Bridging a supply chain\'s cultural divide

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Features

COVER STORY

18 Find the Big Picture in Big Data Businesses are looking for ways to turn the volumes of data their organizations are collecting into insights that will give them a leg up on the competition.

By Mary Siegfried

18 Report On Business

®

24

14 Manufacturing The latest PMI™ and manufacturing indexes.

24 A Century Strong

15 Non-Manufacturing

ISM’s oldest affiliate, ISM—New York, Inc., celebrates 100 years of promoting and supporting the purchasing and supply management profession.

The latest NMI® and nonmanufacturing indicators.



16 Global Business Trends

By Lisa Arnseth

28 Supply Chain Management, Going Forward

International news items and indicators, plus a market trends report.

28

 What challenges lie ahead for supply management in the coming year? Inside Supply Managment ® asked industry leaders to share their thoughts, concerns and expectations about the state of the profession.

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1

ISM Publishing Staff Thomas W. Derry Chief Executive Officer [email protected]

Nora P. Neibergall, CPSM, CPSD, C.P.M. Senior Vice President and Corporate Secretary [email protected]

Advertising Cindy Urbaytis, MA

Departments

Vice President [email protected]

8 Just in Time News, notes and

Account Manager [email protected]

Kathy Braase quotes — just when you

need them.

Editorial

42 ISM News

John Yuva Managing Editor [email protected]

  Go inside the Institute for announcements, events and updates.

44 Point to Point Focus on supply chain logistics.



Lisa Arnseth

Mary Siegfried

Senior Writer [email protected]

Senior Writer [email protected]

Lisa Wolters-Broder

Columns 4 In This Issue

Exciting Changes Kick-Start the New Year By John Yuva

6 Executive Access to the CEO

CEOs Paying Attention By Thomas W. Derry

10 Career ROI Commercial Acumen Leads to Buyer Power By Robert Goss

12 Critical Skills

Intangibles Are Key to Negotiations By Elizabeth Zucker

34 Beyond Borders Bridging a Supply Chain’s Cultural Divide By John Hooker, Ph.D.

36 CAPS Research Justifying Environmental Sustainability Activities By CAPS Research Team

38 Tapping Into … Fighting Procurement Fraud By Juanita M. Rendon, DBA, CPA, and Rene G. Rendon, DBA, CPSM, CPSD, C.P.M.

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ISM January | February 2014

Senior Copy Editor/Staff Writer [email protected]



Karin Spencer

Rose Marie Goupil



Publications Assistant [email protected]

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Production & Design James Cain Senior Graphic Designer [email protected] Inside Supply Management® (ISSN #1538-733X) is published 9 times a year (January/ February, March, April, May, June/July, August, September, October, November/December) by the Institute for Supply Management,™ 2055 E. Centennial Circle, Tempe, Arizona 85284. Telephone: 480/752-6276, extension 3071 (Editorial), extension 3043 (Advertising). Copyright ©2014 by the Institute for Supply Management™. All rights reserved. ISM affiliates may reprint articles in their newsletters and magazines with credit given to Inside Supply Management® and author, unless noted otherwise within article. Requests for reprints by nonaffiliates must be approved by ISM. Please send requests to the address above. Preferred Periodicals Postage paid at Tempe, Arizona, and additional mailing offices. POSTMASTER: Send address changes to: Inside Supply Management®, 2055 E. Centennial Circle, Tempe, Arizona 85284 or email to [email protected]. Publications Mail Agreement Number 40048267. Send return addresses to: Canadian Institute for Supply Management™, c/o Global Prime Office Network, 130 King St. W Ste. 1800, Toronto, ON, M5X 1E3. Inside Supply Management® is the official publication of the Institute. ISM members receive the publication as part of their membership fee which represents $24 of their total fee. This fee is non-deductible from membership dues. Subscriptions to university and public libraries are $48 annually. Single copies are available for $15. The authors of the articles published in Inside Supply Management® are solely responsible for their accuracy and content. Opinions expressed in the articles and materials published herein do not reflect the opinions of ISM unless it is expressly stated that such opinions have been formally adopted by ISM. The publication of an advertisement by Publisher is not an endorsement of the advertiser nor the products or services advertised. Publisher assumes no responsibility for claims or statements made in an advertisement.

Institute for Supply Management ™ 2055 E. Centennial Circle Tempe, AZ 85284 Phone: 800/888-6276 (U.S. or Canada) or +1 480/752-6276 (all others) Fax: +1 480/752-7890 • Online: www.ism.ws

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YourNextBigIdea.ca/Source Paid for by the Government of Ontario.

In this Issue from the managing editor

John Yuva Editor

Exciting Changes KickStart the New Year

T

he beginning of the year is an ideal time to introduce something new. Inside Supply Management ® is doing that threefold. First, you don’t need to look any further than the cover and inside pages of the magazine to see its new design from cover to cover. We want to enhance your reading experience by adding more white space and changing the fonts for a cleaner look. And it’s not just the design we’re introducing, but new content, as well. Our new Career ROI column includes insights from seasoned procurement practitioners about lessons learned throughout their careers. Another new column is Critical Skills, which revisits the fundamentals of procurement and supply management that are crucial to success in the profession. Learn about the latest global trends and strategies in our Beyond Borders column, focusing on global commerce issues pertinent to supply management practitioners. And our last page of the magazine, Point to Point, now features logistics news and trends. Second, Inside Supply Management ® now has an app that readers can download to their tablets and smartphones. Available in the iOS, Android and Kindle app formats, the app sends readers notification each month that a new issue is available. We’re thrilled about the opportunity to offer readers access to the magazine on their mobile devices. We plan to launch some interactive features later in the year to make the mobile experience even more unique. Third, we’ll be launching a website for the magazine at the end of January that will feature a blog, news, social media and other publications resources. The blog will include posts written by the magazine staff as well as guest bloggers. We’re excited about the opportunity to cover and comment on supply chain issues as they happen. We look forward to hearing your feedback about these exciting changes. And please reach out to us if you’re interested in writing for the magazine or microsite. The staff of Inside Supply Management ® looks forward to serving you, our readers, in 2014.

ISM Editorial Advisory Board Jamie Bliss ConAgra Foods Inc.

Joe Cavinato, Ph.D. Thunderbird School of Global Management

Bill Dempsey Shire Pharmaceuticals

Ric Freeman, C.P.M. Tempur Sealy International

Todd Genovese Amazon.com

Jerry Miller, CPSM, CPSD Capital One Services

Tom Mulherin Taser International

Brian Schulties, C.P.M. Prysmian Group

Joel Sutherland University of San Diego

Ron Wilson, CPSM, C.P.M. Wilbur Curtis Company

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ISM January | February 2014

Black | Hispanic & Latino | Women

ISM Supply Chain Diversity Summit February 26-28, 2014 | San Francisco, California

Lean In, Link Out Register today at www.ism.ws/3922.

www.ism.ws

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5

Executive Access to the CEO

By Thomas W. Derry ISM CEO

CEOs Paying Attention The future is now for procurement and supply chain practitioners as the marketplace and its associated risks evolve.

I

want to begin this column by quoting briefl y from an article written for ISM by Professors Chad Autry and John Bell, both from the University of Tennessee, and Professor Thomas Goldsby from The Ohio State University: “As the organization responsible for matching supply and demand within and across companies in the supply chain, supply management faces the greatest challenges and bears the responsibility for serving the future needs of a rapidly changing world. No other business discipline will play as critical a role in the future of a company through the remainder of this century — this is truly the age of supply management.” (Emphasis added.) This is a bold, possibly even provocative, assertion. And yet I would wager that few of us in the field, having followed the purchasing/procurement/supply management transformation over the last three decades, would take issue with it. ISM Research is currently conducting a study of CEO perceptions of the supply chain function. The study is in progress, but let me share with you some of the preliminary data that directly support the thesis of Autry, Bell and Goldsby. According to ISM’s preliminary data, 85 percent of CEOs agree or strongly agree with the statement that the head of supply management plays a key role in the company’s strategy formulation. More than 80 percent of CEOs also report that the head of supply chain plays a key role in the firm’s execution of strategy. The CEOs represent a wide spectrum of industry sectors, including: transportation; food, beverage and tobacco; fabricated metal; mining; oil and gas; and industrial manufacturing, among others. A majority of CEOs, 58 percent, say supply chain management is a source of competitive advantage for their firms. So, what are some of the implications of these statistics? For one, I would suggest that the supply chain is no longer seen simply as something that is managed to drive out cost. Yes, that remains a critical function, and will always be a given. But cost reduction alone doesn’t account for what grabs the attention of CEOs and boards of directors. Perhaps even more interesting, though, is the increasing recognition that companies compete on the basis of their supply chains. CEOs will rely on the supply management organization to out-compete for access to raw materials and commodities. CEOs will rely on the supply management organization to out-compete for access to new technology. CEOs will rely on the leaders of their supply chains to react more nimbly than the competition to rapidly changing business conditions. This is the new reality for our profession. In the global economy, companies will win or lose, prosper or fail, in large measure based on how well they manage their supply chains relative to their competition. ISM

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ISM January | February 2014

ISM Board of Directors Chair Thomas K. Linton Flextronics Joseph C. Black Jr. Aetna Inc. Kimberly A. Brown Dell Inc. Janice L. Davis Shaw Communications Thomas W. Derry ISM Timothy R. Fiore, CPSM, C.P.M., MCIPS ThyssenKrupp NA Cecil R. House New York City Housing Authority Craig J. Johnson, C.P.M., A.P.P. Harry & David Holdings Inc. Jason Kwan Landmark Investments Group Ltd. Lisa Martin, CPSM, C.P.M. Teva Pharmaceuticals Steven G. Miller Nora P. Neibergall, CPSM, C.P.M. CPSD

ISM Ann Oka Sodexo Inc. Richard Spoor, CPSM, MCIPS Bayer HealthCare AG

[ GREAT IDEA ] COLLABORATION: WHAT A

ISM Est. 1915 45,000+ members Over 150 affiliates worldwide Professional certifications First supply management organization Engaged in over 90 countries ISM Report On Business®

A.T. Kearney Est. 1926 58 offices in 40 countries 3,200 people strong worldwide ROSMASM The Purchasing Chessboard House of Purchasing and SupplySM Assessment of Excellence in Procurement study

Scholarships

20+ years strong

Professional development

$1 trillion of spend addressed

CIPS Est. 1932 Active in 150 countries 103,000+ global community

ISM + A.T. Kearney + CIPS ISM, A.T. Kearney, and CIPS created a new alliance focused on elevating the procurement and supply management profession. We combined our global footprint and marketplace credibility to ensure that the profession

Corporate portfolio Professional qualifications Global events and conferences

succeeds in the new global economy and becomes a strategic growth

Branches and networks

partner of the business. Our first step in this new collaboration is to estab-

worldwide

lish a standard performance metric for supply management. We invite

CIPS Foundation

the industry to join us as we work together to increase professional recognition for the procurement and supply management community. Visit www.ism.ws/rosma for more information.

Scholarships

Just in Time news, notes & quotes — just when you need them

The Benefits of CFO and Supply Chain Leader Partnerships

C

“I pick up the details that drive the organization insane. But sweating the details is more important than anything else.” Indra Nooyi Chair/CEO PepsiCo

ompanies with strong business partnering between the CFO and supply chain leaders report better results than those with more traditional finance models, according to a global survey of CFOs and supply chain leaders by professional services organization EY. Among business partner respondents, 48 percent report earnings before income tax, depreciation and amortization (EBITDA) growth increased more than 5 percent in their company over the past year, compared with just 22 percent of those with a more traditional relationship. Partnering for Performance, a global survey of 423 CFOs and heads of supply chain, also finds that despite the positive impact on revenues, only 26 percent of finance executives and 21 percent of supply chain executives say that CFOs‘ contribution to the supply chain is primarily based around a collaborative businesspartnering role. However, 70 percent of CFOs and 63 percent of supply chain leaders say that their relationship has become more collaborative over the past three years. To read the complete survey, visit www.ey.com/cfoandsupplychain.

A Moment in Time

I

t would be unfair and unwise to throw the whole burden of supplying tomorrow’s purchasing managers on the educators and universities. The ball is now back in the practitioners’ court. It is up to the people who have built careers of their own in purchasing management … This is the kind of grass roots participation that will bring more and better managers into purchasing. — Purchasing World, August 1980

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ISM January | February 2014

30% of Companies Suffer Supplier Fraud

T

he number of firms hit by fraud rose from 61 percent in 2011 to 70 percent in 2012, according to the Global Fraud Report 2013/14, prepared by Kroll (www.kroll.com) in cooperation with The Economist Group Intelligence Unit. Of those who fell victim to procurement fraud, one-third experienced wrongdoing perpetrated by suppliers and 12 percent suffered at the hands of joint venture partners. The number of firms affected by bribery and corruption increased from 11 percent to 14 percent, and almost half of firms refrained from expanding into a foreign market because of corruption. Kroll said cybercrime is also on the rise, with attacks by external hackers almost doubling. In fact, 17 percent of firms affected by information theft suffered as a result of an attack on a supplier, up from 5 percent in 2011. For more on this topic, read this issue’s Tapping Into column, Fighting Procurement Fraud, on page 38.

Tip BPM in Your Favor

B

PM: The Tipping Point, from Capgemini (www.capgemini.com), notes the increasing importance of business process management (BPM) to supply chain management professionals. The report finds that: • Forty-five percent of respondents anticipate that their organizations’ interest in BPM may increase in the next 12 months.

• Fifty percent of businesses will increase investment in maximizing cost efficiency over the coming year. • Seventy-eight percent of businesses believe their BPM investment improved the flexibility of the organization. • Seventy-eight percent of organizations that introduced BPM to improve interactions with clients report a positive impact.

General Mills’ Example Shows Why You Should Upgrade Plants Periodically

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t General Mills’ Cedar Rapids, Iowa, manufacturing plant, pallet flow and pushback rack systems were used successfully for more than 15 years. But ongoing growth, product changes and long use required a storage system update to safely add capacity to its existing facility. A switch from 50 pound bags of ingredients to 2,500 pound bulk super sacks meant larger volumes and heavier pallets. To enhance efficiency and minimize material handling, General Mills consolidated its systems. The end result increased storage capacity by 42 percent and made room for 24 percent more inventory items.

CommOddities #2 Heating Fuel What’s #2 heating fuel? It’s the safe, non-volatile fuel that heats home furnaces and boilers in larger buildings. Where does it come from? Derived from crude oil, # 2 heating oil makes up about 25 percent of the yield from one barrel of crude. It’s the second largest cut after gasoline. In the United States, a lot of it comes from foreign sources like Canada or Venezuela. What’s it used for? Of the 150+ million households in the U.S., some 18 million use #2 heating oil as their main residential source of heat. Demand is highly seasonal. Most use occurs from October through March, and mostly in the Northeast. And that’s a fact: As far as prices go, generally speaking, a US$1 increase in the price of crude oil translates into a 2.5 cent per gallon rise in #2 heating oil. And as for environmental concerns, residential oil burners actually produce less than onethird of 1 percent of total particulate emissions in the U.S.

Source: www.chem.info

www.ism.ws

9

Career ROI the path to leadership

By Robert Goss

Commercial Acumen Leads to Buyer Power Use these tactics and techniques to help sharpen your buying power, refine your position in the marketplace and earn the kind of reputation that attracts the best suppliers to your negotiating table.

T

o be successful in supply chain management, you must understand the nuances of your industry segment so thoroughly that you can react well to any situation that occurs. This requires a strong sense of commercial acumen, an important skill for supply management practitioners. Commercial acumen is the ability to assess business situations and information, then make rational decisions and take sensible action that puts your company in a more optimal position. It can be developed through experience, preparation and study. Commercial acumen begins with understanding the needs of your organization and its potential suppliers — a process I call finding the preferred market match. You can identify preferred market matches by performing

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ISM January | February 2014

internal customer reviews and planning for supply continuity — both key components in understanding your organization’s needs. It’s also important to know and understand your company’s strategy, how your supply management organization’s strategy supports it and particularly how category strategies support your organization. Each strategy a step down should underpin the strategy above it, and link with functional strategies to help the organization drive toward a common goal. An initial step in developing your commercial acumen is understanding the market segments in which your company purchases items and services. You can do this by: • Participating in supplier reviews, formal assessments and supplier interviews that should include the supplier’s outlook for the market • Reading professional journals and trade magazines specific to the categories you manage • Attending trade shows when possible • Reading relevant data analysis reports, information published by the U.S. Bureau of Labor Statistics, market indicator

reports, and reports and predictions from industry analysts • Keeping on top of quarterly earnings reports and other up-to-date information about suppliers and their industries. Once you understand the market, you can further refine your commercial acumen by focusing on what you can do to help your company develop buyer power. Buyer power can be as basic as leveraging volume through standardization or linking spend from various segments of the organization. For example, consistent specifications for electric motors on a certain type of equipment maximize efficient spend by allowing volume purchasing on the motors themselves and covering the repair and part replacement associated with their upkeep. Buyer power is enhanced when an organization is agile and able to make decisions quickly. If a stamping supplier is not meeting expectations, for instance, an organization that is able to move tooling and production to another supplier quickly demonstrates buyer power by being agile, efficient and decisive. Knowledge is, of course, the cornerstone of buyer power, and knowledge leads to expertise. Read as much as possible. Stay up-to-date with industry news to cultivate strong knowledge of market forces within your

respective industry and those that affect your supplier’s business. You will need to know about governmental influence, consumer behavior, cultural shifts, substitutes, innovation and other factors. The supply management organization should also work with business-unit leaders to improve cost knowledge through should-cost models and total cost of ownership. To maintain buyer power, the supply management organization needs to have some control over technology. Most supply chain practitioners agree it’s not a good practice to allow suppliers to hold the reins of technology. When supply managers control technology used in production, for example, the ability to switch to a new supplier is simplified — laying the foundation for an agile organization. Total technology control may not be possible — or even desirable, in some cases — but deep knowledge of your suppliers’ processes and technology brings buyer power. For example, if you outsource the majority of your machined components, yet machine the complex components in-house, you have created buyer power because you can source the production internally if necessary.

What Strategic Suppliers Can’t Resist Once you have developed buyer power skills, excellent suppliers will be interested in working with your organization. The following are additional attributes of a solid supply chain organization that will invite long-term relationships and strategic partnerships. Ease of doing business. Suppliers like to work with a supply chain organization that’s easy to do business with. Even a small or middle-market company can obtain products in constrained markets if its

supply chain organization has a reputation for efficiency. Ease of doing business often trumps volume. That’s why large organizations should examine their complexity and the demands and risk-taking they require from suppliers. Lower risk for suppliers. Supply management organizations can strengthen their buyer power by lowering the risk it shifts to suppliers. This doesn’t mean

When supply managers control technology used in production, for example, the ability to switch to a new supplier is simplified — laying the foundation for an agile organization.

an organization has to have weak indemnification, weak warranties or weak commercial terms. Rather, it’s about solid planning for volume and timely delivery, appropriate levels of indemnification and warranties, and other factors. Lowering supplier risk may involve doing away with one-size-fits-all clauses often used in company contracts. Differentiation. Conducting supply chain business in ways that are different and appealing to suppliers may provide a value proposition that can enhance buyer power. Work with internal customers and the supplier base to determine areas where you can differentiate your organization, such as in warehousing, delivery, communication tools and supplier development, to name a few. Synergy. Buyer power is

enhanced when a supply chain organization partners with a supplier to create synergistic value. By working together, the supplier and supply management organization may be able to mutually benefit from excess production capacity, underutilized equipment, strength in engineering or R&D, or from other expertise in each other’s organization. Fit. Buyer power can also be increased depending on where your organization does business. Matching global footprints can bring buyer power when a supplier is developing a new market, for example. Buyer power gains credence and strength when you adhere to ethics and work with absolute integrity. Ethical standards set the tone in a supply chain organization. They should be held in the highest regard. Integrity means supply chain practitioners are honest, process-oriented and consistently follow company policy. Ethics and integrity lead to a strong reputation, and reputations can’t be bought. Suppliers want to be associated with organizations that have stellar reputations. Branding, procurement’s professionalism and other positive attributes bring an intangible value to supply chain organizations. A high level of trust, ethics and integrity means greater buyer power to an organization. Supply chain practitioners who understand the importance of buyer power will be able to negotiate strong, fair and profitable agreements for their companies. ISM Robert Goss is senior manager, corporate procurement for Halliburton in Houston. The information contained in this article is the author’s and does not necessarily represent Halliburton’s position, strategy or opinions. For more information, send an email to [email protected].

www.ism.ws

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Critical Skills fine-tuning your fundamentals

By Elizabeth Zucker

Intangibles Are Key to Negotiations Assess the responsiveness, interest and transparency of your suppliers well before reaching the negotiating table to establish the most effective foundation for successful sourcing relationships.

A

s supply management professionals, we know it’s important to remain level-headed and prepared when negotiating with a supplier. When I think of the worst situation in a negotiating session, I envision USSR president Nikita Khrushchev banging his shoe on the table during a 1960 United Nations assembly. Most negotiations never get so heated, but the image of banging a shoe on the table is a metaphor for a supplier discussion gone wrong. Resorting to bullying tactics is always the sign of a weak position or a poorly skilled negotiator. If this is the case, you are not going to get the best out of this interaction, and you’ve probably missed a crucial aspect of negotiations: the intangibles. Intangibles are the hard-tomeasure aspects of the supplier that pertain to qualities, not quantities, and include characteristics like responsiveness, interest and candor. If a negotiation is to be successful, both parties need to establish a level of transparency and trust, and find common ground early on. Having shared priorities and ensuring the cultures of both organizations are compatible helps

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ISM January | February 2014

avoid frustration or wasted time at the negotiating table. Here are some reasons why and how these factors contribute to mutually beneficial and successful negotiations. Transparency must go both ways. In their book, Getting to Yes, authors William L. Ury, Roger Fisher and Bruce M. Patton assert that transparency of both desired outcomes and the rationale for each of these outcomes makes the difference between mediocre and outstanding results. “The purpose of negotiating is to serve your interests,” write the authors. “The chance of that happening increases when you communicate them. Otherwise, the other side may not know what your interests are and you may not know theirs. So explain them.” There is a tactical value in this, too. If you begin by declaring your position — in effect, the solution you seek — without first explaining the underlying rationale (the interests you are trying to serve), the other side isn’t able to understand where you are coming from, so they can’t be a true partner in the process. Your aim is to give the other party a sense of what it feels like to be in your shoes.

Achieving some level of transparency between both organization and the supplier’s means the supplier must be willing and able to share, as well. However, if the supplier cannot or will not provide the same level of open transparency, you must identify this misalignment early. Sharing information that is helpful to the supplier without receiving any in return significantly weakens your position at the negotiating table. Common priorities drive successful interactions. During the preaward period, you’re in a unique position to collect information. It’s also the best time to ensure a potential supplier understands the value of earning your business. If securing your business is a priority, the supplier will respond quickly to requests, make time for discussions and promptly provide information. In general, the supplier will be on its best behavior, demonstrating enthusiasm for the opportunity to work with your company. Negotiating is most effective when each side has something the other side wants, and both are willing to trade something else to get it. When the buyer and the supplier share the same enthusiasm for a winning outcome, they are more likely to enter negotiations with a results-driven approach and open minds. Interactions built on these foundations will be substantive and composed of meaningful offers from both sides.

Organizations with a cultural fit achieve best outcomes. Companies, like people, have distinct values and characteristics that dictate how they will behave in the face of adversity as well as opportunity. To assess cultural compatibility between your company and the supplier’s, review information collected from surveys, on-site visits and discussions with the supplier. Some pertinent questions to keep in mind when gathering information: • Does the supplier company’s leadership have similar values and approaches to those of your company? • Does the supplier value collaboration with customers? Does it treat customers like partners or like adversaries? • How well do the supplier’s environmental, sustainability and diversity goals match up with your company’s goals? Are its current plans and actions at or near the same level of commitment as your company’s?

questions that probe the company’s strategies, priorities, culture, stance on ethical issues and post-contract customer support. For example, ask the supplier to summarize its company’s plans for growth and explain how gaining your business would support those goals. • Check references. Request examples of successful collaborations with other customers, or how the supplier has provided trans-

Review these questions and responses with your team members to highlight potential areas of disconnect between the two companies. Eliminating as many gaps in value systems, philosophies and approaches to ethics and social responsibility as possible will be invaluable once you reach the negotiating stage.

interest and candor.

Bringing Intangibles to the Table Once you’ve determined initial compatibility and want to move to the next stage, what must you do to assure the supplier’s intangible characteristics have a positive effect on the negotiation process? •  Ask formal questions. When you issue an RFx — the normal prerequisite to a bid review and negotiation — include specific

Intangibles are the hard-to-measure aspects of the supplier that pertain to qualities, not quantities, and include characteristics like responsiveness,

formational value to a client beyond the service and quality levels expected. Check current customer references to determine its performance in terms of levels of responsiveness and customer service. At the same time, find out which companies consider this supplier one of their largest customers. You want to know where your business would fall in terms of being a large or smaller piece of the supplier’s overall business. • Examine the supplier’s official policies and public reputation. Research the company’s details online and in periodicals to find

out if it values ethical behavior. For example, if it maintains a whistle-blower policy, the supplier likely promotes strong ethics. Take note if there is a lack of policy and/or mission disclosures to the public on its corporate website, or if the company has received any negative press coverage. • Invest time to align the relationship. Any new supply relationship takes effort from both parties to be successful. Both sides must get to know each other and develop trust over time before transitioning to a committed, mutually beneficial relationship. Actions that build trust, such as delivering on promises, managing expectations and displaying empathy, are critical to promote a trusting relationship. And always be sure your own actions clearly reflect your intentions to achieve a solid, working relationship with the supplier. As Ury, Fisher and Patton wrote in Getting to Yes, our ability to see issues from others’ perspectives is key to positive relationships during negotiations. Take the time to imagine how you would feel if you were on the other side of the table. Strategic sourcing is dependent on successful negotiations. So, perform due diligence and select the right supplier based on intangibles such as culture, attitude and similar priorities, establish the supplier expectations from the beginning and invest time to align the relationship. When these things shape the actions of the negotiation process, a positive outcome is likely and could pave the way for a supplier relationship that flourishes over time. ISM Elizabeth Zucker is a strategic sourcing consultant based in Dallas. For more information, send an email to [email protected].

www.ism.ws

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ISM Report On Business

® December 2013

manufacturing

E

conomic activity in the manufacturing sector expanded in December for the seventh consecutive month, and the overall economy grew for the 55th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business® . The PMI™ registered 57 percent, the second highest reading for the year, just 0.3 percentage point below November’s reading of 57.3 percent. The New Orders Index increased in December by 0.6 percentage point to 64.2 percent, which is its highest reading since April 2010 when it registered 65.1 percent. The Employment Index registered 56.9 percent, an increase of 0.4 percentage point compared to November’s reading of 56.5 percent. December’s employment reading is the highest since June 2011 when the Employment Index registered 59 percent. Comments from the panel generally reflect a solid final month of the year, capping off the second half of 2013, which was characterized by continuous growth and momentum in manufacturing. Of the 18 manufacturing industries, 13 are reporting growth in December in the following order: Furniture & Related Products; Plastics & Rubber Products; Textile Mills; Apparel, Leather & Allied Products; Computer & Electronic Products; Paper Products; Transportation Equipment; Primary Metals; Fabricated Metal Products; Wood Products; Printing & Related Support Activities; Food, Beverage & Tobacco Products; and Miscellaneous Manufacturing‡. The four industries reporting contraction in December are: Nonmetallic Mineral Products; Machinery; Chemical Products; and Electrical Equipment, Appliances & Components. ISM

‡Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).

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Analysis by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee.

PMI at 57% ™

New Orders, Production and Employment Growing; Inventories Contracting; Supplier Deliveries Slowing Manufacturing at a Glance INDEX

Dec Index

Nov Index

% Point Change

Direction

Rate of Change

Trend* (months)

PMI™

57.0

New Orders

64.2

57.3

-0.3

Growing

Slower

7

63.6

+0.6

Growing

Faster

7

Production

62.2

Employment

56.9

62.8

-0.6

Growing

Slower

7

56.5

+0.4

Growing

Faster

6

Supplier Deliveries

54.7

53.2

+1.5

Slowing

Faster

6

Inventories

47.0

50.5

-3.5

Contracting

From Growing

1

Customers’ Inventories

47.5

45.0

+2.5

Too Low

Slower

25

Prices

53.5

52.5

+1.0

Increasing

Faster

5

Backlog of Orders

51.5

54.0

-2.5

Growing

Slower

3

Exports

55.0

59.5

-4.5

Growing

Slower

13

Imports

55.0

55.0

0.0

Growing

Same

11

Overall Economy

Growing

Slower

55

Manufacturing Sector

Growing

Slower

7

*Number of months moving in current direction. Manufacturing ISM Report On Business® data is seasonally adjusted for the New Orders, Production, Employment and Supplier Deliveries Indexes.

PMI

57%

2012

2013

57%

2014

PMI

™

A PMI™ in excess of 42.2 percent, over a period of time, generally indicates an expansion of 50% = Manufacturing Economy Breakeven Line the overall economy. Therefore, the December PMI™ indicates growth for the 55th consecu42.2% = Overall Economy tive month in the overall economy, and indiBreakeven Line cates expansion in the manufacturing sector for the seventh consecutive month. The past relationship between the PMI™ and the overall economy indicates that the average PMI™ for January through December (53.9 percent) corresponds to a 3.7 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI™ for December (57 percent) is annualized, it corresponds to a 4.6 percent increase in real GDP annually.

Commodities Reported

Note: The number of consecutive months the commodity is listed is indicated after each item.

Commodities Up in Price: #1 Busheling Scrap; Corrugated Packaging; Galvanized Steel; Methanol; Plastic Resins; Stainless Steel; Steel; Steel — HRPO; Steel — Hot Rolled (2); and Wood (2). Commodities Down in Price: Aluminum (2); Brass; Corn Based Products (2); Fuel (2); Hydraulic Components; MRO Supplies; and Office Supplies. Commodities in Short Supply: No commodities are reported in short supply.

ISM January | February 2014

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12/20/13 10:52 AM

ISM Report On Business

®

December 2013

non-manufacturing

Analysis by Anthony Nieves, CPSM, C.P.M., CFPM, chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee.

NMI at 53% ®

Business Activity Index at 55.2%; New Orders Index at 49.4%; Employment Index at 55.8% Non-Manufacturing at a Glance INDEX

Dec Index

Nov Index

% Point Change

Direction

Rate of Change

Trend* (months)

NMI®

53.0

53.9

-0.9

Growing

Slower

48

Business Activity

55.2

55.5

-0.3

Growing

Slower

53

New Orders

49.4

56.4

-7.0

Contracting

From Growing

1

Employment

55.8

52.5

+3.3

Growing

Faster

17

Supplier Deliveries

51.5

51.0

+0.5

Slowing

Faster

2

Inventories

48.0

54.0

-6.0

Contracting

From Growing

1

Prices

55.1

52.2

+2.9

Increasing

Faster

51

Backlog of Orders

46.0

49.0

-3.0

Contracting

Faster

2

New Export Orders

51.5

58.0

-6.5

Growing

Slower

5

Imports

50.5

55.0

-4.5

Growing

Slower

7

Inventory Sentiment

57.5

60.5

-3.0

Too High

Slower

199

*Number of months moving in current direction. Non-Manufacturing ISM Report On Business® data is seasonally adjusted for the Business Activity, New Orders, Prices and Employment Indexes.

NMI (Non-Manufacturing) 2012

2013

53%

2014

NMI

®

In December, the NMI® registered 53 percent, indicating continued growth in the non-man50% = Non-Manufacturing Economy Breakeven Line ufacturing sector for the 48th consecutive month. A reading above 50 percent indicates the non-manufacturing sector economy is generally expanding; below 50 percent indicates the non-manufacturing sector is generally contracting. The eight non-manufacturing industries reporting growth in December — listed in order — are: Management of Companies & Support Services; Retail Trade; Other Services✣ ; Finance & Insurance; Public Administration; Construction; Information; and Health Care & Social Assistance.

Commodities Reported

Note: The number of consecutive months the commodity is listed is indicated after each item.

Commodities Up in Price: Airfares; Beef Items; Dairy; Diesel Fuel; Gasoline*; Milk; and Shrimp. Commodities Down in Price: Chicken; Computer & Peripherals (2); #1 Diesel Fuel (2); #2 Diesel Fuel (3); Fuel (3); Gasoline* (4); Soybean Oil; and Tires. Commodities in Short Supply: Shrimp is the only commodity reported in short supply.

E

conomic activity in the non-manufacturing sector grew in December for the 48th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business ®. The NMI® registered 53 percent in December, 0.9 percentage point lower than November’s reading of 53.9 percent. This indicates continued growth at a slightly slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased to 55.2 percent, which is 0.3 percentage point lower than the 55.5 percent reported in November, reflecting growth for the 53rd consecutive month, but at a slightly slower rate. The New Orders Index contracted after 52 consecutive months of growth for the first time since July 2009, when it registered 48 percent. The index decreased significantly by 7 percentage points to 49.4 percent, and the Employment Index increased 3.3 percentage points to 55.8 percent, indicating growth in employment for the 17th consecutive month and at a faster rate. The Prices Index increased 2.9 percentage points to 55.1 percent, indicating prices increased at a faster rate in December when compared to November. According to the NMI®, eight non-manufacturing industries reported growth in December. Despite the substantial decrease in the New Orders Index, respondents’ comments predominately reflect that business conditions are stable. ISM

✣Other Services (services such as Equipment & Machinery Repairing; Promoting or Administering Religious Activities; Grantmaking; Advocacy; and Providing Dry-Cleaning & Laundry Services, Personal Care Services, Death Care Services, Pet Care Services, Photofinishing Services, Temporary Parking Services and Dating Services).

*Reported as both up and down in price.

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15

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Global Trends news in a changing world

US Resources Information in this report was gathered from the following sources.

EMC Corporation www.emc.com Frost & Sullivan www.frost.com GfK www.gfk.com Monster Worldwide www.monster.com Transport Intelligence www.transportintelligence.com UPS www.ups.com

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ISM January | February 2014

United States In the face of growing global competition, high-tech companies are shifting their focus from product quality to creating customer-centric supply chains. Nearshoring has emerged as a customer-centric strategy, according to the global UPS Change in the Supply Chain survey, which states that interest in nearshoring has tripled since 2010. Globally, 27 percent of hightech logistics executives are embracing nearshoring as a strategy to improve customer service, while 77 percent see it as a way to improve service levels. In the United States, however, 82 percent of executives say they will continue using existing supply chain strategies, including low-cost country manufacturing. Ken Rankin, UPS’ high-tech marketing director, says companies should align their supply chain strategies with the broader business goals.

CA Canada

Two-thirds of Canadians are content with their jobs, with 64 percent of those surveyed saying they “love it/like it a lot,” and only 7 percent saying they “don’t like it/hate it.” U.S. workers fell in the middle of the rankings in a survey of 8,000 workers in seven countries, conducted by Monster.com and GfK. The survey found that one in 10 workers in the U.K. love their jobs so much they would do them for free, while only 5 percent of German workers “truly love” their jobs. The U.S had the highest percentage of workers reporting they “don’t like/hate” their jobs — 15 percent — and India had the lowest satisfaction rate at 5 percent. “The strength of a country’s labor market doesn’t necessarily correlate with workforce contentment,” notes Chris Moessner, GfK vice president of public public affairs.

UK

United Kingdom A continued slow recovery is expected for the European road freight market through 2016. Transport Intelligence’s (Ti) European Road Freight Transport 2013 notes the slowing economic growth in northern Europe, particularly in Germany, caused an overall market decline of 0.6 percent in 2013. The Netherlands was the best performing market in Western Europe last year, thanks to strong intra-EU trade. Since the road freight market began its slump in 2009, there has been a “very weak recovery,” says John Manners-Bell, Ti’s CEO. “And while other industries are receiving government support, the hyper-competitive road freight industry seems only to attract more e burdens.”

Economic Growth Continues in 2014

E

PL

Poland Poland, Ukraine and the United Kingdom are at the forefront of shale gas production in Europe, as countries try to meet energy requirements and reduce dependency on Russian gas imports. A Frost & Sullivan analysis of the pumps market for the shale gas industry expects the industry to reach US$47.7 million in 2017. “Potential growth of pump manufacturers targeting the region’s shale gas industry will vary according to the country,” says Niranjan Paul, Frost & Sullivan analyst. France and the Netherlands have enforced a ban on exploration, while a large oil company is looking to stake capital in shale gas exploration in Poland and Romania. Paul says pump manufacturers should be developing high-pressure pumps suitable for applications in the shale gas industry.

CN China

Chinese IT decision-makers repor t implementing the highest concentration of sophisticated continuous availability, advanced security, and integrated backup and recovery technologies, in EMC Corporation’s Global IT Trust Curve Curv e survey. The U.S. ranked second in maturity on the trust curve, and Japan came in last in the 16-nation survey. “Where countries fall on the IT trust maturity curve could affect their overall ability to compete,” says David Goulden, EMC president and CEO. Nearly half (45 percent) of the IT strategists report that their senior executives are not confi dent their companies have adequate security, backup and recovery capabilities, highlighting the disparity between how IT and business leaders perceive security rit y improvements.

conomic growth in the United States will continue in 2014, say the nation’s purchasing and supply management executives in their December 2013 Semiannual Economic Forecast. Expectations are for a continuation of the economic recovery that began in mid-2009, as indicated in the monthly ISM Report On Business®. The manufacturing sector is optimistic about growth in 2014, with revenues expected to increase in 16 manufacturing industries, and the non-manufacturing sector predicts that 14 of its industries will see higher revenues.

Manufacturing. Manufacturing purchasing and supply executives expect to see continued growth in 2014. They are optimistic about their overall business prospects for the first half of 2014, and are even more optimistic about the second half of 2014. Our forecast calls for a continuation of growth in 2014, building on the momentum from the second half of 2013. Respondents expect raw materials pricing pressures in 2014 to be low, similar to levels experienced in 2013, and expect their margins will improve. The following are some of the major manufacturing highlights: • Production capacity is expected to increase 6.3 percent in 2014. • Capital expenditures are expected to increase 8 percent in 2014. • Manufacturing revenues (nominal) are expected to increase 4.4 percent in 2014. Non-Manufacturing. Non-manufacturing supply managers report operating at 86.3 percent of their normal capacity, higher than the 84.7 percent reported in April 2013. They are optimistic about continued growth in the first half of 2014 compared to the second half of 2013, and they have a higher level of optimism about the next 12 months than they had last December for 2013. They forecast that their capacity to produce products and provide services will rise by 1.9 percent during 2014, and capital expenditures will increase by 4.6 percent from the 2013 levels. Non-manufacturers also predict their employment will increase by 2.1 percent during 2014. The following are some of the major non-manufacturing highlights: • Production and provision capacity is expected to increase 1.9 percent in 2014. • Capital expenditures are expected to increase 4.6 percent in 2014. • Prices paid are expected to increase 1.9 percent in 2014. The complete Semiannual Economic Forecast, released December 10, 2013, can be found at www.ism.ws. ISM Bradley J. Holcomb, CPSM, CPSD, is chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. Anthony S. Nieves, CPSM, C.P.M., CFPM, is chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee. For more information, send an email to [email protected].

www.ism.ws

17

FIND THE BIG PICTURE IN

Big Data Turn the volumes of data your organization is collecting into insights that give you a leg up on the competition.

18

ISM January | February 2014

January | February

COVER STORY By Mary Siegfried

T

ransforming “big data” into valuable insights and implementable, game-changing processes and polices is a challenge companies are tackling with varying degrees of success. That’s because everything about big data is big — not only its volume, variety and velocity — but also the competitive advantage it can offer companies able to capitalize on today’s information explosion. Despite being a popular business buzzword, big data is not new. However, it’s been thrust into the spotlight as businesses and their supply chains struggle to analyze and optimize the flood of information pouring into organizations. A Gartner analyst first defined big data in 2001, using the three “Vs,” and 11 years later the definition was refined as “high-volume, high-velocity and high-variety information assets that demand costeffective, innovative forms of information processing for enhanced insight and decision-making.”

Too Big for a Simple Definition Many supply management practitioners and analysts stress that big data, especially in relation to supply chain practices, shouldn’t be reined in by a single definition. “We live in a fast-paced world and it takes time to understand something as complex as big data,” explains Nada R. Sanders, Ph.D., professor of supply chain management and Iacocca Chair at Lehigh University in Bethlehem, Pennsylvania. “We want to reduce it to three sound bites and be able to write a memo that explains it, but it doesn’t work that way.” Sanders welcomes the chance to offer a big data definition because she finds there’s a lot of discussion about it, but not a deep understanding. “I believe big data are large pools of data that can be captured, communicated, aggregated, scored and analyzed,” she says.

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19

FIND THE BIG PICTURE IN

Big Data

The differentiator is size. “Today, companies are daily, even hourly, gathering reams of data.” It comes from RFID, point-of-sale, social media and customer call centers, to name just a few. And Sanders emphasizes that you can’t talk about big data without talking about analytics — the statistical, quantitative and predictive modeling of the data that drives business decisions. Mani Janakiram, Ph.D., director, supply chain strategy and analytics for Intel Corporation in Chandler, Arizona, views big data as a nontraditional way

Supply Chain Implications No matter how big data is defined, supply management practitioners are looking for ways to use it effectively in their supply chains. As the ability to gather and analyze data matures, Sanders says information from big data is being applied to every lever in the supply chain. “It is being used to source, design strategy, segment markets, assist in supplier negotiations and in making logistics and transportation decisions,” she says. She uses Wal-Mart Stores’ Retail Link, which constantly gathers infor-

visualization gives his organization is supply chain visibility. His organization is able to examine the supply chain network to determine promised order fulfillment lead times, inventory needs, transportation and storage costs. Modeling or simulations are used to take the large data pools and turn them into meaningful information. “We have been doing this for a long time now, but we are always adding more intelligence, more models,” he says. “Basically, we have built the runway (infrastructure) with

“We know the volume, variety and velocity

derive value from big data. It has to make amount to anything if you of leveraging the information and data now available. “In the past, we collected information, put it in a data base and struggled to get something out of it,” he explains. “I call it a data jail.” Janakiram says if big data is used correctly, it can unlock the data jail and help organizations deal with exponential data growth over the past few years to “collect the right kind of data that can be used to make better decisions faster.” That is one reason he emphasizes the fourth “V” in the big data definition: value. “We know the volume, variety and velocity are exploding, but now we need to derive value from big data. It has to make us more efficient and effective. It doesn’t amount to anything if you can’t convert it into value,” says Janakiram.

20

ISM January | February 2014

mation from its estimated 18,000 suppliers in 18 countries, as an example of how organizations can drill down into data to analyze customer needs. Sanders says the huge retailer knows that before a hurricane, consumers stock up on food items that don’t require cooking, and it wants to determine exactly which food items to have available. “They analyzed their data and found the most popular product was Pop Tarts, but not just any Pop Tart, particularly strawberry-filled ones,” she says. That allowed it to work with the supplier to get the right items to the right stores during hurricane season. “Big data and analytics can give a company deeper insights that it did not have before.” Intel’s Janakiram say one of the advantages big data analytics and

our huge data stream, but every day we are landing the plane (value) based on different supply chain situations.”

Dig Deeper With Big Data The volume and variety of data can be especially useful in sourcing and supplier negotiations, Sanders believes. Supply chain practitioners should be collecting data not only from the usual avenues, but also from social media and customer feedback to obtain additional insights that allow organizations to drill deeper into a supplier’s performance and history. “No longer is it just about delivery and quality, but you can delve into subcategories to understand performance, price trends and behavior that can be useful in the negotiating process,” she says. Janakiram says big data also has implications for supply chain

compliance, social responsibility and sustainability. By monitoring social media, for example, supply management may learn about a supply chain problem in a remote location or a supply base. Data-savvy organizations have the ability through their own data capture and analysis to proactively begin to investigate. “They can begin to connect the social media information to their main stream of information to determine whether that’s a supplier their company works with or even if it’s a supplier’s supplier,” he says.

The heartbeat of UPS’ data began with the handheld computers drivers carry, called Delivery Information Acquisition Devices (DIAD), Levis says. The devices originally were used for billing purposes and to determine if a delivery had been made. But as Levis’ organization matured in its ability to analyze the information gleaned from DIAD, the “A” changed from “acquisition” to “assistance.” “We moved it from being a device to just capture information to one that could help drivers make

because it involves making changes based on predictions learned from data and analysis. In the prescriptive stage, companies are making major changes that at first blush may seem counterintuitive, Levis says. The Gartner study says only about 3 percent of companies are in this stage. UPS is at the prescriptive or optimization phase, thanks to ORION (On-Road Integrated Optimization and Navigation), a ”data-drenched” tool to help drivers find the most efficient path through their delivery

are exploding, but now we need to us more efficient and effective. It

doesn’t can’t convert it into value.” Janakiram also notes that when his organization models and simulates various supply chain scenarios, the data can offer insights into the company’s carbon footprint so it can work on improvements.

Searching for the Big Picture As experts agree, big data goes hand-in-hand with analytics. Jack Levis, director process management for UPS in Baltimore, suggests thinking about a mosaic. “When you are up close, you can’t see it; it’s just a bunch of squares. But if you step back, you see the big mosaic picture.” Data are a bunch of squares — analytics is the big picture. Levis says UPS started gathering huge pools of data more than 20 years ago, “before there was the name or concept of big data.”

decisions with the information that had been collected,” he adds. “I call that the evolution of analytics.” The evolution travels from descriptive (gathering data and business intelligence), to predictive (forecasting), to prescriptive (optimization), he explains. “In other words, it’s going from ‘Where am I?’ to ‘Where am I heading?’ to ‘Where should I be headed?’”

A Big Data Evolution There is not a great deal of change that takes place in the descriptive phase, because it is examining what happened yesterday. A Gartner study found about 70 percent of companies surveyed about big data and analytics are in this phase. The predictive phase is more challenging, experts say,

area, Levis says (see the related story on page 23). ORION has been 10 years in the making and should be fully deployed around 2017. It has taught Levis a few lessons about big data and analytics. He believes there are basically three large projects within a major data and analytics project. Proof of concept. This step involves proving the project can work. “It means asking whether you have the data right, if you can build the models and gain the insights the analytics say,” Levis explains. Build the tools. The second step requires building the analytic tools into the process. “And the project and the process have to be one and the same,” he says. “It’s a very large project to build processes, procedures and metrics inside the

www.ism.ws

21

FIND THE BIG PICTURE IN

Big Data

process itself.” Deployment. This the hardest step, Levis says. It means keeping insights on track, evaluating gains and making sure the correct metrics are in place.

Shaping Meaningful Metrics No matter what stage a business or its supply chain organization is at in its quest to learn and gain a competitive advantage from big data, metrics play a major role in measuring results. Sanders says when she works with companies to help them understand and properly use data and analytics, she has them focus on developing meaningful metrics for projects. The first step is bringing marketing, operations and sourcing together to develop metrics that will truly measure project goals and are aligned with KPIs. “Too often, an organization has customer-oriented metrics and supplieroriented metrics, and they measure different policies and processes,” she explains. “I encourage them to come up with custom-tailored metrics that measure the objectives agreed upon by the three departments.” Otherwise, Sanders says, companies are in the age-old tug-of-war where marketing makes promises that operations can’t deliver on and supply management can’t source in a timely manner. UPS measures performance using a balanced scorecard, incorporating information from its systems and data to determine what the scorecard card should include for a specific project. “We look at what items in the data correlate with an effective operation or that better serve the customer,” Levis says. “We make sure they are all leading indicators, although it takes time to determine which indicators tell us that things are going well and what ones point out where we still have a concern.” He says the metrics need to

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ISM January | February 2014

measure things managers can control. “You can’t hold people accountable to an end result,” Levis explains. “Hold them accountable to the work they do that should lead to the end result.” And be willing to change the metrics if it appears the first set is not weighted correctly or not providing a benefit. “Remember, all metrics should correlate with an actual gain.”

The person able to draw value from big data and analytics, Janakiram explains, is the “orchestrator.” “That’s the person who can look around, understand all sides, and, although not necessarily the expert, is willing to go to the expert so he or she can connect the dots,” says Janakiram.

Big Data and Intuition A Human Side to Data Big data and analytics involves a great deal of number crunching, but it has a human face, as well, experts agree. In fact, it is the human element that concerns many business leaders, because it’s predicted that the talent needed to interpret and analyze big data will be in short supply. A McKinsey and Company study predicts that by 2018, the United States could “face a shortage of 140,000 to 190,000 people with deep analytical skills, as well as 1.5 million managers and analysts with the know-how to use the analysis of big data to make effective decisions.” Intel’s Janakiram, who also is an adjunct professor at Arizona State University’s W. P. Carey School of Business and a visiting lecturer at MIT Center for Transportation and Logistics, says universities are recognizing this business concern and are developing programs to educate “data scientists.” He says the skills for data scientists are unique, because they must be able to turn data into information and then into context-based knowledge while understanding the tools and techniques needed at each step. “I find there are people with great market insight who know what needs to be done, but they don’t have the depth to understand the tools and techniques needed to make change,” he says. “Then there are those with excellent depth who are data-mining experts, but don’t understand how to take that information to the next step.”

Lehigh University’s Sanders says she is studying the link between big data and old-fashioned business intuition. Right now, she says, business leaders are mesmerized with the information flowing from big data, but she doesn’t believe it will completely replace the human side of business decision-making. She recalls a study she worked on a few years ago examining the decision-making of warehouse and procurement managers with quantitative modeling tools. “We found that the managers’ forecasts were far better than the quantitative methods during times of instability, change and turbulence,” she says. “When things were very predictable, and the future looked like the past, the models worked better. But when things changed, it was the seasoned manager who performed a whole lot better.”

Carve Out a Competitive Advantage And while businesses are wowed by big data, Janakiram and Sanders warn against the needle-in-the-haystack syndrome. “That’s why it’s important to make sure your organization is collecting the right data and getting information that will make a positive impact,” Janakiram says. “The syndrome happens when your organization collects huge amounts of data and uses analytics to randomly search for causations and relations with the hope that something

will eventually turn up,” Sanders says. Before embarking on a big data/analytics journey, she suggests taking a step back to examine your supply chain and your organization’s competitive priority. “The goal is to use big data to carve out your competitive adv-

antage,” she says. “But you have to know your goals and priorities so you can uncover the rock that really matters and not just a bunch of rocks.” Despite talent concerns and the challenges businesses and supply chain practitioners face in transforming big data into actionable,

quantifiable business insights, experts agree these petabytes of data will be shaping business decisions for years to come. ISM Mary Siegfried is a senior writer for Inside Supply Management ®. For more information, send an email to [email protected].

Using Big Data to Drive Success

A

t UPS, little things matter. Even small changes can have

the changes big data and analytics propose, change man-

a big impact on the multibillion-dollar company. That’s

agement plays a key role. It is one of the most overlooked

why it doesn’t hesitate to look deep into its data, supply

parts of the process, he believes. As ORION rolls out,

chain or procedures to seek out change, explains Jack Levis,

employees who have been working on the project ride

director process management at UPS in Baltimore.

with drivers, explaining and helping them understand the

“Reducing one mile per driver per day at UPS is worth

program, its goals and how it can be implemented. “Being

about US$50 million at the end of the year,” he says. “One

feasible and not implementable is worth zero. It has to be

minute of a driver’s time is worth about $14.5 million at

a solution that drivers can implement.”

year’s end. If we can save a quarter-mile or a minute here and there, it can add up to large numbers.”

Like Points on a Constellation

Simplify, and trust the data. Data and analytics are complicated, but one of their major business goals is to simplify. “Simplification is a huge part of the analytics process, one that many organizations overlook,” Levis says.

Such small changes are at the heart of a huge UPS

“Remember, if employees can’t implement change, change

project that started 10 years ago and is being gradually

is not worth anything.” And trusting the data, after years

deployed, with a completion goal around 2017, Levis says.

and years of testing, is key. “Some of the routes ORION

On-Road Integrated Optimization and Navigation (ORION)

may be suggesting will be counterintuitive,” Levis says.

is a tool to help drivers find the most efficient path through

“It might mean driving right by a delivery and coming back

their delivery area. ORION was built on a foundation of

to it later. But you have to trust the system and trust that

big data and analysis that the global company has been

the data is correct.”

gathering and perfecting for years.

Don’t forget the human element. Levis is a firm

ORION is for an individual driver on an individual day,

believer in the human side of the data/analytics equation.

Levis says. It will offer drivers the most efficient way to

He recalls driving back from a successful ORION test with a

deliver their route based on data, analytics, algorithms

UPS executive — “a great leader who is a ‘nuts-and-bolts’

and modeling.

kind of guy.” They began discussing the future of ORION,

“We did the descriptive data gathering and analysis in

and the executive said he could see a time when drivers

the 1990s to help us understand where we were, and then

follow ORION 100 percent of the time. “I told him I didn’t

moved to predictive analysis about 10 years ago to help

think that would happen. He wanted to know why, and at

us predict tomorrow,” Levis says. “Now we are not only

that moment a car in front of us hit another car and the

predicting tomorrow, we are saying, ‘Let’s change and opti-

highway was totally blocked,” he says. “I looked over and

mize tomorrow.’ That is the path we are moving down, and

told him that in this type of situation ORION would tell the

ORION is the last mile.”

driver the next stop was straight ahead.”

Big Insights From Big Data

cleared away or use his or her knowledge of the area and

Looking back on this data-rich journey, Levis shares insights he has gathered along the way. Manage change. Levis says as companies implement

Levis asked, “Does the driver wait until all the cars are change course?” Such events solidify his belief that “we never, never will know everything that will happen. We will always need people.”

www.ism.ws

23

Founder Elwood B. Hendricks

100 A Century Strong YEARS ISM’s oldest affiliate, ISM—New York, Inc., celebrates 100 years of promoting and supporting the purchasing and supply management profession.

By Lisa Arnseth

I

n the history of the purchasing profession, the year 1914 holds special significance. Prior to that year, purchasing agents did not have a cohesive avenue to come together to improve and enhance the profession. As the United States’ business grew at the turn of the 20th century, purchasing became a position very few companies could do without. At the time, purchasing agents themselves worked independently for their own companies, making it difficult to share information with colleagues or develop advocates for the profession. On January 22, 1914, however, a new association was launched in New York City — the Purchasing Agents’ Association of New York (PAA). Today, that association is stronger than ever and goes by the name of Institute for Supply Management™—New York, Inc. ISM—New York is the oldest ISM affiliate and one of the largest and most active under the ISM umbrella. Led by current President Keith Hines, ISM—New York recognizes its 100-year anniversary in

24

ISM January | February 2014

www.ism.ws

25

100 YEARS A Century Strong 2014 by celebrating its history and the people who have been (and are) instrumental to the affiliate’s success.

It Began With an ‘Idea Man’… Beneath the 1913 skyline of New York City, one salesman from a catalog company wanted to find a way to bring purchasing agents together in a common effort to improve themselves and their profession. Elwood B. Hendricks, who went by the nickname E.B., was a sales agent for the Thomas Publishing Company in New York. He sold the Thomas Register of American Manufacturers — a listing of companies selling products in the United States — and his frequent contact with both buyers and sellers led to a new idea: There was a need for a national association of purchasing agents. He set out to bring his idea to fruition with the help of some peers who worked for large companies in the New York area. A formal meeting was held in October 1913 to set plans into action for the creation of this new association. By January 22, 1914, the group was official. According to Jim Martin, a current member of ISM—New York, the objective was “the promotion of social relations among purchasing agents and the discussion of subjects of general interest to that class of influential men.” It took time to grow membership, as many agents were skeptical of the association’s benefits, leading to many unanswered invitations to meetings. Hendricks and the other co-founders (John R. Pels, W.M. Murdoch, J.I. McComb and F.G. Idler) tried a different approach, and hosted a dinner and entertainment event at their own personal expense in June 1914. Despite a well-attended event, it was decided that the timing wasn’t right for a national association. Instead, the group

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ISM January | February 2014

focused on growing a solid foundation at the local level. The PAA of New York was on its way to becoming its own institution with a clear mission to support ongoing advancement of the careers of purchasing agents through social relations and the sharing of pertinent information. Annual dues at the inception of the PAA were US$10 and regular meetings were held at the Engineering Societies’ Building in Manhattan. Today, dues are $370 for Regular Members (which includes membership in both ISM—

centennial at a reception in Manhattan. Several past officers of the affiliate were in attendance, as was ISM’s CEO Thomas W. Derry. Diane Martin, executive director of ISM—New York, made a deep dive into the history of the association to prepare for the occasion. “Being able to work on centuryold documents, seeing our past and being a part of the celebrations to mark this milestone has been humbling,” she says. “Since I have the distinction of serving during this anniversary, I try to keep in mind that the current members and I will be a part of the history and legacy. I want to ensure that, in the future, members look back and are just as impressed with what we accomplished as we have been by those in our past.”

Embracing History, Evolving the Profession

ISM—New York’s Keith Hines and ISM CEO Thomas W. Derry at the 100-year celebration

New York and ISM), and $225 for Associate Members (ISM—New York membership only), with dues waived for students. ISM—New York meets in various locations around the region and hosts a number of professional development events, conferences and other membership-based gatherings throughout the year. On October 3, 2013, members of ISM—New York celebrated the

In the decades following the inception of the affiliate, several milestones shaped the group for years to come. In 1915, the national organization bearing the name Purchasing Agents Association (eventually ISM) was formed, and the PAA of New York was deemed its first charter affiliate. The PAA made its procurement expertise available to state and national government purchasing agencies during World Wars I and II. The importance of materials management and supply chain became more prominent as the business world weathered prosperity and volatility in the early 20th century, including the 1929 stock market crash. By the 1960s, the PAA of New York had reached its 50th anniversary, and the number of professional women members grew as more females assumed roles of leadership in purchasing and business itself. A prestigious award was created in honor of Jep Leonard, the longest-serving executive director in

In the future, ISM—New York will continue to embrace its history and evolve with the times, always keeping the people at the heart of supply management front and center.

the history of the affiliate. The J.H. Leonard Award was first presented in 1963 and has been an annual tradition ever since. The group hosted its inaugural conference in the mid-1980s. The affiliate’s name was also changed to NAPM—New York to align with the new name of the national association. Membership steadily increased over the following decades to as high as 800. The events of September 11, 2001, changed the fabric of the United States, and many members of the New York-based affiliate were directly impacted. In the true spirit of its mission, however, perseverance and dedication endured, helping propel the procurement profession into a strategic position in many organizations. Several ISM—New York officers, past and present, recall how the association and the profession

have changed over the years. Maryann O’Connell, C.P.M., served as president from 2003 to 2004. “At the time, the name shift (from NAPM to ISM) was a large change for us. I remember from my time as president that supplier diversity — now, supplier inclusion — was coming into its own, evolving into the strong subcommittee it is today.” Jeff Maer, C.P.M., who served as president from 1991 to 1993, considers it a privilege to have led the group, and remains actively involved. “ISM—New York is home to many wonderful people who have become friends and colleagues to this day,” he says. “I’d personally encourage everyone to get as involved as you have time to be in ISM; it’s very rewarding.” Keith Hines, current president of ISM—New York, says it is an honor to serve as president during

the centennial celebration year. “As we approach the next 100 years, I have been reminded by my predecessors to remain strategic, flexible and innovative in the way we approach our profession to ensure our continued success.” In the future, ISM—New York will continue to embrace its history and evolve with the times, always keeping the people at the heart of supply management front and center. “Throughout its history, our affiliate has endeavored to stay true to the vision of E.B. Hendricks,” says Martin. “Being able to persevere for decades as a professional organization is no easy task. Our organization has evolved over the past 100 years to be one which remains true to its core foundation.” ISM Lisa Arnseth is a senior writer for Inside Supply Management ®. For more information, send an email to [email protected].

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Supply Chain Management, Going

FORWARD What challenges lie ahead for supply management in the coming year? Inside Supply Management ® asked industry leaders to share their thoughts, concerns and expectations about the state of the profession.

I

t’s a new year, and the pressure is on. Of course, for supply chain management practitioners, the pressure has never been off. With concerns about risk, regulations, growth and changing technology, supply chain leaders know that this year, as in years past, they have to be at the top of their game. We asked five forward-thinking supply management leaders to share their thoughts about timely business and supply chain issues they may face in the new year. We also asked them to reflect on the past year, because, as we all know — we have to study the past to learn about the future.

Our panel of contributors includes: — David Parsley, C.P.M., senior vice president of supply chain management, Brinker International, Dallas — Gary Smith, CPSM, CPSD, director, supply chain operations, New York City Housing Authority, Long Island City, New York — Don Taylor, corporate vice president, supply chain, environmental, health and safety operations and operations services, The Dow Chemical Company, Midland, Michigan — John T. Wilkerson, CPSM, international trade adviser (private sector), Department of Commerce, and business adviser (private sector), Federal Reserve, Presidential Obama Administration, Atlanta — Ron Wilson, CPSM, C.P.M., CPO, Wilbur Curtis Company, Montebello, California.

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ISM January | February 2014

Supply Chain Management, Going

FORWARD

Q:

What are the biggest issues your supply chain management organization faces over the next one to three years? How do you plan to handle some of these pressing issues? Parsley: Like most companies, we face a number of challenges each year. Right now, we have three primary areas of concern. 1) Increased global competition. As a multinational casual-dining restaurant company, we now find ourselves competing with companies from around the world for scarce resources. The emerging BRIC (Brazil, Russia, India, China) economies and others can now influence markets and create huge demand, impacting our costs and availability of products. 2) Governmental regulations. Whether it’s municipal, state or federal regulations — not to mention international — the arbitrary nature of regulations severely impacts our ability to manage cost and supply. We estimate the renewable fuel standard, a federal program that requires transportation fuel sold in the U.S. to contain a minimum volume of renewable fuels, negatively impacts the average restaurant more than US$20,000 per year. The recently announced countervailing duties on shrimp have driven this market even higher, when it was already negatively impacted by early mortality syndrome, which affects shrimp that are not yet marketable size. 3) Sluggish economy. For all that has improved, the economy is still sluggish. Consumers are very selective about spending and are constricting their purchases, which impacts the restaurant industry as a whole. We handle these challenges with dedicated teams that manage our commodities and suppliers. With such a dedicated and knowledgeable team, we can better manage the vagaries of the market and build better relationships with our strategic suppliers. We have a lean approach to evaluating our acquisition process, focusing on total

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ISM January | February 2014

cost and every opportunity there is to receive the best result for Brinker. Smith: Generally, the public sector faces similar challenges to the private sector. In the public sector, I think the biggest issues are supply chain visibility, risk management and sustainability. To improve visibility, public sector supply chains need to manage their suppliers more effectively. At NYCHA, we have increased the length and dollar amount of contracts, which means we must share information with our suppliers regarding use and changes in demand, in order for them to maintain appropriate inventory levels. Suppliers should also be graded objectively so that they can be evaluated on criteria other than just price. Risk management really involves two separate issues: disaster recovery and economic viability. During a disaster, public sector supply chains must be practically fail-safe. Material and services need to be properly positioned prior to an event and available as soon after the event occurs as possible. Many organizations, public and private, are now receiving training in the incident command system (ICS) method of incident response. ICS is a systematic tool used for the command, control and coordination of emergency response and was originally developed in the late 1960s as a response to fighting wildfires. On a more ongoing basis, risk management attempts to ensure an uninterrupted supply of materials and that both the supply and the supplier remain viable. Risk management in the public sector typically consists of a one-time credit review. Public sector supply chain management needs to expand risk management capabilities to include ongoing supplier assessments of financial health and material availability to ensure uninterrupted supplies. Taylor: At Dow, some of the biggest issues we’re facing right now

involve growth, productivity and infrastructure. In the midst of a challenging economic climate, we are focused on driving productivity improvements while also providing excellent customer service. At the same time, we are supporting Dow’s growth plans, such as the Sadara Chemical Company joint venture in Saudi Arabia and expansions on the U.S. Gulf Coast. Other pressing issues include setting priorities for infrastructure investment and keeping operations secure in key growth regions. That’s why we are constantly working to recruit and retain talent so we can fully support our company’s global growth strategy. Wilkerson: Traditional supply management issues such as cost pressures, talent management and employee engagement are small potatoes in the consumer-driven value chain. The new supply management world adapts to solve future consumer challenges and plans for additive manufacturing (3-D printing), sustainable supply chains and the data explosion over the near term. Industries such as automotive, aerospace and apparel are actively engaged in 3-D printing now in response to consumer and shareholder demands. Some research and development organizations have slashed the new product prototype cycle time from years to months. This cycle-time reduction applies tremendous pressure to supply management. In the near term, we advise clients to increase collaboration with the product developers and key strategic suppliers as additive manufacturing business models expand. 2013’s volatile global weather patterns, increased customer and shareholder pressure, as well as California Supply Chain Transparency Act and carbon trading regulations, have placed additional emphasis on a sustainable supply chain. Active participation in the Carbon Disclosure

Report, ISM Social Responsibility Forums or similar industry education programs is a progressive first step toward a sustainable supply management organization. As we scan the market, we see disruptive technology and downstream data implications as potential business model game changers. In the next few years, some industries with ultrapowerful, ultralight 3-D printing could scale a manufacturing line in the U.S. very quickly. This has TCO implications and offers a competitive advantage for firms with mature 3-D capabilities, potentially changing sourcing strategies in a few short years. Existing offshore supplier relationships, cost trade-offs and responsiveness to demanding consumers will be impacted by a new value-driven business model. Wilson: There are three major supply management concerns at Wilbur Curtis Company: minimizing risk, reducing supplier management costs, and increasing green procurement and broader supply chain sustainability. All three areas involve interaction and in-depth collaboration with our suppliers. We have a history of strong supplier collaboration, but we are seeking deeper involvement, looking to tap into their creative, innovative ideas and approaches to supply chain management. Our suppliers’ competitive advantage also is our competitive advantage because we all have the same goals and desired outcomes. We understand that our suppliers are the experts in the products they develop and manufacture, and they are willing to share that expertise in return for a more in-depth partnership. Minimizing risk is important to us and our suppliers, and can be achieved if we work together in an open environment of trust. Cost reduction is a key element in all our supplier interactions, and many recent cost reductions have been realized through the creativeness of our suppliers. The increasing

importance of green procurement and broader supply chain sustainability is a huge area for breakthroughs and further successes — and, again, our suppliers have been a font of inspiration.

Q:

What talent and capacity needs does your organization face to remain competitive over the next five years? Parsley: This is a constantly evolving situation as global competition and government regulations change, but we have been and will continue to increase our investment in talent. We are developing people with flexible, innovative and global mindsets to manage our needs. They should have a broad view of the world and be willing to constantly challenge the status quo in a collaborative manner. Smith: The public sector has typically been slow to change in this area. There needs to be a commitment to training and developing talent. One of the best ways I can think of is through professional organizations such as ISM. If organizations invest in their people through participation in these associations, we’ll see that public and private sector supply chains have much in common. It works the other way, as well. Professional organizations also need to actively recruit members from the public sector and cater programs and training toward them. Taylor: Recruiting and retaining top talent in our organization continues to be essential as we pursue our global growth strategy. As for capacity, I mentioned Dow’s strategic expansion projects in the Middle East and the U.S. Gulf Coast. For our supply chain organization, it is challenging to fully support these exciting growth projects and balance our existing business demands. We’ve found ways to eliminate inefficiencies and improve our work processes — but we are still looking for other innovative approaches and

parameters for decision-making. Additionally, we are proactively pursuing reliability as a company as part of our Efficiency for Growth initiative. We are closely examining everything that impacts product supply reliability — from our business practices to manufacturing operations, and from maintenance to freight and logistics. The most profitable pound of product is the one that can be produced with no additional investment in assets, so we are scrutinizing how to boost the reliability of our operations, including supply chain operations. Wilkerson: I see two topics to consider in the near term: automation and foreign trade policies. As new business models emerge, junior leaders must quickly become adaptive, agile and productive team members. The man-versus-machine race is happening today as technology and automation continue to perform routine and repetitive tasks (some of us recall mailing purchase orders not long ago). In the next few years, supply management must design a man-versus-machine strategy or risk an uncertain junior talent future. Secondly, business growth trends are changing and tomorrow’s talent should scan their individual industries for market shifts and future trade implications. For example, by 2020 the global middle class is projected to reach 1 billion people. As multinational companies continue to grow their business in foreign markets, this could present a challenge for the North American workforce. It could mean a larger expatriate talent pool, more foreign cultural emersion and development, and workload shift adjustments as trade policies such as the Asia Pacific Economic Cooperation (APEC) continue to influence future commerce. Wilson: One of our main areas of concentration is the talent and skills of our team members. We continue to

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Supply Chain Management, Going

FORWARD search and add team members with a strategic outlook who think beyond the transactional. We look for techsavvy employees who can use the tools available to make the job easier and more efficient. Beyond the human factor, we are looking at technology that will seamlessly link us more closely with internal customers and external suppliers. Our goal is a smooth transactional flow from our organization to our customers’ or suppliers’ organization.

Q:

What technologies will have the greatest impact on operations or manufacturing in the coming years? What opportunities do these technologies provide to the supply chain? Parsley: There are three key areas where supply chain technology needs improvement. First, ERP software solutions need to offer complete supply chain visibility in real time. These solutions should examine all aspects of the linked supply chain, including commodities management, freight management, distribution, contract, forecasting and demand planning. Second, performance measurement reporting software and benchmarking technologies must improve and be readily available. Supply chain management must be able to tell the story of its impact in a meaningful way to the business and clearly show where supply management strategies align with the overall business strategies. Third, the link between cost and inventory management software and contract management tools needs to be strengthened. Smith: I am very interested in the technology around supply chain control towers. Technologies like these provide decision support and supply chain visibility. The wider your field of vision, the less inventory you need. Taylor: As a science and techno-

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ISM January | February 2014

logy company, we pursue data-based decision-making. Enterprise manufacturing intelligence (EMI) technology is a big push right now. Our integrated ERP system slated for completion this year will provide a great tool for data transparency across Dow, allowing us to better manage our integrated supply chain. This visibility across businesses, as well as greater detail within businesses, will enhance our ability to make better decisions more quickly. Data analytics has long been practiced in manufacturing operations at Dow, having a rich heritage in modeling our processes and identifying where we can produce better product for less. However, there are always new horizons to which we can apply them. Even now, we are extending their use to see how we might better manage our envelopes across businesses to optimize overall revenue and return from each molecule. Wilkerson: In addition to additive manufacturing’s impact on manufacturing, other innovative technologies, such as sensors and predictive tools, are also important. For instance, the predictive technology is just around the corner to model greenhouse gas emissions’ impact prior to proposal award for several commodities. Sensors could have an incredible impression on offshore supplier performance and executive decision-making, and a company’s bottom line. Here’s a potential new-digitalworld scenario: A retail manufacturer tracks high-volume products throughout North America. Following a data quality audit, a sourcing manager can react to sensitive commodity volume and prices within 24 hours for special promotion events. Predictive analytics and market sensors solve system supply management issues and improve decision-making. Wilson: Wilbur Curtis continues to improve its ERP system to incorporate

additional functions and abilities. Two-way interaction through the ERP portals will help facilitate efficient and expedient business. The integration of processes and systems and the flow of information with supply partners are key. Further refinement of the ERP system is needed to allow the accumulation and processing of data associated with suppliers and purchased components. The recent Dodd-Frank Act illuminates the need for tracking in-depth information on all tiers of the supply chain so that data captured can be categorized, analyzed and used in an efficient manner. Of course, this is a never-ending — and extremely exciting — process.

Q:

What were a few of your greatest lessons learned or rewarding moments in your supply management organization/supply chain this year? Parsley: We have been very successful in educating team members in all functional areas regarding the value supply chain professionals contribute when negotiating contracts and establishing supplier partnerships. Too often, companies have marketing or IT personnel negotiate contracts because they are thought of as “experts in their field.” In reality, however, these employees have no real experience or proficiency in the art of negotiation or contracting. Our teams are now sought after as the internal experts across the entire company, and supply chain management has a seat at the table on Brinker’s leadership team. The lesson is — educating business units about supply management and what it can do for them is a huge part of our job. Supply chain is a process, not a function, and procurement is only a small piece of the puzzle. Taylor: I have learned a great deal about the depth and breadth of the talent we have at Dow. Our feedstock integration brings a richness to the

way we view supply chain issues, but it’s the innovative thinking and commitment of our people that makes it especially rewarding to be a leader in Dow’s supply chain organization. There’s a lot of excitement among our people about the work they’re doing, and we have some exceptionally large projects underway, specifically Sadara, which involves unprecedented scale and scope. Above all, it is rewarding to be part of a company that is fully committed to safety and sustainability leadership — and pursuing innovation every day, at every level.

(FMCG) industry and leading tier-one supplier environmental study. We expect to share global best practices and lessons learned that may impact talent development, supplier selection and sourcing strategy. Two quick insights — we find that raw material extraction plays a large role in enterprises’ greenhouse gas emissions as well as opening sales channels in emerging market and long-term cost savings. Also, the ability to link social media, demand and supply planning is possible and will require greater focus as organizations grow.

Wilkerson: We created a small IT innovation team to research digital supply chain and supply management challenges and solutions. Our research has changed our thought process from traditional near-term cost savings and microprocesses to loftier challenges that impact the global community. Currently, we are conducting a quantitative fast-moving consumer goods

Wilson: Successes at Wilbur Curtis were achieved in both offshoring and nearshoring. There’s no single best solution to sourcing — each situation must be carefully analyzed, and an informed decision made. Another achievement was further rationalization of our supply base. In some commodities, we reduced the number of players to the vital few, while in others

we increased the number for added benefit.

Ready to Meet Future Challenges Supply management organizations are uniquely poised to make an impact on their companies’ futures. As a new year unfolds, practitioners ranging from CPOs to buyers can bring new opportunities to the table, reduce risks and maximize resources and data. Inside Supply Management ® is committed to serving supply management practitioners and sharing information among ISM members. We welcome our readers’ comments and suggestions for future articles. Keep this conversation going, and share with us your concerns and outlook for the new year. Together, we can be a strong reflection of a powerful and growing profession. ISM For more information, send an email to [email protected].

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33

Beyond Borders global supply chain strategies

By John Hooker, Ph.D.

Bridging a Supply Chain’s Cultural Divide The tragedy of the factory collapse in Bangladesh highlights the Understanding Business Cultures need for supply management practitioners to understand cultural Unethical practices can arise differences and build strong relationships with overseas suppliers. when market conditions change

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t was April 23, 2013, when a loud noise startled garment workers in Rana Plaza, an eightstory complex outside Dhaka, Bangladesh. An engineer was called in to inspect large cracks that suddenly appeared in the building. He took one look, frantically urged everyone to evacuate and fled the building for his own safety. Yet landlord Sohel Rana refused to close the building, telling television reporters on the scene that there was no danger. Factory employees on upper floors were instructed to continue working, or else lose their jobs along with several weeks of back pay. At 9 a.m. the next day, heavy equipment switched on, and everyone felt a lurch. Two minutes later, the building collapsed. At least 1,129 workers were killed, and some 2,500 were injured in the worst disaster in the history of the garment industry.

Challenges of Lengthy Supply Chains This was no isolated event. South Asia had been plagued by a series of industrial disasters, including a garment factory fire that killed at least 289 in Karachi, Pakistan, the previous September,

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ISM January | February 2014

and a November blaze in a Tazreen garment plant near Dhaka that killed 117. Workers complained of multiple safety violations, including exits that were locked in the Karachi plant and woefully inadequate in the Tazreen plant. Local journalists found evidence in the rubble that several European and North American firms were sourcing from these unsafe factories. The Tazreen plant, for example, supplied Wal-Mart and Sears. Yet Wal-Mart claimed it had stopped sourcing from the plant due to its high risk, and Sears claimed it had no idea it was sourcing from the factory. Why do people operate unsafe factories, and what can companies and their supply management organizations do about it? As supply chain practitioners understand, it is hard to know, much less control, what happens at the other end of a supply chain. WalMart, for example, actually placed its order with a New York company, now known as Success Apparel, which subcontracted to Simco Bangladesh Ltd., which sent the order to Tuba Group. Tuba then transferred the job from its own Wal-Mart-compliant plant to the unsafe Tazreen plant, despite protests from Simco.

too rapidly for business norms to adjust. This dynamic lay behind the famous 1911 Triangle Shirtwaist Factory fire in New York City, which killed 146 garment workers, due in part to locked exits. Waves of immigrant labor and expanding new markets tempted U.S. factory owners to take safety shortcuts. In the Asian garment industry, migration of cheap labor from the hinterland met an explosion of Western demand, due in part to the 2005 expiration of the international Multi Fibre Arrangement, which imposed quotas on the amount of clothing and textiles developing countries could export to developed countries. There was a race to the bottom as entrepreneurs underbid each other for huge foreign contracts. The 1911 Triangle disaster spurred the passage of some 60 new labor laws in the state of New York, laying the foundation for U.S. worker protections that we have today. This may suggest that the same road to success should be followed elsewhere. However, other countries have different business cultures that may call for different ways of enforcing norms. Europe and North America organize business around rules and contracts, while much of the world organizes business around

relationships. In one case, you trust the system, and in the other, you trust the person.

relationship that brings him or her business.

Learn About Various Cultures Build Long-Term Relationships Supply chains often stretch from rule-based cultures to relationship-based cultures. Somewhere along that chain, there is a cultural divide. Let’s say Jennifer on the rulebased side of the supply chain is working with a supplier counterpart, Xiuying, on the relationship-based side. In Jennifer’s world view, worker safety can be enforced by writing it into the contract, and relationships are just a way of getting new business. But Xiuying instinctively believes that nothing in business really matters unless it is part of the relationship, and the contract is just a formality. The remedy is for Jennifer to build a long-term business relationship with Xiuying, even if this requires much patience and seems a waste of time at first. As trust develops, Jennifer can make it clear how important worker safety is to her, and she can meet Xiuying’s business requirements in return. Each partner in a trust relationship takes care not to let the other down, and to avoid sacrificing a personal connection in an environment where it can be the key to success. Personal relationships can transmit a desire for worker safety down the supply chain, first across the cultural break point, and then on to the factory owner at the far end. The factory owner will honor this desire to maintain a valuable

The best way to build a trust relationship depends on the culture. Trust is often based on extended family connections, long-term friendships or what the Chinese call guanxi (a relationship of mutual obligation). Cross-cultural training is widely available and can help employees in Western companies understand the nuances of a particular culture. Another way to start building relationships abroad is to take advantage of employees within your organization who have international origins. They are likely to be well-networked with family and friends in their home country. Personal reputation is also important in many cultures, and a relationship-based supply chain can allow a company to access this kind of local knowledge. The Bangladesh factory landlord’s role as a corrupt political boss and alleged drug dealer was well-known in the surrounding community. A trusted local contact could have steered companies clear of any dealings with him.

Relationship Investment The Western mechanisms of government regulation and thirdparty endorsement can play a role, but they are insufficient. The Rana building was built and later enlarged illegally, without regulatory approval. Similar stories accompany the other factory disasters. As for endorsements, the obviously unsafe

Karachi plant received the prestigious SA8000 certification from Social Accountability International only a month before it burned. Companies often complain that cultivating relationships is an expensive and time-consuming activity that may yield results only after years of effort. So it is. But successful business requires investment in the social framework that makes business work. In the West, we maintain a massive regulatory and contractual system. If supply management practitioners want to take advantage of low-cost production elsewhere, they should support the system that makes business possible in that part of the world. Businesses also should get their own ethical houses in order. Few overseas managers want to run a sweatshop. In fact, many feel a sense of loyalty to their workers. The bestintentioned managers may cut safety costs to bid low on foreign contracts that keep their people employed. By holding our own companies responsible for conditions in supplier factories, supply chain leaders can relieve some of the cost pressure on these managers. This will help relationship-based businesses adjust to a world of outsourcing. ISM John Hooker, Ph.D., is T. Jerome Holleran Professor of Business Ethics and Social Responsibility, and professor of operations research for Tepper School of Business, Carnegie Mellon University in Pittsburgh. For more information, send an email to [email protected].

Around the World

Republic of Fiji

covered shoulders and wear calf-length skirts or dresses.

Capital and geography: Suva; Fiji is an island country in

Fijians and Indo-Fijians, which you should know before

the South Pacific, 1,100 nautical miles northeast of New

you go. Fijians are very polite and respectful, may be direct

Zealand’s North Island.

in negotiating and want to know what the final price or

Currency and government: Fijian dollar; parliamentary

offer is upfront.

republic run by a military-appointed government.

Sources: www.culturecrossing.net/basics_business_student.

Business dress: Informal but conservative trousers and

php?id=69; www.austrade.gov.au/Export/Export-Markets/Countries/

short-sleeved shirts for men (no ties); women should have

Fiji/Doing-business

Cultural cues: There are differences between Indigenous

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35

CAPS Research sharing knowledge and best practices

By CAPS Research Team

Justifying Environmental Sustainability Activities To gain the support of supplier partners in embracing environmental sustainability initiatives, you need to demonstrate the value achieved as a company.

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mproving environmental sustainability performance has become a competitive priority for many organizations. The greenness of their products, services and operations is assuming a more important role in customers’ sourcing decisions and consumers’ purchasing decisions. Many have made great progress in improving sustainability performance in their internal operations by reducing energy and water use and reducing waste generation. Sustainability progress related to products has also made great strides, often in terms of energy ef ficiency

and removing harmful chemicals. The natural next step for companies that have made good sustainability progress is to examine their value chains for projects that will result in additional environmental progress. However, many companies are just beginning to extend that focus to their value chain partners. This column focuses on one critical aspect necessary for this next step — the key factors companies use to justify supply management environmental sustainability initiatives. These factors are drawn from the comprehensive CAPS Research publication Environmental Sustainability Across the Extended Value Chain, which interviewed senior supply executives at global corporations with substantial environmental sustainability activities in place.

Cost Reduction Cost is the most important consideration in deciding whether to approve and implement sustainability projects. This may be due in part to the post-recession economic climate as well as economic challenges in countries where organizations are emphasizing cost

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ISM January | February 2014

reductions to enhance profitability. The companies surveyed have found that environmental sustainability projects such as energy reduction and material recycling will reduce costs. Energy reduction projects, in particular, typically have a positive return on investment. One company suggested individual sustainability projects do not have to result in cost savings, but do need to be at least cost-neutral. Another suggested that most of its sustainability initiatives do need to lead to cost savings. However, sustainability projects in the area of transportation and logistics must enhance service levels. One firm uses the cost savings from energy-reduction projects to help fund other projects that may not have costreducing results.

Rationalize for Growth One of the reasons environmental sustainability projects focus so heavily on cost is that most customers are not willing to pay higher prices for sustainability performance. Several business-to-business companies commented that sustainability is important to their customers, but that their customers are not willing to pay more for environmentally sustainable products. One company executive commented that its customers are willing to buy products that use less energy for economic rather than

than environmental reasons. Findings indicated that only a few companies collaborate with their customers on sustainability projects. Some companies see sustainability as a way to grow their businesses. Offering energy-efficient products is important to brand image and sales. For example, one firm uses its sustainability projects as a way to showcase products to customers. In another example, customers of one corporation, especially those in Europe, value environmental sustainability. Another organization believes that designing products to meet the strictest environmental regulations in the world may help it win business in Europe.

Reputation Concerns Several companies were proud of the enhanced reputations they attained as a result of their environmental sustainability performance — with some being part of the Dow Jones Sustainability Index, top performers in the Carbon Disclosure Project or recipients of other high-profile rankings or awards. It is not clear whether their enhanced reputations appeal more to shareholders, customers or equally to both. One executive believes that the company’s strong reputation for sustainability and awards are important for sales. Thus, that company views sustainability as being important to its success in the marketplace. Public reporting and media attention were factors that motivated some to develop corporate goals and improve their environmental sustainability performance. Another company decided to increase purchases of certified agricultural products

in response to concerns raised by some shareholders.

Risk and Other Considerations Compliance with laws and regulations is the most important driver of sustainability value chain initiatives. Regulatory risk was also mentioned as driving some of the specific initiatives. For example, Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) compliance was a major concern. One firm was also concerned about exposure to risk, especially from upstream suppliers’ environmental problems. Several firms design products to the highest global regulatory requirements to reduce the risk associated with their products being sold and used in different countries with different environmental regulations. If your company plans to invest in new environmental sustainability initiatives, these factors used in companies with established sustainability activities may be a good starting point to build your case. For additional insights, read the CAPS Research publication Environmental Sustainability Across the Extended Value Chain, part of the Value Chain Strategies for the Changing Decade series. For more information, visit www.capsresearch.org, or call +1 480/752-2277. ISM

Many experiences. One focus. At MWV, we believe that supplier diversity leads to new ideas. Together we’re bringing innovative packaging solutions to the global marketplace.

For more information, send an email to [email protected].

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37

Tapping Into supply management issues and trends

By Juanita M. Rendon, DBA, CPA, and Rene G. Rendon, DBA, CPSM, CPSD, C.P.M.

Fighting Procurement Fraud Mature supply management practices coupled with solid internal controls are the best weapons against procurement fraud in a supply chain organization.

T

he average business loses 5 percent of its revenues to fraud, while corruption and billing schemes comprise more than 50 percent of the reported fraud, according to the Association of Certified Fraud Examiners. Supply management organizations that have mature procurement processes and effective internal controls are in a unique position to identify key procurement fraud indicators and help fight the war against procurement fraud in an increasingly global and vulnerable world. Developing a mature procurement process is the first line of defense in guarding against procurement fraud. As most supply chain practitioners know, the procurement process can be analyzed in six phases, from procurement planning, solicitation planning and solicitation, to source selection, contract administration and contract closeout. Pro c ur ement process maturity refers to the level of capability of these processes. Process m a t ur i t y c a n b e assessed by examining

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questions such as: • Does the supply organization have established, institutionalized and mandated processes for each of the six procurement phases? • Are these processes documented, enforced and supported by senior management? • Are these processes integrated with other functional areas throughout the enterprise, and periodically assessed to ensure efficiency and effectiveness? • Does the organization establish lessons learned and best practices? • Are continuous process improvement initiatives implemented to improve process capability?

Solid Internal Controls Mature procurement processes, however, are just half of the battle, because organizations also need strong, effective internal controls. The internal control framework is a process that provides organizations with a reasonable assurance of meeting the objectives of reliable financial reporting, operational effectiveness and efficiency, and compliance with applicable laws and regulations. The Committee of Sponsoring Organizations of the Treadway Commission (COSO), an initiative dedicated to providing

thought-leadership through the development of frameworks and guidance on enterprise risk management, internal control and fraud deterrence, has identified five components of an internal control framework. These components serve as a general framework for developing policies, procedures and practices for an organization’s internal controls. Control environment. The control environment sets the ethical tone at the top of an organization. It involves implementing a code of ethics and conduct, management’s philosophy and operating style, the organizational structure, reporting lines of authority and responsibility, and workforce policies and practices. Risk assessment. This is the process of determining any potential risks that could occur, including business and fraud risks. A risk assessment ascertains to what extent the risks will occur and develops ways to mitigate them. The overall impact of the potential risks should be evaluated in view of the supply organization’s objectives. Control activities. Control activities include the procedures, standards, policies and rules within the supply chain organization to help protect assets and deter fraud. Examples of control activities encompass segregation of duties, information processing controls and physical controls. Information and communication. This component includes internal and external

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communications, as well as the accounting system within an organization. All stakeholders, such as suppliers, regulators and customers, have a vested interest in proper and effective communication, and reliable, timely data and information. Monitoring activities. The monitoring activities component includes ongoing evaluations to assess whether the established control procedures are working properly. A cost-benefit analysis also needs to be performed for all control activities to ensure that the cost does not exceed the benefit of implementing certain control activities.

Know the Weak Links Organizations with less-thaneffective internal controls are susceptible to fraud throughout the procurement process. The following is an example of how that can impact the procurement process at each phase. Procurement planning. Splitting procurement requirements in order to avoid higherdollar threshold review and approvals could occur without good controls. As a preventive control, the organization should monitor the frequency of purchases for the same or similar items. Solicitation planning. A weakness could result in the supply chain organization approving a justification for other-than-full and open competition based on improper reasons, which may indicate potential fraud. As a preventive control, supply management leaders should conduct proper reviews of the justification for single or sole-source procurements. Solicitation phase. A weakness in the control activities within this phase could result in the organization restricting procurement to exclude qualified suppliers. As a preventive measure, the supply management organization should

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ensure the widest visibility of procurement opportunity announcements to all qualified suppliers. Source selection. A weakness in information and communication as well as the control environment in this phase could result in the supply organization revealing a supplier’s trade secrets to another supplier in exchange for financial gain. As a preventive control, the supply organization should establish tighter controls to better protect proprietary information to avoid this type of procurement fraud. Contract administration. In the contract administration phase, an information and monitoring weakness could result in the supply chain organization modifying the contract to make unauthorized material changes to the statement of work. To prevent this, the organization should implement effective contract change control procedures to lessen this vulnerability to fraud. Contract closeout. Without proper controls in this phase of the procurement process, someone could alter, backdate or modify contract documents to cover up procurement anomalies. One preventive control would be to ensure that procurement documents are adequately controlled throughout the contract closeout to avoid any unauthorized alterations.

Beware of Other ’Schemes’ In addition, bid rigging, kickbacks, bribery and conflicts of interest, are examples of procurement fraud schemes in supply management. Bid rigging, which could occur in the solicitation phase, entails collusion between suppliers to rig bids, fix prices and artificially increase the prices of goods and services offered in bids, which hinders competitive bidding. To deter this type of fraud, supply organizations should ensure adequate control procedures.

These may include reviewing the procurement history and conducting a detailed cost analysis, which would entail a closer look at the supplier’s proposed cost elements, including direct labor, direct materials and so forth. Additionally, kickbacks, bribery and conflicts of interest can occur during any procurement phase and reflect an intent to defraud. These include providing something of value in exchange for influential actions or preferential treatment, compromising independence, playing favorites and making biased decisions. Supply organizations should be cognizant of suspicious third-party relationships and ensure that employees adhere to the organization’s code of ethics and conduct.

Protect Against Vulnerabilities Although mature procurement processes and effective internal controls are needed to deter procurement fraud, our research has found that procurement practitioners have insufficient knowledge of procurement fraud indicators and lack confidence that their organizations will properly respond to reported incidents of potential fraud. As today’s supply management organizations continue to globalize their supply chains, they will continue to be vulnerable to supply-related fraud. Having mature procurement processes and effective internal controls will help supply management organizations be well-equipped for fighting the war against procurement fraud. ISM Juanita M. Rendon, DBA, CPA, is a lecturer and Rene G. Rendon, DBA, CPSM, CPSD, C.P.M., is an associate professor at the Graduate School of Business and Public Policy at the U.S. Naval Postgraduate School in Monterey, California. For more information, send an email to [email protected].

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ISM News inside the institute

T. Boone Pickens to Open ISM’s 99th Annual Conference Registration is now open for ISM2014, Institute for Supply Management™’s 99th Annual International Supply Management Conference, which takes place May 5-7, 2014, in Las Vegas. Don’t miss this year’s keynote speaker, T. Boone Pickens, legendary oil and gas entrepreneur who has become the United States’ most effective energy expert. In his keynote presentations, Pickens showcases his folksy, candid, no-holds-barred approach to solving America’s energy crisis as well as the lessons he has learned over the course of his outstanding professional life. Truly an American success story, he grew from humble beginnings in Depression-era Holdenville, Oklahoma, to be one of the nation’s most successful businessmen, gracing the cover of Time, Fortune and virtually every other major business publication in America. In addition, you will hear from Mark M. Zandi, chief economist of Moody’s Analytics. A trusted adviser to policymakers and an influential source of economic analysis for businesses, journalists and the public, Zandi frequently testifies before the U.S. Congress on topics including the economic outlook, the nation’s daunting fiscal challenges, the merits of fiscal stimulus, financial regulatory reform and foreclosure mitigation. ISM’s Annual Conference delivers rich content from practitioners with strong track records in the field. Focus on topics that are important to you in global supply

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chain, logistics, big data and analytics, career development, business acumen or indirect spend. Join thousands of your peers to expand your network and learn about today’s challenges in finance, negotiations, leadership, supplier segmentation and compliance. To register for ISM2014 and for additional information, visit www.ism.ws. Be sure to register by February 18, 2014, to receive early-bird pricing.

Meet Author Leslie Grossman at the ISM Diversity Summits Leslie Grossman, leadership strategist and author of LINK OUT: How to Turn Your Network into a Chain of Lasting Connections, shares how to create a collaborative, long-term networking strategy at the upcoming ISM Supply Chain Diversity Summits on February 26-28, 2014, in San Francisco. For additional information on the ISM Supply Chain Diversity Summits — comprising the 11th Annual Black Executive Supply Management Summit, the 6th Annual Women Executive Supply Management Summit, and the 7th Annual Hispanic and Latino Executive Supply Management Summit — visit www.ism.ws/3922.

Nominations Period Still Open for J. Shipman Award Institute for Supply Management™ (ISM) is accepting nominations for the J. Shipman Gold Medal Award. The award is presented annually to an individual whose career accomplishments have promoted the advancement of the procurement and supply

chain management profession. Those chosen for the award have also assisted, mentored and guided other members of the profession to excel in their own endeavors. The 2014 J. Shipman Gold Medal Award Winner will be honored at an awards luncheon in May 2014 at ISM’s 99th Annual International Supply Management Conference and in Las Vegas. Nomination deadline is January 31, 2014. Nominees do not have to be ISM members. For more information about the award or previous Shipman medalists, visit the ISM website at www. ism.ws. Select About ISM, then J. Shipman Gold Medal Award. Download the nomination form at www.ism.ws/3850. ISM

January | February 2014 Ad Index A.T. Kearney/CIPS/ ISM Alliance.....................................7 CPSM ® Certification....................41 Enterprise Holdings....................IFC ISM Online Career Center.......... 39 ISM Resources............................. 43 ISM Supply Chain Diversity Summit.............................5 ISM2014 International Supply Management Conference................................... BC J. Shipman Award......................IBC Karrass.....................................Insert Liquidity Services........................ 33 MeadWestvaco ........................... 37 Ontario Ministry of Economic Development, Trade & Employment......................................3

Continuing Education

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Podcasts/ Videocasts An ever-expanding library covering a broad spectrum of supply management and general business topics — from the basic to advanced. Download and listen while you work, during your commute or even in your downtime.

ISM presents numerous free web-based seminars throughout the year. Join us to learn about new trends that affect your role in supply management, and participate from any location.

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The ISM Knowledge Center Eliminate travel expenses. Online courses are a powerful resource for attaining your professional goals. You can choose courses in business, finance, manufacturing, negotiations, CPSM®/CPSD® review, sustainability and social responsibility, product development, services and much more. For more information and to register for the ISM Knowledge Center courses, go to www.ism-knowledgecenter.ws. All courses are active for 12 months from the date of purchase.

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Free résumé critiques by a career expert. Let Tracy Laswell, JCTC, CPRW, ISM’s career expert, turn a “typical” résumé into a powerful career marketing document (one free critique per customer).

ISM Glossary of Key Supply Management Terms (5th Edition) The ISM Glossary of Key Supply Management Terms is a valuable reference tool for supply professionals, academics, researchers and students. Greatly expanded with more than 2,400 terms, it includes information from all disciplines within supply management.

Propurchaser.com Commodity Tracking — Easyto-use tools and data to prepare for negotiations to strike better deals. ISM members are entitled to a 60-day trial membership and savings if they decide to join.

Seminars

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Network with more than

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peers at the Annual International Supply Management Conference, devoted exclusively to purchasing and supply management, emerging trends and challenging comprehensive sessions — all conducted by your peers. The Conference attracts distinguished keynote speakers to discuss current national and international issues and features several sessions highlighted by prominent corporate leaders.

ISM public seminars are a great way to get ahead. Each seminar is presented by an expert instructor with the ability to take your knowledge further. In fact, each of our seminars receives consistently high instructor ratings as well as content ratings. In short, our instructors know the material and are committed to getting that information to you so that you can move your career forward. Furthermore, ISM offers a wide range of topics; whether you want to get in-depth knowledge of transportation or improve your skills in risk management, ISM has you covered.

Connect With Us With a strong global influence, ISM connects you with supply chain professionals around the world. Join the conversation, expand your network and get exclusive ISM insights on Facebook, Twitter, LinkedIn and Google+.

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ISM’s Purchasing and Supply Sourcing Guide

Delivers world-class professional development programs and consulting services to corporate teams in the U.S. and China.

Tap into the incredible network of the Institute for Supply Management™ with the Purchasing and Supply Sourcing Guide. Powered by MultiView, the Guide gives supply management professionals a fast and easy way to find great suppliers. Search today at www.purchasingandsupplysourcingguide.com.

Point to Point focus on supply chain logistics

Mexico Begins Significant Infrastructure Improvements

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ince President Enrique Peña Nieto took office in Mexico in December 2012, the country has begun to make significant upgrades to its infrastructure, including air-lift capacity, highways, ports and railways. According to the 2013 Infrastructure Report by Site Selection magazine, the country’s Transport and C ommunic a tions Infrastructure Investment Program 2013-18 may value 1.3 trillion pesos, or US$99.4 billion, in public and private investments. During Nieto’s administration, Mexico is expected

Inside the Glossary MANIFEST: An itemization of the items included in a particular shipment, plus related details. In the news: “The Greek Coast-guard has intercepted a Sierra Leoneflagged cargo ship with around 20,000 Kalashnikov assault rifles on board … The cargo was both larger than that declared on the ship’s manifest, and the ship did not have the proper UN documents to deliver cargo to a conflict zone.” (http:// rt.com/news/greek-seizeship-kalashnikov-503) Source: ISM Glossary of Key Supply Management Terms (www.ism.ws/ glossary)

ISM January | February 2014

Source: http://offshoregroup.com

Many Happy Returns: What Happens After Holiday Buying Season?

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hile much is written about annual holiday sales, the flip side — retail returns — also involves some tricky logistics. Consumers return about US$264 billion worth of holiday merchandise annually, or almost 9 percent of total sales. But, what happens to the unwanted or defective merchandise that doesn’t make it back to the retailer shelf? Raul Castilla, director of reverse logistics for Wal-Mart, says the retailer processes an annual 45 million cases of returned merchandise through its regional return centers. A whopping 40 percent of that volume comes through in January and February. At Wal-Mart, castoff products make their way back to one of six regional return centers across the United States. Each return center serves roughly 680 stores. Over the next few months, Castilla says Wal-Mart adds seasonal help in its return centers as well as its stores. Inside each massive warehouse, Wal-Mart sorts the unsellable products into four tiers: vendor for credit, donation to United Way, recycle or landfill. ISM Source: www.thecitywire.com

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to allot 4 trillion pesos, or $311 billion, to infrastructure improvements. “These resources also will be reflected in better railways and more efficient ports to enable Mexican products to have a presence in and be purchased in international markets,” Nieto said in a statement, according to the report. Each of these enhancements will help strengthen the link between Canada, the U.S. and Mexico, making nearshoring to Mexico a more viable option.

Who Is Your Role Model?

2013 Winner Lisa Martin, CPSM, C.P.M.

2012 Winner Joseph L. Cavinato, PH .D., C.P.M.

2011 Winner Shelley Stewart, Jr., CPSM

Nominate Your Role Model Institute for Supply Management™ (ISM) is accepting nominations for the leaders you admire the most. The J. Shipman Gold Medal Award is presented annually to an individual whose career accomplishments have promoted the advancement of the procurement and supply chain management profession. Those chosen for the award have also assisted, mentored and guided other members of the profession to excel in their own endeavors. Nominate your role model or mentor, someone who you feel has a lengthy career full of distinguished service to the advancement of procurement and supply chain management. This person should be viewed by others as an innovator, community leader, mentor and teacher. Deadline for 2014 nominations is January 31, 2014.

Download the 2014 nomination form and learn more about the award and previous Shipman medalists at www.ism.ws/3850.

The Focus is You! J

oin us for ISM2014, the premier supply chain management event of the year. Our keynote

speakers provide inspired, thought-provoking industry perspectives, and our educational sessions bring you late-breaking industry topics and how-to’s, along with trends and best practices. Visit us online at www.ism.ws for more information and to register today!

T. Boone Pickens

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February 18, 2014 Mark M. Zandi

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The Second City

ISM2014

International Supply Management Conference

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May 5-7, 2014 | Las Vegas