Earlier this year I questioned the viability of The Gap’s (RED) Program, which nobly donated a portion of profits for certain products to fund vaccinations against AIDS, tuberculosis, and malaria in poverty-stricken regions of the globe. (The Gap even doubled-down on its charitable actions by sourcing the cotton for these products from local farms in Africa.) Unfortunately, the hip retailer misjudged the level of premium consumers would pay for socially or environmentally responsible products. The result: dramatic markdowns on its (RED) product line and lower profits and, subsequently lower funding to this charitable cause.

The Gap found itself in another imbroglio this week when news broke that some of its Christmas line was manufactured using Indian children as young as 10 years old putting in 16-hour shifts in unsavory working conditions for little or no pay. (SpendMatters blogmaster Jason Busch beat me to the punch on this issue. But the real hat tip goes to CNN, which interrupted my lunch with the news.)

News of Gap’s use of child labor may be surprising, but not fully unexpected. I’ve had the opportunity to witness The Gap’s supplier vetting and performance management activities in the past. The company was ahead of the market in its use of fair-labor and sustainable criteria when evaluating suppliers. It also was an early adopter of supplier performance management software to monitor ongoing supplier actions and performance. And its supply chain team has 90 people dedicated to doing supplier audits and relationship management in-country around the globe.

This current mishap is an unfortunate risk inherent in globally distributed and outsourced supply chains. As it expands into emerging markets, the Western world will need to come to grips with the fact that practices like youth labor and kickbacks are widely accepted business practices in certain areas of Asia and the Southern Hemisphere. (Just consider the challenges of getting your cargo shipped in tact from Brazil if you don’t have local agents and an open wallet.)

That’s not to say that supply managers should condone such behavior. Nor should they turn a blind (or winked) eye to it. Instead, they should do exactly what The Gap and other retailers have done: thoroughly evaluate supplier capabilities and labor and environmental practices — including assessing the practices of their sub-tier suppliers. And ruthlessly monitor the supply chain for any changes in performance or ethics.

To its credit, The Gap has done just that. Case in point: in 2006, the retailer ceased business with 23 factories around the globe due to labor and working conditions violations. And it will continue to do so, as its cancellation of business this week with the Indian vendor at the center of this recent issue. (more…)

Most business professionals would agree that industry conferences today are a crapshoot. Once limited to a few per year, the conference business has exploded with highly specialized events, half-day seminars, and virtual shows.

You could spend all year touring the globe (and the Web) attending conferences. But why would you? Most would agree that many conferences — including some of the tried and true industry association event — offer watered down content, vendor commercials, and rubber chicken lunches.

So, how can you ensure that you’re investing your money and time in the conferences that can enhance your supply management (and career) performance? Supply Excellence put this question to someone who would know, purchasing guru Doug Smock. As ex-Editor in Chief for Purchasing Magazine, author of two top-selling purchasing books (including On Demand Supply Management:World-Class Strategies, Practices, and Technology), and editorial director of Global CPO.com, Doug has attended a conference or two in his day. Frustrated with the degradation of content and value delivered at industry shows, Doug took matters into his own hands — literally — by taking the reins of the Conference Board’s once-vaulted annual Purchasing Conference.

We caught up with Doug to ask him what went wrong with industry conferences, how supply managers can ensure they are making the most of the events they attend, and what he has done to overhaul the Conference Board’s Purchasing Conference.

Supply Excellence (SE): Purchasing and supply chain industry conferences have gone through some dramatic changes and lean times in recent years. What has been missing from these once popular and once valuable shows?

Doug Smock: I think the conferences have become, by and large, too proforma. There are now many players without real supply management expertise or involvement. It’s strictly a business.

SE: Can you recommend a litmus test purchasing professionals can use to assess the value of specific industry conferences?

Doug Smock: Look to see if there is thematic content. The Purchasing Conference on November 15 and 16 will dig deep into what I found is a real issue for top purchasing management: How to deal with constant change. Shelley Stewart, my co-author on Straight to the Bottom Line, has been through two major corporate changes and will give the keynote speech, Raytheon will also provide insight from a major industry research project on how purchasing will change in the next 10 years. There are 19 great speakers who will provide insight.

SE: Wow, you really have pulled together an impressive roster of experienced thought leaders for the Purchasing Conference. And from the great job you did moderating the supply management execs on the finance, healthcare, and manufacturing Industry Directions panels at Empower 2007 earlier this month, I am certain you will motivate some inspiring dialogue. Presenters and attendees also find that conferences deliver value for networking for new hires or to be hired. What is your thought on the networking value of industry conferences these days?

Doug Smock: Peer networking is the only value in too many purchasing conferences. We will offer that plus a very valuable program.

SE: You’ve attended quite a few conferences in your storied and experienced career. What is the pre-conference routing you use to ensure that you get the most from a conference?
Doug Smock: I always looked for presentations based on real experience by practitioners. The best presentations often cover unexpected problems, such as some of the supplier issues with early e-procurement installations. There has been too little of this at most purchasing conferences. Of course, my litmus test was always — ‘Could I get a story from it?’

SE: This year, you took over the Conference Board’s annual Purchasing Conference, which is coming up in New York on November 15th and 16th. What changes have you made to the conference to maximize the educational and networking value to attendees?
Doug Smock: I looked back at what I felt are some of the strongest programs I have come across in the last two years, at best-in-class supply management organizations. For example, I have had a great deal of respect for the Purchasing Department at Procter & Gamble. Larry Loftus, who ran their purchasing training program in China, is going to share his learnings there as well as what it takes to run a first-class purchasing education program.

SE: What are the major themes and marquee presenters at the Purchasing Conference this year? (more…)

Sustainability was a key theme of Procuri Empower 2007. Keynote speakers from Salesforce.com to Kellogg’s shared how their companies have turned environmentally and socially responsible business and supply practices into cost savings, competitive advantage, and profits. While their approaches to sustainability differ, all presenters agreed that any company can make great strides towards sustainability by starting with simple conservation a approaches.

Consider these simple tips offered up by the supply management and business executives presenting at Empower:

• Energy-efficient Information Technology (IT): “IT on average spends 25% of their budget on power,” said Ken Leinweber, Strategic Sourcing Manager, Procurement and Operations Strategy at Sun Microsystems. “In the next five years or so, folks will be spending more money on power than they will on the hardware. Innovating products and solutions that use less power is critical to the environment [and our operating budget].” Dan Bross, Microsoft’s Senior Director of Corporate Citizenship, also emphasize the importance of energy-efficient IT: “We work with customers, partners, governmental and non-governmental organizations to build solutions that enable consumers, businesses, and governments to reduce their environmental footprint.”
• Responsible operations and employees: Bross also said that Microsoft encourages employees to engage in environmentally and socially responsible practices. The software giant has launched incentive programs to encourage employees to buy energy efficient vehicles, created ‘green buildings’ and is using solar power systems to power offices. By Microsoft’s estimates, 11,000 of its workers commute to its Redmond, Washington headquarters via some ‘green’ method, such as mass transit, bike, or car pool. Like Microsoft, Salesforce.com encourages employees to support local charities and social causes by giving each employee paid time off for volunteer work.
• Recycling and Reuse Programs: “Sustainability doesn’t need to be hard,” said Wesley Gibson, Founder and Managing Director of VMG Consulting. “Wal-Mart and others have saved tremendous amounts of money merely by shrinking and reducing packaging and reusing crates and pallets. This not only reduced waste but it also cut their shipping bills dramatically.” As noted here, successful conservation efforts within its own stores, inspired Wal-Mart to recently extend sustainability efforts to its supply base.
• Energy Efficient Operations: “We have implemented energy management systems and procedures at all plants, including the use of heat recovery systems,” said Dennis Wasyliw, Senior Director of Procurement Technology at Kellogg Company. “As a company we recycle 80% of waste, including converting waste food to animal feed.” Kellogg’s also practices water conservation and is emphatic about packaging recycling and reduction programs.

Like a good education, environmentally and socially responsible business and supply practices start at home — or, in this case, the office. The above conservation examples prove that sustainability is good business. They also prove that getting started doesn’t have to be difficult.

Please don’t misconstrue last week’s news of alleged corruption and graft in Defense Department purchasing in Iraq. A few bad apples should not spoil the years of red-tape cutting and purchasing efficiencies (and just downright effectiveness) that the DoD has achieved.

I was fortunate enough to witness the initial wave of governmental initiatives to streamline and improve federal and Defense purchasing policies and performance first hand while in Washington during the first Clinton Administration. (Trust me, reworking — and removing — thousands of pages of the FIRMR, FAR, and DFAR policies in favor of more commercial and automated purchasing techniques was no easy task.) I was also recently reminded of the daunting task DoD purchasers face everyday, and the darn good job they do overcoming these challenges.

The person doing the reminding was none other than Retired Lieutenant General Gus Pagonis — the man responsible for all buying and moving everything from tanks and troops to food and bandages during the first Gulf War. (Pagonis later went on to lead the re-engineering of Sears’ supply chain.) Speaking at the Procuri Empower 2007 conference earlier this month, the former General reminded attendees just how complex the global supply chain the U.S. Military runs — and in heated war zones nonetheless. For example, during the first Gulf War, Pagonis’ logistics team, “planned, moved and served 122 million meals.” Supplied 1.3 billion gallons of fuel. Handled over 31,800 tons of mail. And transported troops and equipment 52 million miles across the desert. And, unlike in the commercial world, any missed shipments or delays in the war theater have dire consequences.

Pagonis was a wealth of knowledge on purchasing and supply chain strategy, using many of the advanced planning and management techniques used by leading enterprises, including balance scorecards, risk-reward and performance-based contracting, and activity-based cost modeling. (He profiles his experience and supply chain lessons from the military in his must-read book, Moving Mountains: Lessons in Leadership and Logistics from the Gulf War.) Yet, his most compelling insights were how he applied military leadership techniques to the retail supply chain.

“There are big differences between managing and leadership,” said Pagonis. “Management is about maintaining and controlling. Leadership is about innovating, developing, and challenging.”

Pagonis boils down his leadership techniques the the following building blocks:

• Know yourself: Understand what you’re good at and hire people that augment your weaknesses.
• Present yourself: Know your audience, listen to them, and tailor your message to their sensibilities. Manage by walking around and meeting your team members and internal (and external) customers in their own locations. (And don’t forget to bring the pizza or some other gesture that can get people to open up and tell you the straight scoop.)
• Know the mission: Whether you’re in the battlefield or on the shop floor, intimately understand the strategic vision (e.g., “Drive Profitable Revenue Growth”). Develop strategies that directly support this vision (e.g., “Achieve Supply Chain Integration and Visibility,” “Manage Service and Unbundle Cost”). And define quantifiable objectives and tasks to execute these strategies.
• Develop your subordinates: Understand the strengths and weaknesses of each employee. Train employees on your strategic vision, strategies, and objectives. Provide regular performance evaluations and develop training and corrective actions to drive continuous improvements. Motivate employees through incentives and simple gestures, such as singling them out for a job well done.
• Develop your tools: Pagonis used daily “stand-up” meetings (lasting less than 30 minutes) for team members to quickly raise issues. He augments this status meetings with weekly sit-down meetings to delve into operational status and issues in more detail, requiring department heads to share three “Ups” (positive progress on strategies and objectives) and three “Downs” (potential drawbacks and issues and suggested corrective action plans.) Pagonis also set aside 15-minute “Please See Me Time” (PSM for short) sessions on his calendar where staff could schedule a private meeting to discuss any topic.

These techniques helped Pagonis lead the now famous “left hook” maneuver that helped bring the first Gulf War to a rapid close. These leadership principles also enabled Pagonis to drive a supply chain turnaround at Sears. Best of all, while they take some practice, Pagonis’ approaches are transferable to any leadership role — whether heading purchasing for a mid-market company or leading a small team. There is indeed such a thing as military intelligence. And we can all benefit from borrowing from it.

One day after praising the Defense Department for its innovative approach to using outcome sourcing for jet fighter uptime, I take it all back. An expose in the Wall Street Journal this week reports that U.S. military procurement officials are under investigation for an alleged price fixing and kick-back schemes involving some of the nation’s largest food companies.

According to the article, the inquiry is focused on whether the food companies set “excessively high prices” when they sold their goods to the Army’s primary food contractor in the Iraqi war zone. The Kuwaiti contractor is also being scrutinized for pocketing refunds it received from food suppliers, including Perdue Farms, Sara Lee Corp., ConAgra Foods, and others.

For example, the Journal uncovered records that show that Sara Lee paid 5% of the purchase price back to the contractor for meet and bakery orders to feed U.S. troops in Iraq and Kuwait. Under this refund structure vendors were encouraged vendors to inflate prices to boost kickback amounts. Justice Department officials investigating the issue estimate that this price-inflation scheme added “hundreds of millions of dollars” to the Army’s food tab.

But a bigger issue in my mind, is the aspects of the probe that suggest that the Army was specifying the use of certain U.S. food suppliers (and large political donors), while icing out others. Another disturbing aspect questions the rotating door of U.S. military procurement officials that were employed by or consultants to some of the food vendors in question. For example, the Journal reports that the Sara Lee executive that penned the above deal formerly served as chief warrant officer for the Army.

However, the central figure of the probe is David Staples, a top Army procurement official and former Sara Lee employee. According to the Journal, documentation indicates that Staples violated DoD procurement rules when he instructed Army food contractors to purchase foods from specific suppliers — including Sara Lee — rather than using open and competitive bids. The Journal said the issue bubbled up following a compliant to the Pentagon from Tyson Foods complaining that the military was using inappropriate sole-sourcing agreements and keeping other vendors from even completing for the Army’s business.

The scenario reinforces the need for greater visibility and standards for purchasing in both public and private sectors. Leveraging common protocols not only helps ensure ethical purchasing, it also reinforces consistent best-value results and supplier relations. Unfortunately, these recent events deter from some of the great advances the Federal Government and Defense Department have made in adopting commercial methods and technologies to streamline and standardize purchasing methods. They also reaffirm that the cornerstone of supply management excellence are talented and ethical employees.

Bill McBeath, supply chain veteran and founder and Chief Research Officer at Chainlink Research, recently penned an article that reminded us of the importance of that old saw, “I don’t really want to buy a drill bit, what I want is a 2″ hole in the wall.”

Bill’s point, while seemingly simplistic, is oft-overlooked by strategic sourcing and supply chain professionals: the best way to capture innovation in the supply base and maintain good supplier relationships is to state your end goals and give suppliers the freedom to develop best-value solutions to meet your objectives. A concept Bill terms, outcome sourcing.

“Outcome sourcing — moving from buying things to buying results or outcomes — is one of the most important developments in supplier relationships,” writes Bill. “Specifying desired outcomes provides more flexibility to suppliers. It allows them to bid on a specific outcome, rather than a buyer-specified solution, which results in better solutions for the buyer.”

Yet, he is quick (and correct) to point out that few companies truly practice outcome sourcing. Instead, most buyers spend way too much time “dictating every detail of the answer.” Such over-specification restricts what the supplier can propose and can actually add cost and stifle innovation in the final solution.In his article, What is Outcome Sourcing? (registration required), Bill offers evidence of how leading organizations have used outcome sourcing to dramatically increase supplier innovation, access hidden opportunities for cost and performance improvement, and better align supplier incentives and customer needs. He adds that outcome sourcing is poised to become standard operating procedure thanks to flexible bidding options available in e-sourcing solutions that empower suppliers to offer alternative solutions and offers that address the customers’ requirements while maximizing the suppliers differentiation and cost structures.

For example, the article cites the Defense Department’s move to “performance-based logistics programs” that specify aircraft uptime requirements rather than spare parts availability levels. Under these “PBL” contracts, the manufacturer is responsible for overall aircraft uptime, which is what is most important to the nation’s able and ready defense.

Bill also points out examples of a diversified manufacturer using outcome sourcing to encourage multiple suppliers bid together to provide the best and most innovative solution to meet its intended goals.

The article is a much-needed reminder of what strategic sourcing is intended to be about — working with suppliers to achieve best-value solutions that advance your business objectives. It is also a primer in how to put outcome sourcing into practice.

What keeps CPOs up at night? Some of you might guess supply risks or rising commodities costs. But you’d be wrong. According to Chief Procurement Officers at Procuri Empower 2007, their chief concern is attracting and retaining top talent.

“The biggest challenge to any procurement organization is hiring and keeping the right talent.” National City Corporation CPO Jean-Jacques Beaussart. “I want to be a talent magnet. I try to create a culture and compensation that keeps my team challenged and satisfied. I am successful when I get people saying, ‘I want to work for purchasing.’ And when I get other groups saying, ‘We want the talent from purchasing on our team.’”

It appears that Beaussart has succeeded in his quest. Having cut his supply management teeth within General Electric’s much-heralded strategic sourcing organization, Beaussart brings an acumen for training, performance reviews, and Six-Sigma methodology to the financial services sector. Most of his purchasing team are Six-Sigma black belts. (And, if not, are in training to become one.) His commodity managers are required to perform biannual risk audits on strategic suppliers to ensure the bank avoids any supply disruption.

The skills and experience acquired under Beaussart’s leadership have made National City’s purchasing team a hot commodity within the bank. In fact, two of his team members were recently appointed Chief Financial Officers for different National City business units.

Beaussart is not alone in his quest for hiring and retaining top talent. In fact, in a new Supply and Demand Chain Executive magazine study on the impact of globalization on supply management, purchasing and supply chain executives cited “upskill and improve talent of purchasing team” among their top three initiatives for the next few years.

In fact, in support of their expanding global sourcing and supply initiatives, 65% of study participants expect to expand their supply management team over the next three years. According to the study, “The talents most in demand will be category expertise and supplier development and relationship management skills, which will be critical to continuously improve supplier performance and minimize risks.” Included in the group of new hires are employees with talents and experience for assessing and managing risk. Respondents also anticipate hiring employees with experience in deploying and managing supply management software projects, “signaling that most future supplier negotiations, collaboration, and communications will be managed online.

Not surprisingly, more than two-thirds of study participants expected to decrease operational purchasing staff as tactical activities, such as purchase order (PO) processing, are automated.

To learn more about how companies are addressing the talent crunch, download a complimentary copy of the full study, Global Supply Management: Strategies for Success in the New World Economy here.

I am happy to report that, what began as a goal to write a helpful compendium of practical tips for driving incremental and immediate improvements in supply and contract management operations, has turned into a living exchange of ideas among supply and contract management professionals.

Since “publishing” the original e-book in March, The 100 Greatest Supply Management Tips of All Time, I have received dozens of reader-contributed and -tested approaches for supply and contract management improvements. After a series of reviews, Supply Excellence readers voted, selecting the following as the most-useful contributed tip:

• Executive support is only half the battle: When senior leadership says you have their full support to begin introducing supply chain strategy across the organization, what they are really saying is that you have license to go out and sell your supply chain ideas for the various business units. So, perfect your sales pitch! And be sure to tailor and refine your messages to meet the hot buttons of unique stakeholder groups.

How true. The most successful purchasing people are indeed the best salesmen. Just consider the world’s most successful CPOs — all have great selling skills.
This sentiment was shared by supply management executives at Procuri Empower 2007 earlier this week. During a executive panel discussion on the conference mainstage, AllianceBernstein Chief Procurement Officer Joanna Martinez told anaudience of over 260 supply and contract management professionals:

“I tell my team that ‘I don’t buy, I sell.’ I must constantly sell the value of the purchasing function and our strategy to the CFO and business directors. And, because we’re not as large as some other companies, I must also sell AllianceBernstein, and the value of doing business with us to our suppliers.”

Note to self: brush up on your salesmanship. These skills will come in handy whether you’re trying to win budget or policy support for a supply management initiative or whether you’re trying to secure supply in a tightening market.

One of the things you missed here at Procuri Empower 2007 was the release of a new study from Supply and Demand Chain Executive magazine into globalization and its impact on supply and contract management strategies and performance. Based on a survey of over 120 purchasing, supply chain, and business professionals, the study – Global Supply Management: Strategies for Success in the New World Economy – raises an alarm about the mismatch between global sourcing and supply chain strategies and the ability of most companies to effectively execute and manage these good intentions.

For example, the percentage of total spend purchased from suppliers in emerging markets will increase 130% by 2010, despite rising risks and challenges of sourcing from those regions. Even more alarming is that a majority of purchasing and supply chain managers acknowledge that their organizations are ill-equipped to select and manage suppliers abroad.

“[Study] respondents recognize that achieving their global supply goals will require them to overcome challenges with recruiting and retaining top talent, developing new organizational structures, and securing budget and executive support for automation and supply initiatives,” writes report author and Supply and Demand Chain Executive magazine Editor-in-Chief Andy Reese.

In addition to these internal issues, the study uncovered a number of external challenges complicating global supply management initiatives, including “managing language and cultural differences, identifying qualified suppliers and ensuring supplier quality.” The latter quality problem has been in the spotlight lately following a number of high profile recalls on food and consumer goods from China. (An issue that SpendMatters has covered ad nauseum.)

I will delve into this new Global Supply Management study in more detail in the coming week. In the interim, download a complimentary copy of the complete study here.

If you’re sitting at your desk reading this, chances are you are not one of the more than 250 supply and contract management executives that have joined me at the Procuri Empower 2007 conference.

The three-day event, which kicks off in earnest today, showcases some of industry’s leading professionals and luminaries tackling topics ranging from sustainable supply strategies to Software-as-a-Service to the impact of globalization on supply and contract management operations.

On the mainstage this morning, Salesforce.com President Jim Steele will examine corporate responsibility and SaaS in the era of globalization. Building on this theme, executives from Microsoft and Kellogg’s will reveal how their companies have turned environmentally and socially responsible business and supply management practices into profits.

Retired Lieutenant General and Sears’ former EVP of Supply Chain Gus Pagonis will kick off tomorrow’s showcase with his world-renowned insights for leadership and supply chain management in the global arena. The General will be followed by an equally impressive panel moderated by Purchasing Magazine Editor in Chief Paul Teague and consisting of Chief Procurement Officers from Barclay’s, National City Corporation, and Alliance Bernstein.

In addition, more than 40 supply and contract management professionals will be leading 25 breakout tracks on practical techniques and real-world approaches for strategic sourcing spend analysis, contract management, supplier management, and procure-to-pay success.

I will be sharing some of the best-practices and highlights from the conference in the coming weeks. Until then, listen to the podcast snapshots of some of the key presentations. And know that you will be missed.