After making commitments to reduce energy consumption, packaging, and waste within its own operations, mega-retailer Wal-Mart this week announced plans to green its supply chain. Following in the footsteps of other multinationals — such as Hewlett-Packard and Airbus – that are using environmental and social responsibility as part of their supplier selection and performance measures, Wal-Mart is now looking for suppliers to produce more environmentally responsible products. The initiative, while only in the pilot stage, could have dramatic implications for manufacturing, product engineering, and supply management strategies across multiple industry sectors.

Wal-Mart says it will begin measuring the energy and resource consumption of about 30 of its key suppliers, including CPG giants, Procter & Gamble, Unilever, and Dial Corporation. The nation’s largest retailer will also encourage suppliers to use more environmentally friendly and sustainable materials and manufacturing methods.

Company officials stopped short of saying that Wal-Mart will use these eco-audits to select suppliers. However, other commitments by the retailer suggest that this is a forgone conclusion.

As reported here earlier this year, Wal-Mart has committed to cutting packaging waste at its stores by 25% within three years. The retailer also vowed to double the fuel efficiency of its truck fleet within 10 years and eventually operate entirely on renewable energy. More recently, Wal-Mart agreed to participate in the Carbon Disclosure Project, an investor group that is pushing greenhouse-gas emissions disclosures on the basis that they have a tangible impact on a company’s financial performance. Such measures would require Wal-Mart reduce the carbon footprint of its supplier operations as well as its own.

The impact of Wal-Mart’s green plans are already visible in the market and on its store shelves. Earlier this year, Wal-Mart worked with suppliers of its private-lable toys to eliminate excessive packaging. The retailer found that each year these actions save $2.4 million in shipping costs, 3,800 trees, and one million barrels of oil.

Wal-Mart, which sells 25% of liquid laundry detergent in the U.S., also used its muscle to encourage CPG giants Procter & Gamble and Unilever to replace bulky plastic jugs with concentrated versions of all its liquid laundry detergents. Concentrated detergent saves on water. The smaller package saves on cardboard and plastic packaging, energy, shipping costs, and shelf space. This week, Wal-Mart, announced plans to extend this strategy to all its detergent vendors.

In the end, Wal-Mart views these moves as money savers for customers, its own operations, and its suppliers. In making the announcement this week, Wal-Mart CEO Lee Scott said, “We simply don’t want our customers to have to choose between a product they can afford and an environmentally friendly product.”

The implication to the broader business community is vast. If history is any indication, Wal-Mart’s sustainability strategy will likely spur (dare I say, force?) other companies — particularly those in the consumer goods and food and beverage sectors — to develop, manufacture, and source in a more environmentally and socially responsible manner.

It’s bring your wife to work day on the latest installment of SupplyNow, the joint podcast series of Supply Excellence and SpendMatters. Luckily, SpendMaster blogmaster Jason Busch’s wife, Lisa Reisman, has far more practical, hands-on experience with global sourcing and supplier management than either Jason or I.

Lisa is co-founder and managing partner of Aptium Global, a boutique consultancy specializing in supporting the global sourcing and supplier management strategies of small- to mid-sized manufacturers and governmental agencies. Prior to founding Aptium, Lisa spent 15 years in the management and direct materials consulting practices at Andersen and Deloitte Consulting.

During the SupplyNow podcast, Lisa uses this experience to offer up some straight shooting advice on what works (and what doesn’t) for supply management in the mid-market. Lisa tackles issues and provides real-world case studies for mid-market companies sourcing from China to adopting technology to outsourcing procurement.

Other issues tackled in this episode of SupplyNow include:

• Collaborative buying practices in the automotive sector.
• Pending regulation that will force companies to adopt environmentally and socially responsible supply practices.
• A first peek and assessment on Aberdeen Group’s latest Spend Analysis Benchmark Report.

Listen to this latest installment of the SupplyNow podcast here.

Last month’s diatribe on the industry’s most used and abused supply management terms sparked much debate. To date, I have received more than 50 contributions from readers that were all-too eager to add their own cliches to the list. (Although, truth be told, many need to brush up on the definition of cliche.) 

I hope this list continues to grow. In the interim, I wanted to make good on my promise to let Supply Excellence readers vote for their favorite supply management term or phrase. (Or, in this case, vote for your least favorite term, may be more appropriate.)

While reader-contributed cliches are too numerous to list in a single blog post, you can view and vote on the full list here. Some of my personal favorites include:

• Two-by-two matrix (or just “two by two”)
• Rightsize
• Quick Hit
• World-class
• Cost avoidance
• Go back and sharpen your pencils
• What’s the value proposition?
• Put some skin in the game
• You play Bad Cop, I’ll play Worse Cop.

Vote for your favorite overused supply management term or add your own to the list here. I will keep a running tally of the findings and publish updates to the list periodically.

Not too long ago, I had the opportunity to research the supply management challenges and strategies of more than 100 chief procurement officers (CPOs). The study uncovered what you would expect: CPOs planned to increase their strategic role in the organization by hiring (and retaining) better talent, capitalizing on supply opportunities in emerging markets, increasing the volume and types of spend under management, and, of course, increasing their teams use of technology.

Yet, to me, the most important finding was how CPOs from the top-performing companies planned to use technology. They recognized that the real value in technology would not come from making existing processes more efficient. Instead, creating a high-performance supply management organization will require technology that enables new processes and guided analytical scenarios that were previously considered impossible due to fragmented procedures, insufficient communications and data access, and inconsistent skills.

In a recent post over on his blog Software Safari, my former colleague and a leading technology strategist Brian Sommer sums this phenomenon up this way:

“Applications have been all about (accounting) transaction processing. So much so, that almost every screen in every application product out there is an input form waiting for someone to enter data. Yet, what businesses need are systems that advise their ever scarcer mid-management and other workers as to what they should input.”

While your first impulse may be to shoot off angry hate spam to Brian, take a moment to reflect. Most organizations — maybe even yours — are loaded with buyers that for decades have been processing purchase requests and responding to hot lists and parts shortages. The assumption that software-fueled efficiencies will suddenly turn transform these folks into strategic uber-buyers is wishful thinking, at best.

This point was corroborated earlier this year when a U.K. procurement director I was visiting told me: “Many of our [supply management] team have been doing purchasing a certain way for decades. They are uncomfortable with adopting new processes and systems.”

What Brian argues (and the CPOs I spoke with concurred) is that we have not yet begun to tap the true value potential supply management software (or, any enterprise business application, for that matter). “Systems today don’t help people make the decisions they struggle with before they enter data on a screen,” argues Brian. “That’s where the innovation is flat-out missing.”

With the necessary electronic transaction management, data mapping and cleansing, and process automation out of the way, the next-generation of software applications will begin to guide buyers — regardless of their skill set — toward the right sourcing and supplier management decisions. In his post, Brian offers a glimpse of possible decision-support guided purchasing scenarios that future purchasing systems should be able to support, such as: (more…)

If your CEO or CFO still don’t understand the impact supply management can have on the top line, point them to Boeing’s latest troubles with bringing its fabled 787 Dreamliner to market. Various reports this week revealed that Boeing is four to eight months behind schedule in delivering what is touted as the world’s largest (and most efficient) jet airliner. And market watchers predict that any significant delay could stall Boeing’s revival, damaging both its credibility in the marketplace and putting it as risk of financial penalties or, in extreme cases, canceled orders.

The chief culprit for the delay? Supply shortages. More specifically, the multi-billion-dollar Dreamliner program is being held up by a shortage of aerospace fasteners.
The news of supply shortages is surprising considering the foresight Boeing put into shoring up ample supply of the strong and lightweight composite materials that enable the Dreamliner’s hallmark size and fuel efficiency. In fact, previous posts praised Boeing for adopting innovative supply strategies — including entering into a joint venture with Russian-based VSMPO — that locked up nearly one-third of the world’s titanium.

Boeing officials this week stated that the 787 Dreamliner could still make its May delivery date, barring any further delays. But suppliers quoted in the Wall Street Journal say on-time delivery will be nothing short of a miracle.

Even worse, new reports are surfacing that the fastener shortage may be more widespread than originally believed.”Boeing has confirmed the issue with temporary fasteners that helped to delay the 787’s first flight date…is not limited to thousands of individual fasteners, but actually thousands od types of fasteners,” reported aviation industry watcher Flight International.

Boeing’s challenges are a reminder that risk management is a continuous process. Effectively detecting and managing risks requires the monitoring not only your key suppliers, but also of the key material inputs into the products they produce. Let’s hope Boeing’s resolution of the fastener shortage provides valuable lessons in how to recover from a supply crisis.

Last week, I previewed some key findings from the International Association of Contract and Commercial Management’s (IACCM) landmark study into the contract management approaches, preferences, and performance of more than 400 enterprises from around the globe.
Today, I’m excited to report that I will have the honor of moderating an upcoming webinar series in which featured guest IACCM President and CEO Tim Cummins will discuss the study findings in more detail. He will also be available answer your most pressing questions on the contract management best practices and technology approaches.

Tim will examine the issues driving contract management improvements, identify chief challenges, provide a forecast of contract management software spending, and share best practices for contracting and contract management success.

Recognizing the global nature of the study, Tim will dig into the benchmark findings to showcase the unique pressures, challenges, and approaches of major geographical regions:

• Contract Lifecycle management: State of the North American Market and Lessons Learned
• When: Tuesday, October 2, 2007 — 2:00 p.m. ET (that’s 11:00 a.m. Pacific)
• Register here

• Contract Lifecycle management: State of the European Market and Lessons Learned
• When: Wednesday, October 3, 2007 — 9:00 a.m. ET (that’s 2:00 p.m. GMT)
• Register here

Tim is among the leading thinkers on contract and relationship management issues. If you have not heard him speak, you’re in for a treat. I encourage Supply Excellence readers to attend one (or both) of these one-of-a-kind web seminars. You will certainly learn something you can use to improve your own contracting and contract administration performance. I know I’ll learn a lot.
In the interim, download a complementary copy of the general findings report, The Contract Management Software Market Sizing and Status Report. This report is available free for a limited time only, so download it now.

Four months after acquiring ailing automaker Chrysler Corporation, Cerebus Capital Management appears to be rounding out the new leadership. With industry’s shock over tapping tarnished Home Depot chief Robert Nardelli as Chrysler’s new CEO dissipating, Cerebus has revved up its recruitment engine in recent weeks, poaching top talent from Toyota’s sales and marketing ranks.

A recent BusinessWeek article revealed why top talent is jumping to Chrysler. According to the article, “Executives see the combination of a high-profile turnaround job, managed by a smart-money player, as a way into the private equity boom.”

Indeed. Cerebus is dangling some big financial carrots in front of candidates, setting aside as much as 5% of Chrysler equity for the company’s top 75 managers. For a frame of reference on just how attractive these compensation packages are, BusinessWeek’s sources say compensation for Chrysler’s newly appointed sales and marketing chief tops $50 million “and could be worth much more later.”

Chrysler is apparently still on the hunt for a new CFO. Yet, Detroit sources have been mum about who might take over as Chrysler’s new Chief Procurement Officer (CPO). Former Chrysler chief Tom LaSorda now has that role among others, overseeing manufacturing, purchasing, and business development. But with Chrysler’s turnaround highly dependent upon its ability to develop and maintain a competitive supply base, being CPO will need to be a full-time job.

Adding to the speculation that Chrysler will pick a new purchasing chief are rumors that LaSorda is only playing a transition role. It is widely believe that he will depart once Nardelli and Cerebus have the new team in place.

So the question remains, who will be Chrysler’s new CPO? Well, while Cerebus may have its own ideas about recruiting, odds are that Nardelli will tap one of his former cronies at General Electric to lead purchasing. (That’s pure speculation on my part. But a little digging reveals that, when Nardelli jumped to Home Depot, a few of his chief lieutenants came along for the ride.)

Chrysler could certainly benefit from a revitalized and more collaborative purchasing approach reminiscent of former CPO and Chrysler President Tom Stallkamp. It’s future success may depend on it.

In my days as an analyst, I was always amused by the shock-jocks of the supply chain profession (you know who you are) who loved making controversial headline grabbing statements. Among their favorites: “If you can spec it, you can auction it.”

While, even today, I’d be hard pressed to find a company that uses reverse auctions for all its spend, there is a lot of truth in that statement. Having exhausted the low-hanging fruit, a growing number of e-sourcing veterans are applying reverse auction tactics to everything from full manufacturing assemblies to professional services. Sun Microsystems is one of the most aggressive and innovative users of online reverse auctions or, what they call, “DBEs (Dynamic Bidding Events).”

I have profiled some of Sun’s unique e-sourcing practices here. However, in the latest issue of Purchasing magazine, my old cohort Executive Editor Jim Carbone, penned a new expose on Sun’s latest reverse auction approaches with electronic manufacturing service (EMS) providers.

According to the article, Sun’s direct materials organization — known internally as Worldwide Operations — now reverse auctions about $2.7 billion of spend each year. The server giant uses these dynamic bidding approaches to award EMS providers everything from printed circuit board assemblies to entire systems, including servers and mass storage units.

I won’t share all the details of the article here. (Instead, I encourage you to read it yourself at Purchasing.com.) However, I will summarize what might best be described as The Seven Habits of Sun’s Highly Successful Reverse Auctions:

1. It ain’t all about price: “Price is important, but it is only one of the pieces that we look at,” Ken Leinweber, strategic sourcing manager, procurement and operations strategy for Sun’s Worldwide Ops group said in the article. Sun ensures that its reverse auctions are based on total cost of ownership, including factors such as availability, technical support, and quality.
2. Integrity is key: “You have to have very high integrity in auctions,” said Kurt Doelling, Sun’s Vice President of Supplier Management. Sun only invites suppliers to its reverse auction events that are approved and that have a legitimate chance of winning the business.
3. Share the wealth: Sun uses most reverse auctions to determine the share of its business each EMS partner will get. “Suppliers cannot have their share go from $200 million to zero and maintain the same level of resources for us. If they do well with auctions, they can bring [their share of Sun’s business] up.” If not, their share decreases, but they do not lose the entire business. This allows Sun to hedge risks and maintain key EMS relationships, while still achieving its cost savings goals.
4. Three is the magic number: Like other e-sourcing users profiled here, Sun invites at least three suppliers to bid in reverse auctions in order to maintain a competitive bidding environment. Whenever possible, Sun tries to keep the number around three bidders so each suppliers is assured some business.
5. Use fewer suppliers: Even though it logged nearly $14 billion in revenues last year, Sun is smaller than competing OEMs, like HP and IBM.
6. Source for your suppliers: However, Sun is taking a page from its larger rivals — particularly HP — by looking for opportunities to team up with its EMS partners to use reverse auctions for sub-tier components.
7. Do it yourself: Like many OEMs in all industries, Sun constantly performs build-versus-buy analysis to determine whether its better to outsource certain processes — such as assembly work — or perform it in house. For example, the company elected to insource post-manufacturing services, such as software loading and testing, after it determined it had a dramatically lower labor rate than outside suppliers.

Hear Sun reveal more of its advanced sourcing techniques at Empower 2007. Register now.

Electronics products giant Sony Corporation this month will launch one of industry’s most aggressive and comprehensive recycling programs this month. The program, which will allow consumers to drop-off any of Sony electronic products for recycling, will not only be good for the environment, but it will also help drive top-line benefits for Sony.

Starting next week, U.S. customers will be able to recycle all Sony products for free at 75 Waste Management Inc. recycling centers in 18 states. The number of drop-off centers is expected to top 150 by year end, with at least one location in each U.S. state.

According to a BusinessWeek article, an internal Sony study showed the company may actually make money from its recycling program. And why not? Sony’s partner, Waste Management, has already made a nice business selling materials, like copper, that it recovers from electronic waste. Under the program, Sony will get a cut of the sales of reclaimed materials. It will likely reuse a portion of the materials to offset some its own supply and product costs.

Not a bad endevour since the price of copper has tripled in the past three years, prompting supply managers to cry foul and spawning a robust black market for copper and other raw materials. And other high-tech manufacturers, particularly Hewlett-Packard, have proven how aggressive e-waste recycling programs can slash costs and sustain supply.
“We believe it can pay for itself over time,” Rick Clancy, Senior Vice President of Sony Electronics, said in the article.

Sony is so convinced of the money-making benefits of the program that it plans to open 1,000 drop-off centers in the next few years to take back electronic products not only from Sony but from competitors as well.

In a new study of contract management practices and performance of more than 400 organizations, the International Association of Contract and Commercial Management (IACCM) uncovers an oft-overlooked issue that few enterprises will want to hear: your company may be its own worst enemy when it comes to contract management efficiency and effectiveness.

In the Contract Management Software: Market Sizing and Status Report, IACCM states that, despite mounting pressures to improve contract visibility and risk mitigation, “…contract management remains one of the most manual, under-systematized” and ill-defined areas of business operations. Report author and IACCM President and CEO Tim Cummins fingers poor process definition and the lack of clear ownership or accountability as chief reasons that enterprises are underperforming in the areas of contracting and contract management.

“In most business and public sector organizations, contract management remains one of the last undefined areas of activity,” writes Cummins. “While there are certainly rules, policies, and authorities related to the form, content and creation of contracts — and there may even be resources operating with job titles like ‘contract manager,’ this does not represent a process with clear ownership or accountability for performance.”

The good news? IACCM’s research reconfirmed that contract management software is highly effective at addressing these issues. Specifically, IACCM found that organizations using contract management software reported measurable improvements with contracting and contract management controls, efficiency, and effectiveness. Study participants reported additional benefits in workload reduction, risk management, innovation and cost and revenue improvements.

While Cummins has long been a vocal advocate for the value skilled contract negotiators and relationship managers bring to the table, findings from this latest study revealed that contract management software can extend (and standardize) the best-practice negotiation and agreement management approaches used by top-performers across the organization.
“The key question is whether process definition will ever occur without the discipline of the software implementation, and also whether its benefits are sustainable without the controls and data capture that the software enables,” writes Cummins. “The available evidence suggests that this is not the case.”

We will examine IACCM’s recommendations for successful contract management software deployments in a future post. In the interim,
Supply Excellence readers can for a limited time access a complimentary copy of IACCM’s full Contract Management Software: Market Sizing and Status Report here.