February 2015
Brad Carlson is an industry-recognized supplier relationship management (SRM) master, most identified by his strengths in building strong internal and supplier stakeholder buy-in to expand the confines of a traditional contractual relationship. Carlson is known for looking beyond a textbook approach and deploying a series of tailored SRM tactics and strategies to unlock hidden value for his clients and the supplier.  For these reasons among others, Carlson was awarded the 2015 Supply & Demand Chain Executive Magazine “Pro to Know” distinction.

Carlson encourages establishing a firm foundation and understanding of the essentials before your ramp up your SRM practice into turbo mode. Although SRM activity is a fairly newer discipline in the US, countries in Europe have established it as an essential corporate process. This point of view is supported by a guide I recently came across on “Find The Edge,” where English author David Atkinson guides readers through 10 principles to make an SRM goal into reality:

1. What Is It: SRM involves managing routine supplier communications to realize additional value from those connections before, during, and after a contract is enacted. Seems simple enough—however there needs to be an understanding that SRM can add unnecessary intricacy to an already multifaceted sourcing practice. By striking a balance between too much communication and not enough, both sides are left up-to-date and in the loop.

2. “Ongoing” Is The Magic Word: Once a supplier relationship has successfully begun, that is not the end of the game. To ensure ROI, continuous improvement, and risk mitigation during a supplier partnership, businesses have to remain as engaged as possible. To gauge the appropriate level of activity, Source One’s SRM Insights Report frames up how to approach the frequency of communication: “Not all suppliers require the high level of interaction offered through a comprehensive SRM program. Vendors that directly impact financial performance, affect the delivery of goods and services, have access to sensitive company information, and/or are associated with corporate regulatory obligations represent ideal scenarios for SRM.”

3. Scalability Is Paramount: Organizations must plan to scale up and down their interaction with suppliers based on how “essential” the relationship is to their core business. Whether a high or low priority, SRM can help retain savings achieved in strategic sourcing. In fact, without rigorous contract management, 75% of sourcing savings can disappear within 18 months.

4. Strategically Link In Sourcing: To enhance the results of strategic sourcing, SRM needs to be completely integrated with the process for maximum impact.

5. How to Gauge Preference: Atkinson points out, “[SRM] requires a detailed analysis of the specific supplier relationship, before the strategy can be determined; one size certainly does not fit all.” To determine the level of “priority” to place on a supplier, the following questions are useful:

  • Is the relationship strategic to the business and important to growth?
  • Does the supplier support the most important products or services?
  • Does the supplier represent a significant expenditure?
  • What is the risk of supplier failure?
  • Are regulatory and security issues involved in the services provided by the supplier?
  • Does the supplier offer specialized products or capabilities that offer a competitive advantage?
  • What does the supply market look like?
  • Is the supplier in a competitive vs. collapsed market?
6. Document Progress: With global partners managed by multiple parties, the whole team must be informed of all progress. Software utilities are often helpful in staying up-to-date.

7. It’s Not All Fun and Games: Although communication with suppliers may seem like just an easy conversation, SRM involves strictly adhering to processes and ensuring maximum value. Although interpersonal skills are an asset, that is not what it’s all about.

8. Compromise is Key: SRM doesn’t always equal a complete ‘win-win’; although contracts must be structured to satisfy both sides. Negotiation will help disagreements to form a mid-point agreement.

9. Anything Is Possible: SRM involves pushing for daily operational improvements as much as it does mutual value creation and innovation. This opens the door for any form of alliance opportunity with suppliers, but the basic goals of the relationship should not be forgotten while pursuing new endeavors.

10. Ease Your Way In: Atkinson accurately sums it up, “To get started in an SRM program, it always best to successfully implement a small number of SRM pilot projects, rather than go for the ‘big bang’. If you choose the latter you’ll quickly find your resources spread too thinly, and leaders and stakeholders will become frustrated by your lack of business impact.”

Once you’ve ironed out these ten fundamentals, your organization can form a more comprehensive view of supplier relationship management best suited for each unique circumstance. For more SRM guidance, Source One’s award-winning supplier management experts help clients form plans in any industry. 
Michael Croasdale, a Source One Sr. Project Manager, has taken a new approach to the MRO (maintenance, repair, operations) category, blending traditional sourcing best practices with innovative solutions for successful top-down implementation. Croasdale’s outlook allowed him to gain the title of a 2015 Supply and Demand Chain Executive Magazine Pro to Know.  With such a cut-and-dry category, you’re probably thinking, “How can you possibly innovate?” Aside from the potential for innovation in strategy (enhanced supplier management and sourcing techniques), there are ways to tangibly drive new value to this area that Croasdale has witnessed firsthand. So sit back, relax, and hopefully our Pro to Know’s approach enlightens your own MRO sourcing practice.

Taking a Step Backwards: What’s MRO All About?

As the Business Dictionary coins it, MRO refers to “supplies consumed in the production process but which do not either become part of the end product or are not central to the firm's output. MRO items include consumables (such as cleaning, laboratory, or office supplies), industrial equipment (such as compressors, pumps, valves) and plant upkeep supplies (such as gaskets, lubricants, repair tools), and computers, fixtures, furniture, etc.”

Green It Up

One primary innovation taking place in the MRO space involves more health and environmentally-conscious industrial cleaning practices. These practices can also extend to purchasing office supplies manufactured from recycled materials, reducing paper within the sourcing process, or using gases/lubricants that do not have adverse health effects to factory workers. It is possible to achieve a significant savings percentage when sourcing sustainable and eco-friendly products/raw materials. Croasdale promotes businesses separating themselves from the misconception that sustainable solutions are always more costly than traditional options due to higher production costs involved. Sustainable business practices are an area that can offer innovation to the MRO category and still grant the same savings.

Broaden Your Supplier Horizons

According to a recent Maintenance Technology article, there is no shame in “cheating” on a supplier. Keeping your supplier options open, even if you are doing business with the competition, means you are available for better, more valuable alternatives if they should present themselves. When an organization takes the “we only do business with certain partners” avenue, it is limiting itself to innovation. This is the case within any spend category—just prevalent in MRO.

Heinz Bloch, Exxon Chemical’s Regional Machinery Specialist, supports this thought:
“More than ever, the decision to single-source is often made by uninformed people. Those who defend this approach typically miss the point about how closely reliability and profitability are related. It’s true that whatever a principled professional or leading corporation does should be driven and motivated by the desire to make profits while providing value and quality. But profitability is best achieved with reliable equipment, which is best served by using multiple sources of supply. This approach promotes competition, innovation and the ethical treatment of others—which is another way of saying, ‘Let’s work together.’”

Whichever category you are specialized in sourcing, remember that obtaining “preferred buyer” status can limit your ability to adapt when better ideas are presented if you don’t consider the opportunities. By no means is receiving preferential treatment negative quality, however even the most tight-knit relationship is not worth overlooking a better value. Especially in MRO, keep your eyes open to what’s out there!

Sources referenced:

Identifying Value with Leah Halvorson, 30 Under 30 Supply Chain Star and Director of Procurement at Minneapolis Public Schools

ThomasNet and the Institute for Supply Management collaborated to launch the "30 Under 30 Rising Supply Chain Stars" Recognition Program, an initiative that acknowledges procurement professionals under 30 years old for their strategic thinking and expertise.

We recently had the opportunity to speak with one of its winners, Leah Halvorson, who heads the Minneapolis Public School district's procurement department as its director of procurement and supply chain development.

Carrying an air of ambition, she continuously emphasized the importance of bringing value to the students through her team's purchases and using creative methods to determine ROI. In addition, she also feels responsible for learning about her environment and how the decisions her team makes impact the organization as a whole.

It's your first day as Director of Procurement & Supply Chain Development at MPS – what's that first item on your agenda?

"I take an approach that's similar to what the first 100 days are for a president of the United States, which is that, within a hundred days, it's going to take some time to observe, learn where you're at and acclimate to your surroundings, and then make changes after that process is complete. I'm not the kind of leader who just comes in and bulldozes, making changes right that second without being informed." 

In fiscal 2014, you saved the school system $2 million. What approach did you use that allowed you to identify and reallocate those savings? 

"Up until three years ago, our procurement department did not serve a support role, and that was one of the things that I changed when I took over. My team and I turned it from a transactional department of just turning requisitions and purchase orders and adding in vendors to truly supporting business units and schools so that they could support their students.

"For example, one thing I did was work with our high users, both by spend or by volume, for printed materials – whether those were report cards, brochures, marketing materials, etc. When we were looking to save money in fiscal 2014, we did that by opening our document center. On any given job, on average, that document center saves us about 60 to 80 percent.

"Getting approval for this item involved developing trust among users, saying 'Look, we have XYZ area that's using it, here's how much we can save them on this job and this is what they used with that money instead.' Now, we can do something more impactful such as hiring a teacher or freeing up more time for teachers to spend with their students."

How do you think procurement can be leveraged to support the ideas behind education? In other words, how do you think your strategic approach to purchasing management positively impacts students? 

"If an individual from any department within the organization says 'Give me the information I need to source a learning management system,' my job is to ask:

  • 'How do we determine what that return on investment is going to be?'
  • 'How will it impact student performance here at Minneapolis Public Schools?'
  • 'Is it going to impact my stakeholders (the administrators, staff and teachers) so they have more time to dedicate resources to students?'

"In some cases, [the answers] are pretty black or white. In other cases, especially within education … it tends to be difficult to really define, to say 'This software is why a student graduated high school' when three years ago he or she was a struggling student.

"We initially look at why we want to source something, why an item is in place and then monitor and assess that item on a quarterly and annual basis to see if the needle is moving – whether it's through the soft side or the hard dollar impact."

Do you think the "30 Under 30" program is important? Why? 

"I'm really happy that ThomasNet and IMS are celebrating individuals in the profession who are my age, so it can show other individuals who are coming up into the world that there are others in procurement who exist. I think procurement is really interesting – there's a lot of variety and the chance to make an impact on an organization.

"I want to use this award to be an evangelist and tell people in my generation that they should consider coming into this world … It's not just sitting in front of a computer and crunching numbers all day. I would say procurement involves a lot of investigative work. I like being able to see the high-level picture of where the organization is going, how it's getting there and figuring out how procurement strategies can impact the organization's bottom line."

Today, Source One’s own Martin Przeworski was recognized with the Supply & Demand Chain Executive “Pro to Know” accolade. Przeworski stood out for his ability to prioritize engineering needs within a sourcing-led initiative to bridge the gap between both departments and develop a well-communicated shift from conventional, decentralized purchasing approaches. With the rise in demand for sourcing attention in the medical device industry, Przeworski’s know-how has been changing the game. One development that has caught the eye of many industry gurus, including Przeworski, is the new software utilities to manage quality and risk while bringing a medical device product to market.

According to Jesseca Lyons, Product Development Engineer at Catheter Research Inc., “Surprisingly, but like many leading industries, a recent industry benchmark survey stated that in most major functional product areas, more than 50% of respondents confirmed still using manual, paper-based processes.” In the medical device arena frequently sourcing raw materials from low-cost countries, outdated information management is not an effective means to fulfilling demand.

This news is important to consider—but no excuse to jump into an agreement with any software solution just because it seems like the best route. Within the lengthy medical device New Product Development Process (NPDP), organizations need to benchmark which software, performance measure group (PMG), or performance management methodology is best suited.

I came across an interesting thesis from an engineering student at MIT who felt, “Having a lean operation is no longer considered a competitive edge; rather has become the new necessity and norm”—bingo. The medical device community understands that their NPDPs are an area to rise above the competition, and this can be done through the practice of benchmarking with criteria of industry key performance indicators (KPIs). Sassan Zelkha, the author of Benchmarking Of A Medical Device Company’s Product Development Process, combined qualitative and quantitative criteria to consider when evaluating your options. This approach, of course, doesn’t examine company culture, which is something you’ll also want to take a look at—however without knowing the organizations in question, Zelkha hits the nail on the head. 

For the quantitative, he points to the following as signs of quality expressed in hard numbers:

  •          Innovation: % revenues from new developments
  •          Productivity: Number of ECO (engineering change order) per engineering
  •          Response Time: scheduling integrity
  •          Cost: budgets and product reuse rate
  •          Quality: MBOM (Manufacturing Bill of Materials) accuracy
  •          Value: realized value ($) of innovation, impact of R&D budget ($) on the organization

For the qualitative side, Key Performance Levers (KPL) are:

  •         Innovation Excellence
  •         Product Lifecycle Management
  •         IT Enablement
  •         Software Practices
  •         Resource Management
  •         Design Excellence
  •         Technology Excellence
  •         Functional Excellence
  •         Development Chain Excellence
  •         Portfolio Excellence
  •         Product Excellence
  •         Project Excellence

KPI/KPLs In Action

One recent engagement in which Przeworski leveraged similar performance indicators involved a multinational medical technology company that needed to enhance engineering and designing capabilities for a main product component to mitigate the device’s radiation footprint. This SOW identified components including data acquisition systems and photo diodes for computed tomography (CT) machines, X-ray tubes and flat panel detectors for X-ray machines, magnets and gradient amplifiers for magnetic resonance imaging (MRI) machines, and crystals for positron emission tomography (PET) machines.

In English, this initiative required ensuring the safety and quality of patients receiving device treatment through benchmarking the component suppliers for the desired traits and service standards. As Zelkha expressed in his thesis, there is no widely-recognized or regulated standard of NDPD effectiveness, so determining value begins in supplier vetting and identification. Following questionnaires and interviews, clearer qualitative and quantitative insights were gained and initial research was backed by firm qualifiers/disqualifiers.

Through benchmarking, Przeworski identified contract manufacturers that were best suited to manufacture the PCBAs and electronic assemblies to the required level of quality. Another key activity involved the evaluation of box builds or sub-assemblies as potential solutions. Re-engineering the supply chain of a piece of diagnostic imaging equipment opened the door to larger-scale areas of improvement, but still remained a core focus of the engagement. With the help of Przeworski and Source One’s support, the client contracted over 30 qualified suppliers, received 23% savings from prior agreements, produced 700,000 units of custom components, and paved the way for long-standing business relationships.

Although this is only a glimpse of a very intricate evaluation, Przeworski and Zelkha have noticeable parallels in their view of the most important characteristics in medical device value-adds. These are also goals that attendees of the Medical Device Strategic Sourcing Conference held in January mentioned to Source One as we networked with industry sourcing executives.

As the industry grows and continues to develop, Przeworski is eager to take part in the changes. “It’s an honor to be recognized by an industry staple publication such as Supply and Demand Chain Executive Magazine,” he mentioned after receiving his award. "This is an exciting time in the industry to capitalize on opportunities to bring engineering and sourcing closer together—I’m very happy to be a part of it."

The next time you reevaluate your NPDP, look outside the initial confines of cost to gain some insight into quality—this is where the most long-term value can be delivered. 
It’s official – hourly worker wages are finally growing again, and the wave is just beginning. The market knows well that Walmart, a typical wage-laggard, has caved to inevitable market pressures and announced a wage increase for a half-million employees up to $9/hour by April and $10/hour by next February. How will this wage growth affect your suppliers' cost and pricing structures, and what is the best way to combat the all-but-certain price increases that they are gearing up to pass on to you? How do you counter the Walmart wage growth effect?

First, take heart that you don't need to scramble to establish a new best-in-class procurement strategy related to low-wage produced items in the next few days. Costs tend to rise after a new wage floor is introduced, not in immediate anticipation of wage growth, so the wave of increases may be months off. However, it is never too early to enact strategies & processes that will allow your company to weather the storm and come out of the other end with your pricing still intact and your supplier relationships positive. So, what can you do today to plan for a better pricing impact tomorrow?

Surveying the market is always a good first step, as is taking a look at your internal spending metrics, to determine which of your suppliers provides low-wage produced products or services, and will therefore be affected by these wage changes. These may include your office suppliers, packaging suppliers, or MRO suppliers, to name just a few. Aim to get long term contracts in place with these suppliers as soon as possible, and make sure these agreements include pricing that is fixed for an extended period of time. Tying pricing to appropriate industry or commodity indexes, utilizing a trailing average increase methodology, and putting in place caps on frequency and percentage of increases are potentially useful options. A preemptive benchmark may be your best option in terms of providing the most insightful metrics to inform your pricing agreement creation process. And last but not least, try to avoid cost or margin floor pricing, and always remember to work price-increase validation documentation into your supplier contracts.

Utilization of these strategic sourcing and procurement best practices will position your organization very favorably for future pricing impacts, however it is also important to remember the relationship aspect of these supplier transactions. Many of these suppliers are your long-term partners, and some of them may be running at razor-thin margins that cut very close to cost. Now is the right time to address these concerns with your supplier partners. Beginning an open and transparent conversation today about pricing and agreement structures can yield ample fruit in the future. However, your conversations should not just focus on price increases. Today is the day to start a dialogue about other service offerings, under-served needs, enhanced capabilities, innovation, efficiency, and potential for mutual and lean business growth. Creating a communicative, adaptive, and mutually supportive environment will allow for win-win scenarios when they are most needed. Building these values into agreements and daily procurement processes enhance your position even further. Establish and document regularly scheduled touch-points that focus on these areas, and build Key Performance Indicators around the achievement of goals based off of these ideas.

The Walmart wage-growth effect isn't just coming, it's already here. Are you prepared to counter it?

For help with innovative & effective approaches to strategic-sourcing focused procurement planning, please reach out to Source One Management Services, LLC or visit www.sourceoneinc.com

Procurement in the hydrogen fuel cell economy

The green car movement is growing, but at a snail's pace. Critics have asserted that, for automotive makers and fuel providers alike, purchasing the resources needed for electric and hydrogen fuel cell vehicles simply isn't feasible.

From a procurement officer's perspective, price is generally the first aspect they look at. Platinum, a precious metal used as an electrocatalyst in hydrogen fuel cells, is expensive, so most purchasing management professionals advise their superiors to refrain from producing cars and other machines that run on hydrogen. 

Looking for affordability 

Take Part contributor Padma Nagappan acknowledged the Toyota Mirai, a hydrogen-powered vehicle that is priced at $57,500 before rebates and tax incentives. While this is largely a vehicle for the wealthy, Toyota will lose approximately $100,000 for every Mirai it sells. This loss is primarily due to the platinum required to make the car's fuel cell. 

In response to this challenge, researchers at the University of Delaware are trying to find a feasible alkaline polymer alternative composed of several non-precious metal catalysts, one of them being nickel. As nickel is a thousand times cheaper than platinum, its use in creating a new kind of fuel cell would boost the green automotive economy - that is, if the reaction occurred at a faster rate. Alkaline polymer-based fuel cells react 100 times more slowly than their platinum-based counterparts. Thankfully, because the project is still in experimentation, the researchers can figure out how the alkaline substance should be adjusted by measuring the rate of reaction. From these metrics, scientists can intelligently design new catalyst materials. 

The price at the pump 

According to Car and Driver, despite the fact that hydrogen gas is incredibly abundant, there are very few fueling stations available. Furthermore, hydrogen fuel isn't necessarily stored and transported across long distances like oil or natural gas.

Many are arguing for on-site capturing and conversion, involving extraction directly from a station's water supply or natural gas. The equipment required to complete this process may cost anywhere between $500,000 and $5,000,000 per installation. Therefore, in many cases, investing in a hydrogen fuel station is an endeavor that only the super-rich may be interested in - those with a "Why not?" mentality.

As for the price of the fuel itself, the source noted that current prices stand at $5 per kilogram. As a kilogram is nearly four times larger than a gallon, there's already a price advantage. Furthermore, Car and Driver maintained that one kilogram of hydrogen provides more range than a gallon of gasoline. 

Obviously, the green car industry has some feasibility issues. Further research may prove beneficial, but until new hydrogen reaction methods are discovered, constructing such machines isn't profitable. 

If your organization utilizes contingent or temporary staffing services most likely your provider has just passed along a cost increase citing the 2015 changes with the Affordable Care Act (ACA). You as an organization understand that Obamacare and the Affordable Care Act do have an impact on staffing agency costs but you struggle to understand just how much of an impact it should have on your cost and if the increase is fair and justified.

The reality of the situation is that staffing agencies are making "play" or "pay" decisions; play meaning paying the additional cost necessary to meet compliant coverage or pay meaning pay the $2000 non-compliance penalty per year for each employee who is not covered with the minimal requirements. Regardless, both options mean that your costs with using third party staffing providers will increase. Many staffing companies have communicated to their clients that they will be receiving 2-4% increases to their current bill rates. From a markup standpoint this can be a rather significant increase.

Let's assume you are utilizing a temporary staffing agency for some of your administrative and clerical positions. The current bill rate is $17/hr. with a pay rate of $12/hr. Citing ACA compliance your provider had announced a bill rate increase of 4%. This translates into your markup moving from 41.67% to 47.33%, or a 13.6% increase from your old markup%. Using this methodology you would assume correctly that you would rather have the increase applied directly to your markup (e.g., your markup increasing by 4 percentage points, current markup% + 4%). The truth is both methodologies can be disguised as a rip off. Increasing the bill rate or the markup for each hour the employee is working might be the most simple approach for addressing ACA compliance but it is not the most cost effective.

Simply adding additional cost for each hour worked is not considering the marginal cost factor. Marginal cost of production in economics is defined as, "the change in total cost that comes from making or producing one additional item. The purpose of analyzing marginal cost is to determine at what point an organization can achieve economies of scale." In this case the one additional item being temporary employee's hours worked since the increase has been applied to either markup% or billable hour. Therefore the marginal cost of insurance and administration is dependent upon volume of eligible temporary employee hours and the total cost incurred of the staffing firm's current healthcare program declines with the continual addition of eligible temporary employee hours worked.

This is why a blanket increase such as the increases outlined above may be a rip off. With this methodology the agency is maximizing their profit margin dependent upon hours worked by the employee, whereas the cost for ACA compliance should be a pass-through (the actual increased cost for insurance and administration due to ACA compliance). One solution is the provider bills on a monthly basis for the actual cost of the program for each employee utilized on a prorated basis, dependent on employee hours/days worked out of the year. Work strategically with your staffing provider(s) to come up with a solution that is fair to both parties. The provider should be able to clearly lay out the additional costs incurred and be able to demonstrate how these costs are passed down to you the customer.
The days of pushing a brand just “to get out there” are over—thank goodness. Modern Marketing and Advertising are now centered on a brand’s personal engagement and long-term resonance within an audience. As companies turn to agencies to manage their communications with these goals in mind, the perfect balance of upholding culture and a fresh perspective must be maintained. To get the most value for the investment of onboarding an agency, there are certain details that must be addressed.

Source One’s Kathleen Jordan, Associate Director, was approached with this topic by ScribbleLive, and from her experience in helping organizations identify best-fit agency partners, she was able to expand on proper criteria and best practices to be successful in working with an agency navigating non-traditional advertising.

In the article, Top 9 Tips for Finding and Working with an Advertising Agency, Jordan informed Engage Magazine that the first step in gaining the assistance of a qualified agency partner is outlining the details of the project(s) for which assistance is needed. “Before engaging any agency candidates, a company must first outline and agree upon the scope of work for the overall assignment. This will drive the best results for an agency search. The key deliverables, strategic goals, and selection criteria will serve as the framework for the entire search process; therefore, establishing this upfront will allow a brand team to clearly understand the type of agency they are looking for, assessing the core competencies, capabilities, and experience levels that need to be delivered to the brand,” Jordan said. Once you’ve laid out the foundation of your needs based on these factors, these principles should be used to guide your search.

An organization should also decide whether they are looking to accomplish solely one project’s work or a strategic partnership marking the agency as their Agency of Record (AOR). When evaluating agency candidates for a “one-and-done” type project scenario, more specified and technical expertise can be placed in evaluations; however with a more long-term arrangement, cultural fit becomes an important consideration.

Jordan’s interview expands into further detail about marketing trends affecting agency relationships, resources to help navigate the selection process, and proper ways to do your due diligence and confirm similar objectives between agencies and organizations. In today’s shifting marketing community, these areas cannot be overlooked if an organization seeks to unlock innovation in brand messaging.

Photo courtesy of: thefoxisblack.com

Should you procure cybersecurity insurance?

Of all the cybersecurity assets organizations purchase to defend their systems, data protection insurance is one particular package that doesn't receive a lot of recognition. 

Part of the problem may be that some executives unfamiliar with IT aren't willing to admit that data breaches will occur. The fact of the matter is that cybercriminals have a wealth of resources at their disposal, and can dedicate the time required to penetrate even the most robust systems. 

The time of the cybermercenary 

Moreover, hackers aren't working alone. Many of them congregate to form sophisticated operations focused on infiltrating databases and networks run by organizations of every ilk. One such group, dubbed Desert Falcons by researchers at Kaspersky Lab, originally targeted various entities throughout the Middle East, but is expanding its reach to Europe and North America, according to Computer Weekly. 

Desert Falcons acts as a contracting service to criminal figures who can afford its services. The news source noted the mercenaries have attacked government agencies that specialize in investigating money laundering, which suggests that Desert Falcons is being hired by organized crime groups attempting to subvert law enforcement. 

The actual expenses 

Cybercriminals aren't the kind of blue-collar hoodlums you'd find in "The Departed" or "Killing Them Softly." Many would go so far as to say they're among the top echelon of programmers the world has to offer. When you'r​e working against people of this caliber, the chance that your systems will be infiltrated is quite apparent. 

According to law firm Spencer Fane, the average data breach costs companies $10 million per incident. Data loss insurance can mitigate the effects of these expenses considerably. As data breach insurance is not available through traditional lines of coverage (namely, commercial general liability standards), Spencer Fane recommended companies keep the following aspects in mind when purchasing cybersecurity insurance:

  • If third parties manage or access internal or customer data on a regular basis, make sure they can obtain coverage. 
  • Provide insurers with a list of protocols, assets and policies that formulate your comprehensive cybersecurity strategy. The more robust it is, the easier the request for proposal process will be. 
  • Closely review any cyber liability standards your organizations, a third party or insurers propose. 

Be aware that cybersecurity insurance is still in its infancy, but the frequency with which data breaches are taking place is inciting demand for such coverage.

Last week at ProcureCon Indirect East in sunny Florida, Source One leadership gained clarity on many of the challenges the procurement industry has been noticing. While many common sourcing and supply chain roles are shifting from tactical to strategic, there is a need for procurement functions to have clearly defined roles—and the CPO seat is no exception. The conference agenda established that, “One way to do this is to insert yourself into the conversation and ensure that there is alignment of the enterprise’s cultural appetite and the collective capabilities procurement needs to bring to deliver sustainable value.” Source One took away valuable insights from the conference and our team now has an enhanced view of the value of organizational assessment.

You may be asking “How do I do this?” First, an organization needs to judge the maturation of their company and procurement practice as a whole, beyond an ordinary supply chain maturity model. Similar to a benchmark exercise, an organization can compare itself to the market to gauge its maturity, or it can conduct an internal survey to gain a hold on less-obvious procurement executive opinions on the department’s development. Both of these dimensions can be captured in addition to the performance capability metrics of the standard supply chain maturity model to provide an understanding of sophistication level.

The ProcureCon Indirect East audience seemed to appreciate some new thoughts on the topic that involved insights from the industry’s best, including Source One’s CEO and VP. Procurement is changing, and this is an opportunity to shape the direction of that growth to be aligned with an organization’s strategic goals. Regardless of your department’s current maturity level, it is never too late to gain influence in core operations. If your resources are strained, Source One is equipped to help—contact our strategic sourcing and procurement services experts today.
How are universities using spend management assets?

Providing students with the kind of education they can use to support extensive, profitable careers is a goal every university administration department would like to achieve. However, doing so is easier said than done. Ad-hoc spending and disorganized procurement can hamper an institution's efforts to allocate budgets for the benefit of its enrollees.

That's where spend management enters the fold. The goal is to deduce how school resources are being allocated, and whether or not current systems are supporting the enrichment of students. However, completing this responsibility isn't as easy as some would think. Ad-hoc purchasing can plague any organization, especially large universities responsible for taking care of pupils with diverse needs.

Spend management software: A useful asset?

Process is the most important component of spend management. Such endeavors require diligence, expertise and thorough knowledge of a university's expense portfolio. While soft skills shouldn't be ignored, applications can provide professionals with the tools they need to give their spend management initiatives structure. Keeping data organized and applying analytics to that information can go a long way in reducing the time it takes for a team to compose and deliver an expenditure report.

According to Campus Technology, the University of Utah and Weber State University recently set plans in motion to deploy SciQuest's cloud-based spend management software. The latter organization specializes in purchasing and expense management for universities and colleges. Its applications are grounded in the principles of strategic sourcing, prompting users to centralize procurement. In addition, SciQuest's solutions have features that ensure school administrators are compliant with regulations imposed by state and federal agencies to decrease education costs.

Again, technology isn't a means to an end, but it certainly helps to use software that's "cognizant" of spend management priorities. How professionals choose to use such solutions depends on their dedication to the initiative.

"We understand the unique challenges institutions in higher education face and provide a variety of products that remove roadblocks and turn spending into a strategic source of savings," said SciQuest Senior Vice President of Sales Doug Keister, as quoted by the source. "SciQuest is the go-to solution for more than 200 colleges and 400 campuses nationwide."

Strategic sourcing, as it applies to higher education

Between meal plans, housing, professor salary and a wide breadth of other expenses, amalgamating expense reports from each facet of a college is a challenge. Behind every financial outline is a set of needs unique to each department. Sure, there are cases of careless spending, but for the most part, different groups procure assets, tools and resources to help them fulfill certain obligations. So, how can a university execute strategic sourcing without sacrificing the needs of its associates?

Within your spend management team, assign each member to be a sort of liaison between your group and two or more different departments. Each person will be responsible for scrutinizing the workflow of each university group and interviewing its leaders to identify specific reasons for making certain purchases. This will help the initiative consider the "human" aspect of expenses. Furthermore, it will enable your team to develop a comprehensive, intimate picture of the institution's expense portfolio.

The level of specificity that your spend management group must achieve is central to removing the waste and determining what is providing value. It's possible that more affordable, "better" alternatives are available when it comes to purchasing technology, equipment and other resources. Thus, your team must also behave as procurement experts, leveraging networking expertise and financial acumen to acquire cost-efficient goods without sacrificing the well-being of students. In regard to the latter point, adopting the mindset that a university's students are its customers will drive these initiatives home.

Two factory incidents put lives in danger

Whether in terms of the machinery it uses or the materials it procures, a company must deduce how its purchases, processes and protocols will impact factory safety. There are numerous federal departments (the Occupational Safety and Health Administration being one of them) that regularly assess the integrity of manufacturing operations.

Nowadays, the purchasing department is contributing to self-audits. Many factories are known for processing hazardous materials, and ensuring that employees have what they need to effectively handle those goods is important.

An Alabama tragedy

Pyrotechnics embodies a variety of substances that are highly volatile. According to New York Daily News, fireworks production company Ultratec, which is headquartered in Madison County, Alabama, recently experienced a grievous accident that resulted in the deaths of two workers. Several other employees were injured in the explosion.

The blast occurred on Feb. 13, just south of Huntsville. Sgt. Brian Chaffin of the Madison County Sheriff's Office told the press that one person is in critical condition and three other individuals sustained minor injuries. The family of Aimee Cothran Bearden, who died in the explosion, released a statement that referenced a 1999 accident that happened in the same facility, which resulted in one dead.

"Aimee was killed doing a job she was dedicated to, because she was dedicated to taking care of her family," read the statement, as quoted by the news source. "We hope this tragedy will prevent future tragedies at a company notorious for fires and explosions."

In this particular case, a lack of protocol is likely to blame.

Spain not exempt

Procuring goods from companies that fail to abide by ideal safety practices may also deter consumers from purchasing certain products. The Agency France-Presse acknowledged a chemical accident at a factory in Igualda, Spain, that occurred Feb. 12, causing a massive, orange chemical cloud. it is believed that the cloud was caused by a reaction between nitric acid, ferric chloride and another substance that has yet to be determined. Nitric acid is known for being corrosive and toxic.

The incident caused Igualda officials to order approximately 64,500 people to stay indoors for some period of time. While the general warning was lifted nearly an hour after the accident occurred, pregnant women, children, the elderly and those suffering from respiratory issues were advised to stay inside for an additional three hours.

These instances are both examples of the dangers imposed by manufacturing. Consistently assessing processes to ensure such issues can be prevented is essential.

A lot is said about how much stakeholders should be involved in the strategic sourcing process. You hear that early engagement will generate buy-in and ongoing communication will likely generate alignment around supplier selection and negotiations, and ultimately enable a smooth implementation. While this is all true, where do we draw the line between an adequately engaged stakeholder versus a stakeholder that ends up dictating the sourcing process?

As a strategic sourcing professional, I have had the opportunity to work with all kinds of stakeholders, from those who engage too much to those with whom I barely even get to speak a few times. Even when the process or the job at hand is similar, no matter what you do, you will always see different levels of engagement. Now, a lot of folks will have an opinion on how to engage those stakeholders who don’t participate enough or tend to be inconsistent. I’ll let them speak to that. But, what happens when the stakeholder actually wants to take over the whole process? That’s what I want to know.

Let’s start by saying that the roles should be clear, especially yours (assuming you are a sourcing professional). While stakeholders will typically own subject matter expertise in their field, they will likely lack skills that the strategic sourcing professional will have. They may lack your ability to navigate the market, to negotiate with suppliers, or to capture overarching strategies that the stakeholder alone may not see; you should identify those threats early on and communicate them to the stakeholder.

The second very important aspect is the process itself. Strategic Sourcing should and must drive the process; otherwise, a few things are very likely to happen, such as scope creep, stakeholder bias, and supplier confusion. The main issue with an overly engaged stakeholder will begin with mixed messaging; for instance, the stakeholder may start follow-up conversations with those suppliers whom (s)he likes or place additional requests and questions without following a formal communication process. The bigger problem with this is not that an innocent question to one supplier (under qualification) will harm anyone. The issue is that what that supplier may be hearing is “the stakeholder is engaging us directly, that means a great deal of interest.” Whether that’s true or not, the notion may hinder your negotiating leverage with that supplier or diminish the credibility to your process. That’s not to say questions should not be asked by the stakeholder, but rather that the form and the channel of communication will matter in order to maintain the status quo. That form and channel should be dictated by sourcing.

This is also true for any and all steps of the sourcing engagement. Typically the best time for a stakeholder to actively engage with suppliers without the direction or support of sourcing is after the implementation has occurred. Before then, stakeholders should synergize with sourcing in a way that enables the sourcing professional to capture all the stakeholder requirements and facilitate a creative process that maximizes the return value. The lesson here is that when it comes to sourcing, you own the process, and stakeholder over-involvement may be as risky as stakeholder indifference. The good thing is that the solution to both involves the same: prompt communication and diligent attentiveness.

Photo courtesy of Icosystem Corporation, copyright 2010.
Keystone XL pipeline gets the go-ahead from US Congress

There's no doubt that the construction of the XL Keystone pipeline will be a huge boon to the North American energy industry.

Proponents assert that the implementation will ultimately create thousands of permanent jobs, bolster U.S. manufacturing and reduce the price of crude oil. Those opposing the pipeline assert that it will cause a number of harmful environmental effects. 

US Congress gives approval 

IndustryWeek noted that the House voted 270 to 152 in favor of the XL Keystone bill, sending the bill to President Barack Obama, who is expected to veto it. However, if the president defies popular assumption and passes the bill, TransCanada would be allowed to commence operations to build the 1,179-mile pipeline. It it is likely that President Obama will uphold the continuity of a review process that will assess the XL Keystone's environmental and economic impact. 

"The president has been pretty clear that he does not think circumventing a well-established process for evaluating these projects is the right thing for Congress," said White House spokesman Josh Earnest, as quoted by the source. 

The opposition's case 

A number of legislators (the majority of whom are Democrats) are against the construction of the XL Keystone pipeline due to the processes involved with extracting oil from tar sands. National Public Radio spoke with Susan Casey-Lefkowitz, director of programs at the Natural Resources Defense Council, who maintained that the XL Keystone pipeline would encourage operations that generate more greenhouse gas emissions than conventional drilling. 

"When we talk about the Keystone XL tar sands pipeline, what we're really talking about is our choice between dirty energy and clean energy," Casey-Lefkowitz told NPR. "This is about a pipeline that will carry a lot of some of the world's dirtiest oil and cause expansion of the tar sands, but it's also about our energy choices."

The perceived benefits 

Proponents of the Keystone XL pipeline assert that oil expenses will decline as a result of the implementation's construction. However, Forbes contributor John Tamny maintained that this assertion isn't grounded in fact, and that the price of oil is rooted in the activity of the global market as a whole. 

In regard to the environmental and safety case, Keystone XL supporters have asserted that the pipeline will reduce the use of oceanic shipping and rail, which both pose dangers if accidents should occur. This argument is well-supported, especially in light of incidents such as the Lac-Megantic rail disaster. 

Are management consultants no better than the charlatans of the Old West selling snake oil? In light of recent supply chain events, such as the discovery of faulty ignition switches in General Motors cars, I was particularly drawn to the discussion in Douglas Hubbard’s book, The Failure of Risk Management, on how organizations ranging from the United States Government to large pharmaceutical companies can fail to adopt the most effective risk management methods despite their best efforts. Risks in the supply chain, after all, are highly relevant and can have disastrous consequences: wasted resources, the selection of a poor advertising agency, or even a fatal factory collapse in Bangladesh.

Hubbard is scathing when it comes to management consulting, likening the seemingly “scientific” methods adopted by organizations to reduce risk—scorecards, Key Performance Metrics, and market assessments—to using astrology to predict the future. How can a consultant brought in from the outside possibly understand all the intricacies of a business? And the so-called metrics used to evaluate suppliers? What about those infamous RFIs and RFPs? Aren’t they just, well, arbitrary?

I admit that Hubbard is quite convincing when he points out the dangers of putting too much stock in weighted scores and other metrics. He emphasizes that organizations should depend on strong quantitative analysis by making statistical inferences based on large samples and looking for direct causes and effects. But before we start panicking and overhauling supplier selection processes and discounting benchmarking, it’s important to take a step back and note some points.

First off, sourcing practices have evolved to be more robust than Hubbard asserts. When implementing sourcing strategies for clients, for example, firms make significant efforts to assess various data. They are also equipped with resources and tactics to reduce risk, such as reviewing a supplier’s financial stability and actually looking at the effects of reducing costs (rather than just cutting costs). In procuring marketing services, for instance, consultants often work with the legal departments of both the client and the supplier to ensure that contractual obligations are met, and the actions to be taken if they are not.

Moreover, there are several components involved in risk management, and many of these components are qualitative in nature. When it comes to risk management in supply, activities can also include forming strategic alliances, investigating buffer strategies, and assessing various process improvements. For a more specific example, see how business disruptions can be addressed in telecom and IT. Furthermore, as pointed out by Steve Culp in Forbes, in an environment of increasing geopolitical risk and globalized supply chains, it is important to engage in risk management strategies that evaluate the whole, not just the parts. The systemic nature of supply chain risks means that the entire organization can be affected in the event of a mishap; in large organizations, it’s difficult for departments to have the resources or communication channels to see beyond their immediate day-to-day tasks. As stated by Yves Leclerc of West Monroe Partners, good risk management is “both a technology and business-process effort.” Areas that need further improvement include gaining access to greater visibility, encouraging collaboration among supply chain partners, and breaking down the “silos” disrupting the flow of information within a company.

At the end of the day, CPOs have their work cut out for them. Rather than dismiss the resources in risk management off hand, organizations should work with their procurement teams to gather quantitative as well as qualitative information, and to use this data to build more comprehensive and creative frameworks to assess their sourcing strategies.

Photo courtesy of http://images.huffingtonpost.com/2014-07-03-0818f16.jpg
As sourcing professionals, we are constantly conducting market research to support our clients' needs. If we are assigned a project in a spend category we are unfamiliar with, we must research the category so that we have the market intelligence to provide educated recommendations. Once a project gets underway, we research suppliers in the industry that would be a good fit for the project requirements. If we are tasked with a benchmarking exercise, we conduct research to gather rate cards and understand industry trends that would impact our clients. These are just a few of the reasons sourcing professionals do research on a daily basis; therefore, it is essential that we are equipped with the right tools to conduct research efficiently. In this post, we share some of the tips and best practices we have developed at Source One for conducting market research.

Be Open-Minded.

When you are given a research topic, you develop pre-conceived notions about the path your research is going to take based on your existing knowledge of related topics. It is important to use these initial ideas to formulate a plan of attack for how you will approach your research topic. However, it is important to remain open-minded to new direction your research may take. Having tunnel vision about the direction your search "should" be taking can prevent you from exploring alternative paths that may lead you to the answers you are looking for.

Search from Every Angle.

While you need to remain open to your search potentially changing courses as you progress, these alternative courses may not always be obvious. Often times, we have to strategize how we will discover these different paths to finding the answers to our research needs. Here are a few tips we have developed for using alternative means to finding your search results:

  • As you read through various sources, make note of common phrases and terms that are relevant to your topic - these keywords can lead to results you otherwise would have missed.
  • Along the same lines, when conducting research on a specific industry, look at suppliers' websites to see how they describe their industry and the terms they use.
  • When identifying alternative suppliers, if you notice a supplier advertising that they have won an award, check to see if any of the previous winners of that award meet your requirements.
  • Utilize the embedded hyperlinks and citations in the sources you are finding as a way of going straight to the source of the information.

Know When to Stop.

One of the biggest struggles when doing research is knowing when to stop. If you are not finding the information you need, it is difficult to know when to keep looking versus when to stop "spinning your wheels". Unfortunately, there is no standard amount of time one should spend searching for results before you switch gears or stop what you are doing. Knowing when to stop so that you aren't spinning your wheels is very subjective, but we have been able to come up with some tips for how to prevent this. 

  • Have a general timeline in mind for how long you would like to spend on this research. If after a good portion of this time you are still not finding the result you need, take a step back. 
  • If possible, break up your research into increments of time rather than trying to finish all searching in one straight shot. By taking a break, you are able to clear your mind and allow new ideas or a new search direction to come to you.
  • Change the direction of your search. Look at your topic from every angle - if you are not finding your results from following one approach, switch directions.
  • Use your colleagues to get a new perspective by talking out the issues you are having, bounce ideas off of them, or see if they have suggestions for how to frame your search.

Validate Your Sources.

Above all when conducting research for clients, make sure you validate your sources of information. If you are using a blog as a resource, research the author to make sure they are reputable sources. Try to find as many sources as possible with the same information to confirm that the information is credible. Market trends and pricing are constantly changing; therefore, make sure that you are using the most current information. As a general rule-of-thumb, the information should be no more than 10 years old. Your clients are relying on you to provide them with accurate and relevant information to make the most informed decisions. It is essential, then, that your market intelligence comes from reputable sources.

Whether it's to gain subject matter expertise or to complete a market research project, sourcing professionals are conducting market research on a regular basis. Therefore, having the right resources and best practices at your disposal for market research is essential to supporting clients and their needs.

Image courtesy of kc-communications.com

How will 3-D printing impact aerospace sourcing?

The average aerospace firm's supplier portfolio is quite large. If a company can produce certain components better than another, than it's likely to see business from enterprises specializing in constructing aircraft. 

3-D printing may shift the procurement portfolios of many aerospace manufacturers, however. The technology offers a few advantages over assembly-based production, and further development promises to make 3-D printing more feasible for companies interested in transitioning responsibilities to their own facilities. 

US aerospace industry ramping up 

According to IndustryWeek, U.S. aerospace manufacturing has witnessed positive activity over the past three years, receiving more than $25 billion in investments since 2012. The news source commented on the findings of a study conducted by ICF International, which recorded and scrutinized approximately 2,000 investment transactions from 2012 to the present. The aerospace industry aside, the research acknowledged the fact that many operations and jobs previously established in China are now being transitioned to the U.S. 

Reshoring is becoming more popular among U.S. enterprises due to the prevalence of increased factory automation, tempered energy expenses and rising labor costs in China. ICF aviation consultant Kevin Michaels maintained that these elements are a launching pad for the domestic aerospace industry. 

"The U.S. has been a magnet for new aerospace investment," said Michaels, as quoted by the source. "Boeing is looking at doing more of the aero structures in its own factories." 

Boeing isn't the only company transitioning production responsibilities in-house. One of its chief competitors, Airbus, is using investments from foreign enterprises to open a production plant in Alabama, offering the state 1,000 jobs. The first aircraft will be delivered from the factory in 2016.

Is 3-D printing contributing to this reshoring trend? 

To be upfront, 3-D printing is somewhere in the middle between the research and full-scale production phases. Many manufacturers are exercising caution in integrating 3-D printing into their operations, leaving it to others to determine whether implementing the technology is economically feasible. 

GE Aviation's operations leaders seem to think 3-D printing can do wonders for their processes. Business Insider noted the firm is investing $70 million in an Auburn, Alabama, facility that will make 3-D printed fuel nozzles for its LEAP jet engine. GE Aviation isn't "taking a chance" with 3-D printing, either - the company discovered that using additive manufacturing to create the fuel nozzles eliminates the need to weld together 20 different parts. 

"We get five times the durability," said GE Aviation's 3-D printing leader Greg Morris, as quoted by Business Insider. "We have a lighter-weight fuel nozzle. And we frankly have a fuel nozzle that operates in an environment more effectively and more efficiently than previous fuel nozzles." 

In regard to GE Aviation's investment, it's evident that 3-D printing is contributing to the reshoring trend, albeit on a small scale. However, if companies continue to follow GE Aviation's lead, 3-D printing may become a signature component of U.S. manufacturing.

Research as the main driver 

As was mentioned earlier, further development of 3-D printing is likely to drive adoption rates. 3D Systems is a major player in the additive manufacturing space, and was recently awarded two research contracts from America Makes and the Air Force Research Laboratory, noted Aerospace Manufacturing and Design. 

"These important research projects will position leading industry manufacturers to 3-D print high-performance precision parts at convincing scale with enhanced functionality," 3DS Vice President of Alliances & Partnerships Neal Orringer told the source.

This move is a clear indication that 3-D printing will become a more prevalent technology in the aerospace industry in the future. Further research and development will advance additive manufacturing's usability and feasibility. 

Data center managers: Is it worth it to purchase Cisco ACI?

Cloud computing, big data and the Internet of Things typically receive the brunt of attention when it comes to the evolution of data center technology. When we say "evolution," we're not referring to the procurement of "more sophisticated" networking and server assets. When IT professionals discuss legacy data centers, they're not only talking about antiquated equipment, but also the way it's designed.

But we digress. Behind the list of buzzwords permeating the IT industry (the three most prevalent are noted above) are applications, and lots of them. From NoSQL databases to customer relationship management solutions, data center configurations are designed to support a diverse range of software. A signature component of ensuring lean, dependable application delivery necessitates that attention be given to the network.

Cisco's solution: The answer to software's prayers?

In regard to procurement, officers want to purchase networking solutions that are sustainable, meaning they won't have to be replaced five years down the road. In addition, they want to acquire the minimal number of assets. Cisco, being one of the most prominent companies in IT networking technologies, offers a package that it asserts is designed for the application-focused data center.

Cisco Application Centric Infrastructure promises to allow data center administrators to adjust existing networks to support the needs of applications, as opposed to tailoring software to operate appropriately on the infrastructure. In other words, the architecture operates under policies dictated by the solutions. Cisco ACI is composed of three features that make this possible:

  • Cisco Application Policy Infrastructure Controller provides users with performance surveillance, policy enforcement and other management tools from a centralized location. In Cisco's words, it "unifies operation of physical and virtual environments."
  • Application Network Profiles provide logical representations of an application's parts and interdependencies. These are where application policies and necessities are defined, allowing ACI to regard these protocols, compare them with those of other solutions and design the network architecture accordingly.
  • Cisco Nexus Portfolio offers modular and fixed 1-gigabit, 10GB and 40GB Ethernet switch designs that are tailored to serve as the fabric for the entire solution.

From an IT management perspective, this technology offers a wide variety of benefits. In many ways, Cisco ACI signals the dawn of an era in which applications dictate the operability of a data center, not the other way around. This environment accommodates the needs imposed by end-users - the ultimate target audience IT professionals are working to satisfy.

Is it the greatest thing since sliced bread?

InfoWorld contributor Serdar Yegulalp conducted a review of Cisco ACI, lauding the company for its recognition of a problem that has hindered application versatility, development and operability. However, he acknowledged that this solution isn't the only answer to the issue, referencing the prevalence of software-defined networking.

Sure, abstracting network resources from the physical infrastructure helps, but hardware remains at the root of the challenge. Cisco Nexus Portfolio intends to answer the call, but the catch with using Cisco ACI is that it necessitates the procurement of more Cisco technology. This isn't idea for a data center that is using ODM switches running Linux. In many ways, Cisco ACI is a way for the enterprise to compete with OpenFlow - the SDN solution of choice for many.

Thus comes the argument that Cisco may be trying to protect its 60 percent market share of the networking industry. However, this isn't necessarily a bad thing. If Cisco feels threatened by the prevalence of other application-aware network products (ACI isn't the only one), then it's likely that the company will do everything it can to make ACI vastly superior to its competitors' offerings.

Tired of finding the same old problems with your internal business processes? One solution is to shake up your internal model through Business Process Outsourcing (BPO), contracting a third-party to manage the operations of a particular department, function, or activity. How to Leverage Business Process Outsourcing As a Competitive Advantage, a Strategic Sourceror post, gives some light as to how organizations can approach this sometimes overwhelming endeavor. The below infographic introduces some of those insights.

Preparing for dangerous goods transportation standards

In addition to paying taxes, organizations are obligated to ensure they're not endangering public health. Whether by land, air or sea, if a company is distributing goods of a hazardous nature, then it's required to ensure its personnel abide by safe practices.

How does this pertain to spend management? Financial investment is a critical component of a holistic regulation adherence strategy. Funds should be allocated to train employees handling certain materials, and assets must be acquired to ensure that potentially harmful products are adequately protected while in transit.

Hazardous goods transportation standards are quite complex, requiring strict analysis of any and every clause within them. Skimping on any details could result in the kind of finds that cripple organizations.

United Airlines catches violations

Handy Shipping Guide noted that the U.S. Department of Transportation's Federal Aviation Administration recently proposed a $1.3 million civil penalty against United Airlines for allegedly transgressing Hazardous Materials Regulations. The issue was brought up after United apparently failed to provide adequate information regarding the cargo aboard aircraft carrying both freight and passengers.

After conducting inspections at airports in Boston, San Francisco, Denver and Chicago, the FAA found approximately 120 cases in which United was not compliant with federal standards. These violations included instances where:

  • Pilots were not notified of the materials onboard aircraft they were flying.
  • The location of hazardous materials on flights were not made known.
  • Information about the amount of goods, as well as identification numbers, hazard classifications and dimensions had not been delivered to the proper authorities.

Many of the citations focused on a basic lack of protocol. For example, United allegedly did not retain shipping data of flights carrying hazardous materials. Of the goods themselves, some of the items cited as dangerous were metal batteries, dry ice, corrosive liquids, radioactive substances, detonating fuses, compressed oxygen, isopropanol, phosphoric acid and sodium hydroxide.

How to avoid this issue

No company executive has ever said "Hey, let's fail an audit," so it's best for an organization to assess its protocols and standards on a frequent basis. Forest Himmelfarb, vice president of software and services at Labelmaster, wrote an article for IndustryWeek detailing how organizations can prepare themselves for inevitable assessment from federal authorities. 

The best way to survey one's compliance is to conduct an internal audit. Don't approach the initiative as a "test" or "dummy audit." Notify employees that there will be tangible consequences for failing to successfully meet the standards you dictate for your organization. However, don't forget to scrutinize your company's regulations - they may not be as comprehensive as you think.

In this respect, there are many changes associated with carrying out an internal audit. For instance, Himmelfarb noted that selecting a department within your business to blueprint and initiate the endeavor can be difficult. Which team is going to approach regulations with an objective eye? It may be necessary for you to hire an outside party, preferably one that focuses on dangerous goods transportation.

Don't just criticize and reprimand

After an internal audit is completed, if you weren't presented with the results you would have liked to receive, then hold yourself accountable as well as other personnel. Harshly criticizing your workforce as "incompetent" or "a liability" is only going to reduce morale. Instead, take a step back once an assessment is finished and look at the processes in place that may have indirectly contributed to the issues that arose. Maybe your personnel require information-sharing and tracking tools to get a better hold of the transportation process?

Also, don't panic at the thought of being audited. If you know your systems and processes are where they should be, then there's no reason to increase the general stress level.