you are planning on attending the event and would like to meet with us to share your own ideas, please contact Source One Marketing Manager Heather Grossmuller at hgrossmuller@sourceoneinc.com

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Redirecting procurement to improve production companies' 'support' teams

Manufacturing firms are concerned with two facets of purchasing: indirect and direct procurement.

Direct procurement involves acquiring raw materials or components produced by other organizations for intent of creating finished products with those resources. For instance, an automotive company may source spark plugs from a firm that specializes in making vehicle electronics. 

In contrast, indirect procurement is the practice of purchasing services, supplies or products to support day-to-day business operations. This includes acquiring everything from paper clips to enterprise software. While buying paper clips is a task best undertaken by individual departments, obtaining an application for an entire business' marketing team, for example, is a responsibility of centralized procurement groups. 

Which practice receives priority? 

Neither indirect nor direct procurement should be prioritized over the other. However, the way in which professionals approach these two responsibilities must be different. In the case of indirect procurement, those responsible for purchasing new assets must deduce how they will contribute to the company's functionality. 

For manufacturers, it's easy to get caught up in the direct method - purchasing quality materials at a price that will allow them to turn a profit and establishing relationships with suppliers that exercise sustainability and social cognizance. However, failing to pay attention to what sales, human resources, IT and other departments are using to conduct their jobs will cause production operations to suffer. 

Scrutinizing the performance of the 'upstairs factory'

William Heitman, a contributor to IndustryWeek, referred to HR, marketing and other such departments in manufacturing firms as "upstairs factories." He acknowledged the actual production facilities as customers of these back-end operations.

"[Upstairs factories] make 'products' that optimize the downstairs factory and the business overall," wrote Heitman. "Astonishingly, however, companies run their upstairs factories as if the principles of continuous improvement they apply relentlessly downstairs don't apply upstairs."

Basically, Heitman maintained that factories are often the subject of intense scrutiny. Managers of these facilities are often criticized if even minor inefficiencies go unacknowledged - everybody's looking for a better way to build widgets.

No metrics to glean insights

Heitman noted one multibillion-dollar production firm that monitors cycle time and error rates throughout each of its factories. In contrast, it doesn't employ any method of measuring the effectiveness of its sales operations. As a result, receiving, booking and processing orders takes 20 percent longer than producing and delivering products. 

Performance metrics may seem inapplicable to procurement, but they can provide spend management analysts and other professionals with insights regarding how assets (software, products, etc.) are helping their "upstairs factories" perform. For instance, a statistic regarding sales lead conversions may signify redundancies in a customer relationship management program. 

Which facets of the 'upstairs factory' need revising? 

Heitman focused a lot on how well the financial department operates. For instance, some professionals working in these teams may create reports for people who request them, but either give files names that mean nothing to their co-workers or simply fail to share them. 

With this kind of approach in mind, Heitman recommended several "downstairs factory" practices that can help financial departments operate more efficiently:

  • As opposed to conducting financial reports on an ad-hoc basis, Heitman advised employing a demand management strategy, which would reduce workflow waste by 15 percent.
  • Instead of storing reports on individual desktops, it will benefit finance teams immensely if they use a cloud infrastructure to hold those documents. 
  • To measure efficiencies, professionals should devise a metric that not only identifies the exact cost of creating a financial report but also assesses why expenses are so high or low. 

Ultimately, taking these measures will give procurement officers an accurate perception of what financial departments require in order to perform their jobs at a level that is monetarily acceptable. 

A recent study revealed that luxury goods brands ensure strong relationships with suppliers to instill a high sense of trust and support. In this type of collaborative setting, suppliers are more willing to push their capabilities and go the extra mile to confirm quality. With the value they realize from relationships, it’s no surprise that premium brands have a thorough understanding of SRM and how this guides their strategy closer to objectives. With that in mind, SRM enthusiasts are left to wonder what makes the luxury goods market so easily cognizant of the importance of supplier relationships and why haven’t other industries caught on as actively.

One interesting, yet arguable point presented by Supply Management, states that “[Premium brands] are also more driven by being the ‘customer of choice’ for suppliers, rather than obtaining cost savings, because of their focus on quality, exclusivity, cutting-edge technology and customer experience.” This can be true in luxury brands for the reasons listed; however SRM programs don’t have to be major cost centers. They can be just as effective, even in the luxury goods industry, with a cost-saving inclination. In fact, SRM programs are a great tool to mitigate risk and minimize costs.

Nothing bridges the gap between procurement’s category strategies and stakeholder needs like supplier management. If there’s a growing appreciation for that, it’s probably attributable to a growing maturity among functions that effectively communicate and manage the relationship between suppliers and stakeholders, as well as more nuanced technology.

SRM Programs are also prevalent in luxury brands because these high-end organizations feel the need to build and maintain loyalty with their suppliers. In return, the supplier will have a very positive opinion of their brand and they are more likely to receive good feedback from suppliers. However, this is not the only requirement when it comes to SRM. Another quality that is extremely important, which luxury good organizations seem to lack, is the ability to develop and incorporate a well-organized procedure that will help reduce costs.

In a recent study completed by Supply Management they state, “When asked how the procurement function would evolve over the next three years, just under two thirds of respondents thought the role would grow in importance, moving to making board level decisions. A fifth of those polled said their CPO already had a place on the board.” This poll is one example of how important it really is to build relationships in order to attain continuous success, not only internally with stakeholders but also externally with suppliers.

The possibilities of enhanced supplier management practices by enriching every point of interaction between the business and its suppliers are huge: governance, risk management, innovation, and enhanced spend visibility. The right system could change the entire relationship and empower stakeholders to make informed buying decisions. This can be achieved in an assortment of ways which best fit each business’ objectives. Source One helps organizations manage their SRM activity in a way that is best suited to their organizational needs.

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Will truck fleets support the rise of compressed natural gas?

Those in charge of spend analysis at logistics firms may have taken a glance at the price disparity between compressed natural gas and diesel fuel. The former fuel source is much cheaper than the latter, but procuring CNG would mean replacing vehicles. 

The transition wouldn't have to occur over night - gradual integration into existing fleets is the best approach to take. However, there aren't many gas stations distributed throughout North America that sell CNG, which complicates distribution routes for logistics companies. Is it only feasible to use CNG-fueled trucks in certain regions? How fuel-efficient are CNG vehicles? These are just two out of a list of questions logistics firms are asking themselves. 

Is the price right? 

From a cost perspective, CNG looks attractive as prices stand in the present. CNG provided a graph to interested parties regarding the cost of energy derived from fossil fuels. As of now, the average gallon of CNG costs $2.11, while the same measurement of diesel stands at $3.89 - a huge disparity that has certainly caught the attention of spend management professionals. 

While these are certainly attractive figures, logistics firms know the volatile nature of the fossil fuel economy all too well. Predictive analytics and other tools can help fleets prioritize shipments according to projected fuel expense figures, but these applications can only get a company so far. 

Are the locations workable? 

As far as location is concerned, the U.S. Department of Energy's Alternative Fuels Data Center noted there were 791 CNG stations located across the country. High concentrations of these stations were in Oklahoma, the Wisconsin side of Lake Michigan, New York City, Los Angeles, the California Bay Area and Salt Lake City, among other areas. 

Given these statistics, it's certainly feasible for a logistics company to set up operations with CNG fleets. Thanks to GPS analytics and Internet-connected devices, cloud-based fleet-management tools will be able to assist supply chain management firms in orchestrating routes that factor in CNG stations. However, if a business participating in this industry doesn't have such technology in place and wants to use CNG trucks, procuring the software and physical assets necessary is a must. 

How expensive are the vehicles? 

Some fleet administration experts would assert that the trucks they have at their disposal don't need to be replaced. For others, the case may be different, but the upfront cost of procuring CNG freight vehicles may cause them to shy away. 

Clean Logistics Consulting President and Founder Patti Murdock has been a strong support of the energy, but she also recognizes the drawbacks associated with CNG. While the price-per-gallon appears enticing, she acknowledged that CNG trucks typically get 10 to 15 percent fewer miles per gallon than diesel. The expense savings can only be realized when​ a truck's trips are long. 

"You want to look at your network very carefully and understand the options. This is not a fuel where you can just pull up and fill the tank when it's low – you have to be more strategic about it," said Murdock in a video on SupplyChainBrain. "A truck needs to log 80,000 to 100,000 miles annually to justify switching to natural gas." 

Can CNG be used as a differentiator? 

For logistics companies looking to leverage their use of CNG as a marketing strategy by claiming it's more environmentally friendly than diesel, they're out of luck. USA Today referenced a study conducted by 16 scientists from federal laboratories and seven universities, which found that while natural gas is cleaner than diesel, extracting it releases methane gas, which contributes to global warming.