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Lalit Panda, until recently was the Global CIO at D&M Holdings Inc., an audio electronics manufacturer with brands such as Denon, Marantz, Boston Acoustics etc. Lalit has a special combination of supply chain and information technology skills with considerable global experience. He has worked for global corporations like Sony, Harman International and Coats Viyella in various roles heading Supply Chain, Logistics and Information Systems. He has degrees from the Massachusetts Institute of Technology, Indian Institute of Management, Ahmedabad and National Institute of Technology, Calicut, India with a Six Sigma Certification from Georgia Tech. Lalit has lived and worked in various parts of the world and has led transformational IT initiatives spanning all functional areas, but especially in Supply Chain and Operations.


Why is Sales & Operations Planning (S&OP) important in an organization?


The sales and operations planning process is the fundamental backbone for the organization’s ability to deliver products on time to customers and in the right quantity, while managing the financial metrics of the business. Unless this process is coordinated between the demand side and supply side of the organization it is likely the organization is not likely to generate the efficiencies and exploit all of the sales opportunities that come across.


Having a very efficient and coordinated sales and operations planning process is absolutely critical to the healthy operation of global corporations.


How are S&OP systems different from ERP in organizations?


ERPs are transactional systems that enable the business to run their operations. They generate a lot of data.


S&OP systems are really planning systems. You look at different options and trade-offs. In supply chains there are always trade-offs to be evaluated and also to get data across different scenarios and determine the best option for the organization to execute. Sales and operations planning systems enable the organization to evaluate multiple choices and alternatives and come up with a plan that is most optimal, given the constraints they are operating under.


ERP allows the transactions to take place. What happens is that the S&OP system generations the plan and it is executed within the ERP. The planning process is substantially different from the transactional processes that are there within the ERP. This is why they need to be in different environments where people can try out different strategies and see the impact on the financial and operational metrics.


What are the challenges of implementing S&OP systems successfully?


The first challenge is obviously process. There are a lot of different touch points in the sales and operations planning process. There are various stakeholders and different sources of data. Getting them all aligned and getting a common understanding of the goal and processes behind these key activities within the organization is the first step.


I would not recommend that an organization start an S&OP implementation without fundamentally re-thinking and evaluating how they do their sales and operations planning process, and determine where are the efficiencies in transferring data from the demand side to the supply side and vice versa. They should also determine who should be owning the S&OP system. For example, in some organizations sales tends to head S&OP. In other organizations supply chain is at the core of the process. In other organizations the supply side takes ownership as well.


Determining where the responsibility lies and where the process hand-offs and data exchange happens, is very important. Until a clear blueprint and map is created, it may be inefficient to go and implement a system. Once you have a blueprint then you can look at how the layer it onto a sales and operations planning system and that should help in executing it.


How do S&OP systems enhance business value?


The core process of the organization for generating revenues, controlling costs, reducing working capital is centered around this S&OP system. It enhances business value firstly because it delivers better customer service levels. Secondly, it does it at the most cost efficient manner possible. Thirdly, it enables the organization to work as a coordinated well oiled machine transferring data and being responsive.


In the current environment of competition world-wide, unless you have this working very closely and dovetail between the different elements of it, it is very difficult to deliver shareholder value by getting better financial metrics.


S&OP systems have this basic role to play to make that process more efficient and effective.


What advice do you have for organizations contemplating revamping their S&OP Process.


Lalit says the first step is to get everyone on the table and map the current process so that everyone has a common understanding of how the current process works. Also, stress the inefficiencies and identify the areas where opportunities to improve are there. You may also do some best practice comparisons with other organizations.


Then you start thinking about where the value is. Is it in terms of getting better availability at the customers or the regions? Is it more in terms of getting better manufacturing efficiencies? Look at the various aspects of it.


Everyone knows supply chain is like a water bed, you can’t push it to one side and expect the whole to operate efficiently. It has to be all across the chain. The sales and operations planning process fundamentally supports that process. To have a good solid process in the future it is important to first lay out the framework where you are, determine where you want to go, and then figure out where the enhancements need to be made.


After that there are several tools out there in the market. There are very good tools to help you accomplish this optimization of the whole process. Then it should be justified with the business case in terms of increased revenues, increased margins, reduced costs and improved efficiencies.


It is a journey. The S&OP process continues to evolve. There is a maturity level across S&OP organizations. The maturity level where you are at needs to be assessed. A plan needs to be made for how to improve it and get it further along to the stage where the organization is extremely responsive to demand changes in the market in an optimal manner.


About Lalit Panda




Sr. Executive with unique mix of Global IT & Supply Chain experience

& transformational record in complex global firms.


LinkedIn Profile

Hiren Patel is an industrial engineer with a Bachelors in Mechanical Engineering and a Masters in Industrial Engineering focusing on Production and Supply Chain. He has worked for automotive companies in India as a Project Engineer. Hiren also worked in the US as a Continuous Improvement Engineer in Supply Chain for 2 years. He is now working as an SAP consultant for a company in the Bay Area. Hiren enjoyed being a Continuous Improvement Engineer where he took the role of an Industrial Engineer to help the department accomplish the projects for quality improvements.



What is the impact of Lean on Supply Chains?


Hiren sees supply chain from a holistic point of view. It has four major functions: procurement, operations, distribution and sales. He believes operations is a very important and challenging part of supply chain. It also contributes to a major part of the cost of a product. From this point of view it is important that your operations are cost effective and provide high quality and have as much lead time as possible so that you accomplish the cost and quality targets to satisfy the customer.


In this sense it is very important that the operations are as lean as possible. When Hiren says lean he means to find the waste and any non value added activities in the operations and find ways to reduce them to the minimum level possible. A supply chain needs to be more cost effective. Lean can be applied to operations as well as other aspects of the supply chain.


Hiren believes Lean and Six Sigma’s major impact is on operations. At the company Hiren worked for they had already invited Lean and Six Sigma into their culture. He found the best thing was that he works with people through the process improvements. The most important part is the methodical approach to eliminating waste. It also helps in embracing the change required for improvement. It is a methodical approach that also gives you an opportunity to change people’s attitude towards change. Change improvements are one of the main positive outcomes of Lean and Six Sigma.




Any supply chain with operations, especially product based companies, benefit from Lean and Six Sigma. It helps deliver a product with a short lead time and at a price which is less than the competitors. It is important that they embrace the Lean and Six Sigma culture.


Hiren has seen companies trying to follow Lean and Six Sigma methodology but they don’t make sure that it is part of their culture and that it gets right into the thought process of the employees. Hiren recommends that organizations which are trying to embrace Lean and Six Sigma start from the top level and bring to the subsequent levels as part of the culture, rather than having people do things because they are told to do them. It is very important because it helps you establish Lean and Six Sigma for the long run and is better for the business because once it is incorporated as a culture.


About Hiren Patel




Hiren Patel

ASQ Six Sigma Green Belt

LinkedIn Profile

I interviewed Steven Schumaker who was tasked with streamlining the entire innovation process for a company that makes fresh food, Steven Shumaker's first task was to bring 21 departments to the table. After facilitating the discovery process, it became clear that working within silos prevented individual groups from understanding how their actions effected other groups involved in bringing new products to the marketplace. Creating a top-level process flow and putting stopgaps in place to reduce financial risk by tracking progress proved to be the answer.



How would you bring 21 individual departments -- each playing separate roles in the innovation process -- together as one cohesive group focused on cost effective new product development? Steven Shumaker began with a "current state event" designed to give everyone a top-level view of processes and help them understand why operating within silos can be inefficient and risky.





In 2009, Steven Shumaker was involved in mapping the entire innovation process for a company that makes fresh food for the United Kingdom and Ireland. With 21 departments, each playing separate roles in bringing new products to the marketplace, it was quite an eye-opener. In supply chain alone, Steven said, there were four departments that impacted the process, including supply chain procurement and packaging, supply chain ingredients, supply chain planning, and supply chain logistics.



The project had three goals in mind. First, to reduce the risk of doing something wrong and wasting the investment in new product introduction. Second, to streamline the process with an eye toward making the new product introduction process more efficient and pushing more innovation through in a more timely manner. Third, to gain an understanding of the company's capability to innovate from a capacity perspective. In other words, Steven said, "Asking ourselves if we have enough resources, and whether we are putting the company at risk of not being able to produce current products because we're innovating too much?"



The process began with discovery, or what Steven referred to as a  "current state event." Typical of the discovery stage, it took a great deal of time, because each department operated within a silo, which meant people didn't have an understanding, or clear view, of the entire process. From a facilitator's perspective, discovery can be a nightmare if allowed to drift on forever without specific exercises in place to keep it moving forward and keep people engaged. Steven said he was fortunate enough to have the support of the CEO, which no doubt went a long way toward keeping people on task.



It took approximately four weeks to arrive at a top-level process flow that encompassed all departments, and for everyone to understand each phase of the innovation process. Among the many things Steven Shumaker discovered was the fact that there were no real gauges for determining whether or not the development of a new product was going well, if it warranted further investment, or for tracking progress, including whether some departments were moving faster than others -- an issue that could have the effect of creating work that has to be reworked along the way.



Without giving away too much intellectual capital, Steven said those problems were resolved by creating four gates that every innovation project must pass through to bring each of the 21 departments to a point where a company executive could make an educated decision regarding whether a project should go forward.



The first stage of innovation, Steven said, was the alignment of tasks. For example, procurement might have to buy a new line, the flavoring department might have to develop a new formula, the packaging department would likely have to develop a new  design, which in turn, might trigger the need for adjusting a high-speed packaging machine to facilitate the project. No commitments were made at this point, but at the end of the phase, if everything was in alignment and contracted out with a supplier, it would trigger the next round of investment into the project.



Moving forward with a new food product, there are always legal hurdles to clear as well,  including protecting intellectual properties, such as formulas, and proper word of all product descriptions.



Until the company went through complete discovery to arrive at a process flow, people were working within silos, not pulling together and sharing information vital to cost effectively bring new products to the marketplace. In the end, Steven said, everyone was a lot  smarter, but the true test was pulling everything together and transforming the company in such a way that everyone was inspired to follow the regimen.



In this instance, the company developed an innovation process manual that doubled as a training tool. The idea was that each page, or step, had to be signed off on by the individual responsible for that task. The manual and sign-off procedure, Steven explained, was not intended to be used for each new project, but rather as a temporary tool that helped everyone follow the prescribed methodology until it was ingrained in the company's innovation culture.



Streamlining the innovation process, Steven said, leads to several questions, including "Who controls the innovation process? Does one group or entity serves as gatekeepers and control the process all the way through?" In the example Steven shared with us, the marketing department was adamant about controlling the entire process, although he also identified other opportunities that might be better suited for other companies with other types of products. Grooming the next C-level individual, for example, has potential in that the individual could be totally immersed in the innovation process resulting in complete understanding of how all the parts work together before taking the CEO reins. Steven also said there is a case to be made for a "hand-off" plan. "The marketing department might be responsible for the first phase of innovation, and then maybe it flexes over to manufacturing, depending on the type of innovation, and then finally it goes to supply chain, so depending on the company, and what they need to do, there are several options for controlling the innovation process," he explained.



Personally, Steven Shumaker says he is very keen on having the highest-level person control the innovation process, and on grooming the next person in line for CEO, such as the head of the project management office, as an individual focused on keeping innovation and continuous improvement alive and healthy. From a financial perspective, companies must innovate to survive in the marketplace. A CEO, or top-level executive with project management experience, already understands how much innovation the company can take on in terms of capacity, and how to get the most innovation out of the company at the lowest possible cost. Executive-level individuals are also department-neutral. In other words, not overly pro-marketing, pro-manufacturing or pro-supply chain. Instead, their interest is in making sure all the pieces fit together.



Finally, and perhaps most importantly, Steven Shumaker believes leaders operating within silos need time to do pure strategic thinking, and while he says he is  not overly enthusiastic about mapping, he believes mapping is an excellent tool for giving leaders a bird's eye view of an organization's scope. Also, having a view of end-to-end processes makes it easier to spot areas that can be improved, and whether or not the right high-level metrics are in place, which allow for rapid analysis and more informed decisions surrounding outsourcing, transportation and other costs.



In closing, Steven Shumaker says the biggest barrier to innovation and staying one step ahead of the competition is that many companies are currently operating in survival mode, which keeps them focused on the tactical and execution side.

Julian Loren discusses breaking down the artificial wall between the world of business intelligence and the world of business process management, an area he has proven as a source of innovation and competitive advantage. Julian explains the importance of linking business intelligence with business process management to gain true competitive advantages.





When asked if business process can be a source of competitive advantage, Julian responded, "Absolutely, if you have a framework for continuous improvement, and you are improving in a more informed way, and faster than your competitors, but it's not a given. Everyone has business processes and everyone has some business processes under automation. The question is, are your processes truly differentiating, or are they processes that everyone else has? If so, there is no competitive advantage."



According to Julian, If you can get "the messy stuff" under automation, and do that in such a way that you have tremendous visibility into how it can be improved, and you can prove it is faster than your competitors, that is the key to gaining competitive advantage with business process.



The Artificial Wall Between Business Intelligence and Business Process Management



Julian Loren has worked on what he calls "breaking down the artificial wall between the world of business intelligence and the world of business process management," an area he has proven as a source of innovation and competitive advantage.



Case in point, a Silicon Valley hardware producer, is already using the innovations Julian developed to tighten up forecasting by tying manufacturing, ordering and process supply chain to units in inventory, inventory turns, customer orders and customer satisfaction -- literally every function across the entire supply chain. "By tying together business process management and business intelligence, they have been able to re-forecast from a two-week manufacturing cycle to a two-hour manufacturing cycle. That's incredible innovation and that's incredible competitive advantage." Julian said.


In terms of supply chain, Julian has also been working in the federated process execution space. "With federated process execution, we have the capability to take pieces of one process and have them execute on different servers in different locations," Julian explained. "The key there, in a globally distributed supply chain, is that you don’t have the kind of exposure you would normally have to network outages and network latency, especially system administration folks, the hours they work in different geographies."



At present, one of the world’s largest retailers is using federated process execution to coordinate between headquarters, manufacturing, and distribution. "The piece we're tightening up right now, is better control in terms of visibility," Julian said. For example, corporate headquarters might want a view of the entire supply chain process, but may want to limit the views of other actors in the supply chain to process data tied exclusively to what is executing on their premises -- federated process execution makes that possible. "That is going to deliver tremendous competitive advantage, and important innovation in terms of letting people break outside of the enterprise and put processes under automation in their larger ecosystem, across their entire supply chain," Julian said.



Building Capability and Process Flexibility to Reflect Evolving Business Models



When asked how he builds capability and process flexibility to reflect evolving business models, Julian replied, "That's a tough one, and it's not a given. There are only two business process management companies that provide solutions with good capabilities for process adaptability, in this case, for supply chain agility and continuous supply chain improvement." According to Julian, AgilePoint has a business process management suite that is particularly good in the areas process adaptation and flexibility.



From Julian's perspective, most business process management suites focus on "the clean stuff," where time and straight-forward processing is important. Those solutions tend to be good at supporting rigid business processes, or business processes with anticipated exceptions. "When you get into the messy stuff -- the unanticipated exceptions, or where a business process doesn’t look so much like a process, it looks like a framework in which knowledge workers can essentially work within a constraint set -- there are only a couple companies that do that well and AgilePoint is one of them. That’s why I can build these kind of capabilities on top of that core, which is beautiful," he explained.


Today, Julian said, it's not about building capability and process flexibility to reflect evolving business models, it's about building capability and flexibility to reflect entire industry models that continue to evolve. That is why he believes process adaptability is absolutely essential.



Technologies versus Capabilities



When automating processes, the natural inclination is to focus on technologies before capabilities, but Julian Loren believes those conversations are taking place too early. As he mentioned, Julian is working on breaking down the artificial wall between business intelligence and business process management  -- a wall he says was created because we are too focused on technology. "Technology tools," he said, fundamentally do two different things. The business process holds data in the process context, not necessarily in the context of business, whereas business intelligence brings an array of data together in an exquisite context, and there is a big gap between those to methods of handing data. The real value of the capability is when you put those together."



To get 360 degree visibility, Julian says companies must be certain that they can take data from the process context and put it into that very discreet business context. "Most of business intelligence right now is focused on financial indicators and those are lagging. By the time those numbers settle in an accounting system, or show up on a report, it’s often too late to do anything about them," Julian said. They are also "aggregated." In other words, there are numerous events happening across your supply chain, or product life cycle, that impact those end numbers. Without visibility and awareness of those events you have no way correct them. "You really need to get the leading operational indicators," Julian added "and the best way to derive those is from automated business processes."



The good news, according to Julian Loren, is that thought leaders in the field have already recognized and acknowledged the link between business process management and business intelligence. Citing a survey conducted annually by Gartner EXP, Julian says business process improvement and business intelligence have remained top priorities among CIOs in Global 2000 companies for four years. Julian is focused on putting the two together and firmly believes the two are related. "Let's  put whatever tools we need together, and break down whatever walls we need to, you know, to deliver the most valuable capabilities that we can,” he concluded.






About Julian Loren:




Julian Keith Loren's career has revolved around information architecture and innovation since the mid 90s.


LinkedIn Profile







Ron Shy, director of logistics and supply chain for an apparel company, shares his thoughts on where supply chain innovations are most likely to come from, along with a few personal anecdotes culled from his long and successful career. Ron believes warehousing, distribution and inventory management innovation will be most apparent in the areas of RFID technology and moving modification information upstream in the supply chain to deliver what customers want on the fly. While there is still much work to be done, Ron Shy says supply chain is no longer and afterthought, primarily because we have proven that competitive advantages can be found within the supply chain.






Speaking from experience in the areas of warehousing, distribution and inventory management, Ron Shy, director of logistics and supply chain for an apparel company, believes the biggest innovations we will see in the 21st century are likely to be tied to RFID technology and an increase in pre-configured packaging earlier in the supply chain.



According to Ron customization is currently done relatively close to the customer. For example, Ron was once involved in what is referred to as "post pick modification," which means modifications needed to meet the expectations of the customer occurred after the initial pick. As the customer became more reliable, to eliminate time and cost in the supply chain, it got to the point where Ron's team was practically manufacturing the product. Well, maybe not exactly manufacturing it, but getting it to a point where it required a lot less modification after the pick.



It all comes down to having current information on what the customer desires, Ron says. The practice of passing modification information along to the manufacturer or distributor is quite common in the food and beverage industry, and is becoming more common in the apparel industry. Moving modification information upstream allows for making changes on the fly, Ron says, and results in delivering exactly what the ultimate customer desires.



Supply Chain is No Longer an Afterthought


For years, Ron Shy said, supply chain was an afterthought. To those of us who have made it a career, however, it has never been an afterthought. In fact, we have been able to succeed by creating competitive advantages in the supply chain, but Ron Shy believes there is still a tremendous amount of work to be done. "I’ve seen, and even worked for, companies that were extremely profitable because they could sell their product, but didn’t realize how profitable they could be if they actually streamlined some of their supply chain practices," Ron added.



The most glaring example, in Ron's experience, was a company that had nearly one $1,000,000 of shrink in their inventory. When Ron presented the company with proven tools and practices to solve the issue, a vice president declined, saying, "I’d like to see it eliminated, but I’m not going to spend the money to get rid of it, because if I’m going spend a million dollars to save a million, I’ll just make more of my product, because I can sell everything I make." In Ron Shy's view, it was a very short-sighted approach, although he concedes that the company has done well -- that company's name is Pepsi.



On the other side of the coin, Ron said he has yet to see a company that spends more time on supply chain innovation than Ralston Purina, where he worked as a warehouse manager after leaving the Marine Corps. "They are very forward-thinking and have done many of those things that I mentioned earlier about streamlining and customizing," Ron said. "I don’t like the word customizing, but I will say making the product right for their customer or their customer's customer and, ultimately, the end user."


In closing, Ron Shy said, "I don't think supply chain professionals have suffered as much as people in other industries," although he has seen a downturn in the hiring of logistics professionals as well as a decline in salaries among supply chain and logistics professionals.




About Ron Shy:


RonShy.jpgPrinciple Logistician & Retrofit Coordinator

L-3 Communications GSI

LinkedIn Profile


Ron Shy learned the logistics business over the course of a 13-year stint in the Marine Corps during which he earned two supply chain degrees from the University of Michigan. After serving in the military, he leveraged his experience into a warehouse manager position with Ralston Purina, and then went on to the Pepsi Bottling Group, before becoming a consultant. As a consultant, Ron focused on redesigning the Marine Corps' logistics and processes. Today, Ron is director of logistics and supply chain for an apparel manufacturer that specializes in government and military contracts.












I interviewed Paul Fischer who shared his words of wisdom as a team builder. Paul Fischer, an experienced supply chain professional with extensive team building experience shares his tips on mentoring and coaching teams geared for success -- with special emphasis on working with third-party team members. Paul prefers to rotate roles among team members as a means of mentoring them, coaching them and getting them ready for the next level. When working with third-party teams, Paul suggests negotiating a fair contract, getting to know your team members, and asking them to innovate.



Paul Fischer has built many cross-functional supply chain teams over the course of his career, and he believes in building them with "interchangeable parts." In other words, Paul prefers to rotate roles among the group as a means of mentoring them, coaching them and getting them ready for the next level. "If you have a top-notch analyst in your group and you think they have the potential to become a great manager, you need to give them an opportunity in small snippets to learn what being a manager is about," Paul explained, "because managing people is a whole different experience than managing a role. You have to have them laser-focused, and Pareto 80 20 is your rule with all kinds of teams."




Building Teams with Third-Party Players


Based on his experiences building an entire third-party manufacturing group, Paul Fischer offers a number of best practice suggestions.


First and foremost, Paul said, "Negotiate a fair contract. Too often the company decides to try to win a negotiation battle when, in the end, they’re going to lose it because the third-party people outside the organization are not going be able to sustain, or even want to sustain, a good relationship. That’s the first step in building a strong relationship."



Next, Paul suggests going beyond just business. "Go out there and visit them one-on-one. Get to know them, know their personality, know their families. This is what I did and was very successful with that. And while you’re there, you share the vision and critical information they need to know. Basically, incorporate them into your business," Paul advised.



Finally, ask team members to be innovative. Paul said a number of third-party teams he helped to establish were very innovative in their approach to manufacturing, specifically in the area of reducing cycle times. "They were able to do it leaner and faster than our current company was and we were able to take those practices that we learned into our larger organization and shorten our product-to-market cycle," Paul explained.



Good Teams Come Down to Good People


"As always," Paul Fischer said, "it comes down to people. You can have all the best practices and best models in the world, but without good people, your team will never reach its full potential."



Paul advises others tasked with team building to focus on training people to become great managers and leaders. To understand and get the most out of individual team members Paul uses a simple metric based on personality types. "Red personalities act in a direct manner; they’re usually your more aggressive people," Paul said. "You've got greens that are highly analytic, and want to know everything about something before they even speak.


You’ve got yellows that have your emotional link, and you’ve got blues that are most of your social, and they want that social interaction more so than they want facts and details." It's not about understanding who you are, it's about the understanding the supply chain team you lead  -- who they are, and how they interact to form a solid unit, Paul added.



Lastly, Paul said, your clients purchase their products on a dominant buying behavior, just as you do. Think about how you buy products in the marketplace, apply that line of thinking to your customers, and develop a unique supply chain catered to them. Also recognize that their buying behaviors, just like yours, are driven by specific factors, like the economic downturn, which means they are likely to be buying less than they did in the past and doing more research before they buy. Their dominant behavior might change temporarily, and you need to develop your supply chain around that adaptability.





Paul Fischer


Supply Chain Solutions, LLC

LinkedIN Profile



David Leifsson is from Iceland and is currently living in Gothenburg Sweden. He has been working and has been educated in the area of logistics and transportation, with roughly 10 years of experience in logistics. Since 2008 he started up his own company called Remeka. His company assists clients with cost reduction related to logistics and trying to improve the environmental impact of the logistics of the clients. In some cases they assist with the pure transportation within the continent of Europe.




Sustainable supply chain case in Iceland


David recently worked on a project involving a company which produces Coca Cola in Iceland. They were looking at what could be done to improve the environmental impact on logistics and also reduce costs. This was for an Icelandic customer and almost everything in Iceland needs to be imported. The main possibility of importing things to Iceland is by container vessel. In this case the suppliers were in Denmark and empty containers were picked up from the shipper in Denmark to drive it to the supplier where it was filled and sent back to the harbor for the destination in Iceland.


This process resulted in the creation of empty miles in the transportation in Europe. The focus of the EU is now to reduce the amount of empty miles. What David and his team did was find a trucking company in Denmark which had the openness to do something different, rather than the typical procedures usually done. They found a company with freight from the harbor to a place close to the supplier. This allowed them to utilize the empty space in the container and take it full to a warehouse or terminal close to the supplier for offloading.  The next day they would take the empty container to the supplier for stuffing. Then they would take it back to the shipping company.


The two big things which this generated for the company in Iceland where:


1. Reduction in emissions by 40 tons per year since there no empty miles.

2. Since the transport company was using the empty space they could lower the price for transport, thereby reducing the total transport costs and giving a 30% reduction in annual transportation cost for this route.




This definitely can be applied to other places in the world. Transportation and logistics, in particular container transport, is typically very traditional with little thinking outside of the box. David tried to implement this idea in Germany and Netherlands, however they are not as willing to do the same as was done in Denmark.


Barriers to making changes


You have to find a transport company that has the mentality of doing something different. Most of them are a little ‘square’ in their thinking and don’t want to change the way they do things. Another big obstacle is the shipping companies. The companies which are sending their containers are the ones who control the warehouse. The main reason it is better to send an empty container to a supplier is because the price (TCH – Terminal Handling Charge) for stuffing a pallet on a container in the warehouse is currently too high per ton or cubic meter. They are actually standing in the way of lowering emissions and making it possible to use cheaper transportation.


How to overcome the barriers


David thinks customers need to put more pressure on the shipping company to do something to lower this cost. This is not only a matter of money but also the emissions released. In Europe this topic is very hot and political.




David would like to see the implementation of his idea in other places. However, it is difficult. In Europe there are so many different cultures which brings up the more difficulty compared to trying to do it in the US, for example.


About David Leifsson




Supply Chain Consultant


LinkedIn Profile

I recently interviewed Brian McKay who discussed the trends in outsourcing since the 1990s. The world has moved from cost arbitrage where cost was the main factor to our current reality of operational efficiency and blended models that leverage assets globally to meet the needs of a particular manufacturing organization. Brian has been in the global outsourcing business for the past 15 years. Before that he was involved in manufacturing both as a provider of technology and working for manufacturing companies to improve their operational efficiencies.



Phase 1


In the 1990s companies had global initiatives and went to India and China. As manufacturers are driven by cost they ended up going to countries like India and China and finding they could actually achieve cost benefits and a pretty good level of quality. Cost arbitrage was the first entry point for manufacturing in Asia and India.


Phase 2


The next step was setting up manufacturing facilities or even setting up captive centers. With captive centers they would actually enter the market, set up a manufacturing facility which would be a service entity to provide services such as back-office technology to their global enterprise.


Phase 3


The next trend was that some of the manufacturers needed help setting up their captive centers.  A lot of third party vendors ended up purchasing those captive centers from the manufacturers and again it was labor arbitrage.


Phase 4


Then we saw the concept of SLA (Service Level Agreements). Now they were judging their vendors not based on cost but by maintaining Service Level Agreements which basically became driving more efficiency in the business.


Labor arbitrage went away about 5 to 10 years ago. Now the next trend is Service Level Agreements.


Phase 5


We are seeing the next initial wave which is going to operational efficiencies. If you are looking for a partner to do finance and accounting and for doing some back office operations, you are being measured by days outstanding. You are seeing the familiarity of these manufacturing companies working with Asian companies where now they just become a natural extension of their business. Their cost will always be something that will be measured, but now it is about improving service levels and the end goal is operational efficiencies.


Re-shoring and off-shoring trends


Brian has found that it is almost like a fence where you are on one side or the other. Typically, companies had decided to outsource. It wasn’t a good experience so they bring it back in. You need to look at the business objectives of what they are trying to accomplish. It has been proven that outsourcing for certain areas of their business is cost effective and can do well. Yet, there are also areas which companies have tried to outsource which didn’t work.


At the end of the day you can’t outsource your problems. If you have a very tight well documented process it is pretty good to outsource or look at different avenues. Don’t look at the strategic things. Look at the day to day operations and in improving a business operation once you have good control.


Brian has found as a third party vendor is that a customer were to outsource their problems to him then they couldn’t manage it in-house. Moving the problem to an outsourcer isn’t going to solve that problem. It may reduce the headaches in the short term. However, in the long term you will have the same problems, whether it was them doing it or a third party.


About Brian McKay


At WNS they help companies do a business process diagnostic. Most companies will them an RFP and then they award the work. After awarding the work they do a business process diagnostic to create a statement of work. A new trend WNS is seeing is doing the business process diagnostics up front. What that does is you can determine what makes sense to do on-shore and what makes sense to off-shore.


Most of the third-party providers are global in nature. We are seeing blended models where in North America voice in India is becoming less desirable. As a result it is moving to the Philippines and Costa Rica. You are seeing the data still being done in India, but it is a blended model where they are leveraging the assets of that particular organization globally to meet the global demands of the manufacturer.


Brian McKay

Senior VP Manufacturing

Vertical Sales Leader

WNS Global Services


Brian.mckay (at)

I recently interviewed Dianne Crampton who shared her innovative Tiger's Team Wheel Game which can be used to improve supply chain team dynamics working across functions and organizations.Dianne was nominated by Merrill Lynch for Inc Magazine’s Entrepreneur of the Year Award for her tool called the ‘Tiger’s Team Wheel Game’. The Tiger’s Team Wheel Game is a tool Dianne developed for her presentation to the National Institute of Applied Business Ethics. She wanted to take the emphasis through a process of actual team development that taught them the behaviors that built trust, interdependence, genuineness, empathy, risk, success on teams and the behaviors which potentially can cause team problems.



It was very successful and as a result Northrop Grumman expressed interest in having the tool for use in a huge corporate change effort. This was the first time Dianne had ever coached any other trainer in using any of her tools. It was successful and she had requests for purchase. Dianne developed the tool for her own use and has been using it in mergers and acquisitions ever since where the team dynamic and correcting of problems on teams needed to occur quickly.


Dianne is now making this tool available for internal trainers to use.


What the Tiger’s Team Wheel Game Does


The tool does not tell you how to do a task. What it does is say what kind of environment needs to be in place so that you have optimum commitment and engagement by everyone involved, at minimal levels of conflict and misunderstandings. We know that the best laid plans for task and goals is not because of people not knowing how to do a job. What usually happens are misunderstandings between people, someone acts in a non trustworthy way, and that impacts the entire team dynamic.


When you buy the game you develop the supply chain team agreement based on what everyone believes is important to having the most optimum environment and trustworthy dynamic.


When buying the game with the training Dianne and her team actually show you how to develop that agreement company-wide and how to put it into performance reviews, arbitration processes, resolving conflict, adding new people to the team, and even adding a new LLC partner to a group effort.


Who can benefit from using the tool?


Project managers, business owners and entrepreneurs who want to ensure their team dynamic is in great shape. It is for people who need to build their teams very quickly, especially in the area of IT where generally the project manager is not schooled on human behavior. Without having a strong commitment to the team dynamic, the team itself will experience problems. This will cause their projects to go over budget and lag behind their time schedules.


Dianne has also set up revenue sharing so that individuals such as small business owners who don’t have a lot of money can get access to the tool and the training so they can use it with their own team. It can help them with their hiring selection processes, establishing performance reviews for employees. It is an employee driven process for the company which is great for the leader because they don’t have to be in a position where they are dragging everyone behind them.


Instead, they are able to simply tend the boundaries of what the employees say that they want in behaviors that build trust, interdependence, genuineness, empathy, risk and success. The leader is taken out of the punitive position to one where you are just monitoring the team agreements. This is ideal for cross-functional team development, project management teams and company cultures.


It can be imagined as a puzzle put together with cards. It is designed to stimulate the 7 learning modes so that employees really get it fast. The tool and game is designed to be used face-to-face. The way it is designed people discuss what is really going on with the team in a very unthreatening atmosphere. Also, what happens is that people are on their best behavior when they are solving their problems. There is less resistance and sabotage.


Relevance to supply chain organizations


The Tiger’s Team Wheel game will improve behavior dynamics all the way down the line with everyone involved. It is almost like a 360 process where if it is occurring with your internal customers within a company, it is also going to apply to vendors, like what Tony Shea has at Zappos. You can develop that level of supply chain understanding to make the outcome very profitable for everyone. Tony with Zappos lets every vendor see the other vendors’ products and pricing. It is an open book. This allows vendors can see how their products are performing against other vendors.


Relevance to entrepreneurial start-ups


For entrepreneurial start-ups what is absolutely critical is for the founding leaders to determine what type of environment they want to establish. What will happen with small entrepreneurial companies is that they will hire to a skill set and omit the attitude. You might have a person who has done the job with high performance, but not necessarily ethically.


What happens in small start ups is that someone is hired who’s personality does not fit the culture, nor does it fit the team. As a result, you begin to have power struggles and turf wars in companies that literally from an employee standpoint is like constantly walking over landmines because you don’t know who’s turf you are stepping on. You will have one leader who builds trust and another leader that destroys it.


From an entrepreneurial stand point if you want to reduce turn over and the conflict, or what Dianne calls ‘culture chaos’, in your organization from the get go you need to get real clear from the beginning on the type of culture you want to have. You need to be clear on how you know if you have this culture and you need to identify the behaviors that would sabotage it.


Real world example


Dianne had a merger a few years ago where two air ambulance services were merged under one health authority. The two companies existed to be better than the other. People were really angry. These were doctors, nurses, anesthesiologists – triage level people who were extremely upset with the process. However, after they went through the Tiger’s Team Wheel process and developed their agreements to create a new company with a whole new behavior system they had an opening for a new anesthesiologist. They had identified that customer care was very important and that empathy was the value they needed to display professionally when they were out providing service.


It is really easy for highly technical people to not understand the emotional side of what they do. This anesthesiologist had a stellar resume and experience. However, when asked the question asking for an example of how he demonstrated empathy in the last 3 months, he was stumped and couldn’t answer the question.


The Executive Director later sent Dianne a note expressing their delight that they saved a lot of money, approximately $150,000/year for that position. It saved her team a lot of turmoil to know how to onboard a new employee and what they were looking for.


Expected Outcomes


The outcomes are amazing! The tool straightens out the work environment very quickly for teams that are trying to become more productive. It also helps an organization in terms of improving employee engagement and retention, based on behaviors that set the tone for moral in a work place. This tool will help straighten out very quickly any organization that is experiencing high turnover, a lot of employee stress and are noticing employees are disengaged.


One customer from a notable university said he had never seen teams come together more quickly than when using this tool.



How to get started?


Dianne has a wealth of information on the website at . The information is on the center navigation tab, including a free webinar which discusses how they have used the tool, what it is and now to acquire it. Dianne has also developed 4 different ways that a company can purchase the tool. For skilled trainers it is available as the game. For an entrepreneur who knows they will be building a position for a trainer Dianne’s team can train them in the use of the tool. They can also come on site and facilitate executive teams. In addition, they can train trainers as well. There are numerous options, depending on an organization’s need.



Tigers Among Us


The book ‘Tigers Among Us’ looks at 4 organizations where trust, interdependence, genuineness, empathy, risk, and success are demonstrated daily in their cultures by how people treat one another, their customers, and the company itself. It is a wonderful resource for leaders familiarizing themselves with the Tigers Model for group development. At the same time they built and wrote it to be a working guide for leaders interested in improving their group dynamic, employee retention and moral.


About Dianne Crampton




Author: TIGERS Among Us - Winning Business Team Cultures and Why They Thrive at TIGERS Success Series

President at TIGERS Success Series


Team Consultant, Leadership Coach, Published Author and Professional Speaker at TIGERS Success Series

LinkedIn Profile

I recently interviewed Jeff Karrenbauer who discussed carbon credits and the implications for supply chains.



What is the difference between carbon offsetting and carbon credits?


Jeff does not see a difference between carbon offsets, Cap & Trade etc. They go by various names. However,a few specific examples which supply chain professionals are sweating the most right now would be 1. the European community and 2. California. This is really just the opening gambits, it is not where it will end.


Jeff tries to address these questions without a political perspective. Rather he comes from the perspective of a supply chain professional. Some of Jeff’s clients have asked his company to look at carbon footprint and Cap & Trade restrictions.


Carbon footprint is not terribly easy to understand. It is much more difficult to measure because most people don’t have a lot of experience gathering the appropriate numbers. However, putting this important question aside to consider carbon footprint you see that it is the carbon or anything else you are measuring that is emitted by a given process. The process may involve an office building, a manufacturing location, distribution center or a transportation mode.


If a political organization like the European community or the state of California implements a cap (leaving aside the politics involved with how to establish a cap) it typically applies in this case to a firm. They don’t really care whether you emit carbon because you have an office building, a plant, distribution center or all of the above. They are still going to establish some sort of cap on your permissible carbon emissions.


If you exceed that cap you are subject to paying a penalty. This is where trade comes in. You can buy carbon offsets from someone else who for example, may be highly efficient and is not exceeding their cap. They may be willing to sell you some of their credits for not exceeding their limit.


With Cap & Trade one entity exceeds their carbon limits and as a result they purchase some else’s credits in order to satisfy that government agency.

The effect to society is the same as if we both precisely met our government mandated limits. To Jeff, Cap & Trade and purchasing carbon credits are the same thing. According to Jeff’s understanding and how they have implemented the analysis is that you have a cap. If you exceed the cap it will cost you some money. Whether you pay this as a fine or pay to purchase credits from someone else, it will cost you money.


Supply Chain Implications


The supply chain implications are pretty clear. We need to design supply chains in light of these additional restrictions. Mathematically this is like a capacity constraint – a manufacturing, warehouse throughput or storage constraint. It is another constraint on activity. We only have so much of this ‘thing’ that we can do.


For example, if you have a manufacturing facility with a certain capacity you have an ability to exceed that capacity, unless you are already running 3 shifts a day 7 days a week. You could add another shift, or you could pay some of your workers overtime.


Another example could be that you have a distribution center and you need more space. If it were a private facility you could build some more. You could also purchase some public premium overflow warehousing down the street. It is the same idea, you have some type of limit and there is a price for exceeding the limit.


These additional capacity constraints need to be dealt with. Supply chains need to be designed and ran in light of this additional restriction. The additional restriction turns out to be more complicated because instead of just being applied to one location it has to be applied to all geographic locations. This requires a whole different way of thinking.


The European community doesn’t care where the carbon is coming from. You have to sum the carbon across all of your facilities. The same is true for California or any political entity. This requires people to think holistically across facility types and activity types because this is the way the capacity constraint is being implemented.


How can supply chains be more efficient and green?


Being more efficient and being green are not mutually exclusive. The first thing is trying to audit energy consumption and carbon and other greenhouse gas usage. That in itself can take some time because people are not used to it. They don’t have the database for it. They need specialized technical engineering assistance to gather it.


There are a groundswell of companies emerging to fill this hole and help people measure their energy consumption and greenhouse gas emissions. You first need to establish a baseline to know where you are. The next thing you could do is try to optimize supply chain which traditionally has been done in terms of cost minimization or profit maximization and apply this additional constraint.


Another very different approach, which most people probably won’t do, is to design the energy or carbon emission minimized supply chain. The mathematics are essentially identical to doing cost minimization, but the perspective is different.


If you are minimizing cost you are likely headed in the same direction as energy minimization. However, it is not always the case. However, generally speaking, if you are trying to make your supply chain more efficient you will also have less energy usage.


For example, one conventional long standing strategy for doing this is to try to maximize shipment consolidation and get away from LTL and move towards truckload or intermodal. Small shipments don’t come out very well in this analysis, but they don’t for cost either. On a cost per hundred weight basis, the most expensive is air, followed by almost any kind of small parcel. People who try to implement a better consolidation program are looking to minimize small parcel and/or LTL, towards truck or intermodal or even pure rail.


This can have some very interesting implications for international supply chains that were traditionally using air freight. From a cost, energy and carbon standpoint it would be all bad and nowhere near as efficient or environmentally friendly as ocean. Yet, it would be more difficult to meet service restrictions.


There are a lot of other ‘micro’ things people are doing inside of a distribution center, such as going with variable speed conveyers, adding sky lights, going from traditional forklifts to electric and gas. Some of the transportation initiatives sponsored by the federal government which are non-mandated, such as the Department of Transportation SmartWay Program; many carriers are demanding in their bids that you are a SmartWay participant.


SmartWay participants voluntarily agree to do everything possible to reduce their greenhouse gas emissions. This can be through more efficient engines, reduced idle times, re-designing the trucks to be more air-flow efficient, etc.


Selection of carriers is one thing, optimizing operations internally is another thing. Some of this goes against some other trends which people are seeing. This is where you may get into a potential conflict between Lean and Green. Some peoples’ idea of Lean initiatives are not very Green. For example, some Lean initiatives might be focused on absolute inventory reduction and going to Just-in-Time everywhere. People have in their head the Dell model where for a long time it was considered a paragon of efficiency with absolute minimization of inventory. The problem is that just in time is not always that efficient with respect to transportation. It is not always a Green play. These can be pretty complicated trade-offs.


Not surprisingly, people are looking at their own operation. Where is the energy being consumed? Where is the carbon being emitted? What can I do to reduce that? People are looking inside their buildings and are looking to better transportation efficiency.


However, greater transportation efficiency is not necessarily consistent with other objectives such as inventory minimization. There are tools available which can take a look at all of this simultaneously. You can look at this such as Cap & Trade and cost minimization at the same time.


This is how it should be done. It should also span the entire supply chain. One of the biggest problems we still face today is that there are still people who mouth the words ‘Supply Chain’. Yet, when you look at the organization, the perspectives, the compensation and evaluation criteria within the organization you will see that we are still in the 1970s or earlier silo management.


To make this more specific, the Vice Presidents of Procurement, Manufacturing, Marketing and Distribution all have different metrics which conflict each other. We pay a penalty for that because they lead to cost, energy and carbon inefficiencies. Yet, we don’t talk to each other. There are still people who say they would like to look at the entire supply chain but they can’t because they don’t think they can sell the idea politically within the organization.


Jeff believes this is absolutely unequivocally wrong, yet it persists.



About Jeff Karrenbauer


President at Insight, Inc


LinkedIn Profile

Magnus Lien believes the current economic climate has taught us some important lessons, and changed the way we do business. In the very near future, Magnus believes, instead of clients choosing vendors, vendors will be choosing clients, and that could leave companies who haven't invested in vendor relationships in the unenviable position of shortages in their supply chains. In Magnus Lien's opinion, "Those companies that are thinking ahead, perhaps investing through the crisis rather than pulling the plugs, will be the ones that overcome challenges first, and most likely will be the success stories tomorrow."






Is the Recession Truly Global?



"I’m not sure there is a global recession. Yes, it’s a recession that is global in geography, but it’s not global in all markets. There are companies that prosper now like they’ve never done." That's Magnus Lien's impression of the world's economic state, and he may be right. In some fields, such as price management, the recession has created opportunities.



Isolate the Hot Spots and Douse the Small Fires



Magnus believes it is important for management to focus on areas that present obvious challenges and put corrective actions in place. The idea is to isolate the hot spots and douse the small fires before they spread.



Like most supply chains yours is likely running as lean as possible, and it may feel like you're stretched too thin to address smaller issues, or that you've been too busy to serve your markets the way you once did. Magnus Lien says now is the time to focus on rectifying those small problems to ensure that your company is better positioned to move forward.



Investing in Supply Chain Innovation



Magnus Lien has seen some companies choose to curtail their investments in innovation for obvious reasons, but he warns that there are many other companies who are beginning to, or already have, made huge investments. "Those companies that are thinking ahead, perhaps investing through the crisis rather than pulling the plugs, will be the ones that overcome challenges first, and most likely will be the success stories tomorrow," Magnus said.



As funding constraints begin to ease, the flood gates of need will open, and Magnus Lien was quite adamant when he said, "If you're not positioned well, and don't have the resources and processes in place -- if the recession didn't kill you, your competition will."



The Future of Supply Chain Management



In Magnus Lien's opinion, if you haven't positioned yourself well by now, either as a buyer or seller, you will face a difficult tomorrow. Times have changed and Magnus believes it is essential for companies to invest in relationships with their vendors.



Magnus sees a very different future for relationship management -- a future where we're going to see a major role reversal. Instead of clients choosing vendors, vendors will be choosing clients, and that could leave companies who haven't invested in vendor relationships in the unenviable position of experiencing shortages in their supply chains. The solution to avoiding shortages, he says, is to "invest in your relationships, invest in efficiency programs, make yourself selectable for tomorrow’s competition.”



Slipping Behind in Supply Chain Evolution



On the upside, Magnus Lien says the recession highlighted excesses in the supply chain. It compelled us to trim the fat and live lean.



On the downside, Magnus feels we've lost years of progress. The demand for innovation hasn't stopped, but the investment in it has, and even as we see signs of economic improvement, Magnus believes the stoppages will linger. That said, the biggest drawback to the recession is that "we are slipping behind in supply chain evolution."



Adjusting to the New Economy



As Magnus Lien said earlier, he isn't convinced that there is, or was, a global recession, but he does concede that the economic climate has changed the way the market is approaching his business. Clients that once came to him for advice on how to negotiate, and how to perform in an actual procurement situation, are now asking for advice on how to restructure their procurement function, how to realign their processes and how to make a more efficient organization.



In Magnus' experience over the past year, clients are more focused on his company's strategic service offerings rather than its operation procurement offerings. He's also seeing an expansion in the types of industries seeking his company's services. "Changes are constant," Magnus said, "and there will be new challenges tomorrow. We haven’t the luxury to sit and wait for clients to come for our standard offerings. We obviously have to adjust our offerings to the market, at least for the time being.”




About Magnus Lien





Experienced Sourcing and Telecom Executive

LinkedIn Profile

I interviewed Brian Sledge who discussed an IT intelligence platform that will enable businesses to manage their end-to-end digital supply chain holistically. End-to-end management of the business value chain means understanding what the investment, migration, and support strategies should be for the supply chain, and knowing how to properly architect, engineer, and operate it from an IT delivery perspective.



Companies interested in increasing their agility and balancing the investment in IT against the value of IT's delivery, from a business performance and sustainable competitive advantage perspective, should manage their enterprise IT environment as a digital supply chain.






Defining IT's Digital Supply Chain


Brian Sledge began by defining the digital supply chain as follows: "The digital supply chain is basically the digital analog of what we call the business value chain," Brian said. "So, if you think of the business value chain as the way companies deliver their products and services to create revenue, mitigate risk, win market share, whatever, the digital supply chain is basically the digitized analog of the business value chain," he added.


End-to-end management of the business value chain means understanding what the investment, migration, and support strategies should be for the supply chain, and knowing how to properly architect, engineer, and operate it from an IT delivery perspective.



Innovative Digital Delivery Starts with Understanding the Business


Brian Sledge says innovation starts with understanding the business from a top down, demand-driven perspective. You have to be able to decompose what the business does, and then translate it into the right mix for IT delivery. In other words, you have to separate the business into different elements, including the services you deliver, the hardware and software platforms you leverage, and the way you operate it. "Once you understand the business," Brian says, "being able to optimize it is really about recognizing available patterns, in terms of blueprints or architecture, that can be leveraged to drive cost efficiency, while balancing it with performance and IT efficiency."



Working With An IT Intelligence Platform


Brian Sledge was invovled with a company that was building an IT intelligence platform, he explained, a software product that will enable businesses to manage their end-to-end digital supply chain holistically.



Again, Brian points out, the process begins with understanding the business in terms of the right strategy implemented with the right architecture, engineering, and operations. Understanding comes from the inside, and part what IT intelligence platform will do is provide CIOs, CTOs, infrastructure executives and IT managers with a good sense of what’s going on in their environment. In Brian's words, "How well they’re performing with regard to service, the quality of service they’re trying to deliver against for the business, and then how well they can measure, audit and track data over time in terms of its performance."



What Industries Need IT Intelligence?


Brian Sledge says the IT intelligence platform is built to be multi-industry. "We created a number of business value chain and digital supply chain templates for each industry, and the platform is going to be built around those templates, or patterns, so depending on what industry you’re in, the platform will be tailored and customized for your business,” Brian explained. The company is already doing some work with clients in the logistics and transportation sectors.



Understanding the Enterprise IT Environment as a Digital Supply Chain


In closing, Brian Sledge advises companies interested in increasing their agility and balancing the investment in IT against the value of IT's delivery, from a business performance and sustainable competitive advantage perspective, to understand their enterprise IT environment as a digital supply chain.




"Information technology must be managed as a digital supply chain, because until you do that," Brian said, "your ability to take advantage of advanced paradigms, like cloud computing or even intermixing your offshore and onshore development and outsourcing, is going to present a lot more challenges than just the technology."




About Brian Sledge:




President at 3stratus Consulting LLC


Brian has an outstanding track record for leading cutting-edge consulting practices and enterprise wide IT Transformation programs that drive millions of dollars in bottom line improvements (revenue, CapEx/OpEx savings, etc.) and creates competitive advantages through the creative and innovative application of technology strategies and solutions.


LinkedIn Profile

I recently interviewed Carlos Lourenco at the Global Energy Procurement Conference in Chicago. Carlos is a civil engineer who founded Ecom Energia 11 years ago. The company is based in Brazil. They provide services to consumers who want to buy energy in the free de-regulated market.



What they are seeing in Brazil is that the de-regulation started in 1995 and picked up. Since 2000 the market has been growing. Nowadays the de-regulated proportion of the market is 27.7%. This can go up with legislation to 32.2% of the total market. With some changes they are seeing by the congress in Brazil this market can go up to 48%.


The market has been a hydro market. Energy is provided by hydro plants. There are 18 thermal plants that are picking up using diesel engines and gas. Wind plants have also been picking up due to the recession in Europe and the selling of equipment in Brazil.


Prices are currently low because of good hydro conditions and a lot of new types of energy coming to the market. 70% of Brazil’s energy is hydro, 15% is thermal and 15% is from renewable sources such as wind, biomass and small hydros. All consumers can buy from small hydros, wind and biomass as long as they have 0.5 megawatt demand. This will decrease their energy bill by 20-25%.


Carlos discussed strategy, risk taking and hedging for their clients in South America and Europe.


Brazil’s Energy Market


Brazil has 4 sub markets:  1. North, 2. Northeast, 3. Southeast and 4. South. The south and southeast are primarily the same market. The northeast is based on thermal, there is no hydro there so it is very sensitive to thermal prices and oil prices. In the north there is a lot of hydro.


The transmission lines in Brazil allow for the transfer of energy from the south and southeast to the northeast and vice versa. Energy can also be transferred from the northeast to the north and southeast. The national grid provides the flexibility to move energy from the south of the country near Argentina, to the Amazon. The Amazon system is isolated right now. It is based on diesel engines. There is a very big transmission line being set up which will allow for the integration of the Amazon system into the national grid system. In the Amazon they also have natural gas and the energy generated there is based on natural gas power plants. This allows for the movement of more energy back and forth with the integration of the Amazon states into the national grid.


Brazil will increase its energy generation until 2020 using hydros by building up the two dams in the Madeira River.


Wind has been a very big factor in Brazil. Wind will grow from 2,000 today to 6,000 megawatts in 2015 and 11,000 megawatts by 2020. Renewable sources of energy are very important because you have carbon credit facilities there and the sustainability of those projects are very important to the Brazilian people. The prices of wind energy have been going down because of the prices of equipment. This has been good for the consumer because they can recuperate those discounts by a lower discount rate on their energy tariffs.


Kyoto Protocol


The Kyoto Protocol is a major concern for Brazil because it will expire by the end of next year. In Brazil they are not confident that the Kyoto Protocol will be renovated. They are sure that Europe will put something in place of the Kyoto Protocol but it will remain within the European community. It is not clear if countries such as Brazil or any country in North or South America will be able to touch those markets, as the Kyoto Protocol market for CDMs (Clean Development Mechanisms) has been established.


Nations should get together to find a political solution to extend the Kyoto Protocol. It will be difficult. The Kyoto Protocol took 6 or more years to be implemented and the Brazilians are not confident it will be renovated next year.


The Kyoto Protocol gives Brazil CDMs, or certificates of carbon credit. This is an important part of the projects on renewable energies. Carlos wishes the Kyoto Protocol will be extended for another 8 years.


Advantage of Brazil


Brazil has plenty of energy. They don’t have a market which has blackouts like other developing countries. The market is well regulated. The suppliers are financially stable. You don’t run the risk of buying energy from someone who may go bankrupt. The whole system is sustainable. There is a clearing system which is very important. If you install a factory or develop a business there you are sure that you will have the energy. The energy infrastructure is very good.


About Carlos Lourenco


Tel: (11) 2185 9500


I recently interviewed George Kehler at the Global Energy Buyer’s Conference in Chicago. George is Director of Sustainability for FellonMcCord, which is a global energy and sustainability company.  He has been involved in sustainability, renewable energy, and energy efficiency for the last 10 years.  Previous to this George was involved with buying energy for global energy companies.



Sustainability and Supply Chains


One of the things that is occurring with sustainability in the US, due to new regulations and protocols on how to report your greenhouse gas emissions, is that the supply chain is being pulled in to report their emissions. For example, AIAG which is a trade organization for the auto makers and their suppliers is working very diligently to help the various tier 1, tier 2 and tier 3 suppliers to be able to calculate their carbon emissions. This then rolls up to the automakers so that they can report their supply chain emissions for producing their automobiles.


Challenges with Sustainable Supply Chains


Sustainability is a very challenging issue for many of the smaller companies in the supply chain. Typically, they have not been involved with sustainability programs in the past. Some of them are mom and pop shops that are supplying a certain widget that goes into a car. Sustainability is a new concept for them.


George and his team works with them to help them understand carbon emissions and what they do need to report so that the automakers, their final customer, will be able to report their emissions as well.


Practical Example


There is the WRI (World Resource Institute) , and the WBCSD (World Business Council for Sustainable Development), who developed the initial green house gas protocol. They have now developed a new protocol for scope 3 for the supply chain measures.


George and his team at FellonMcCord will work with a client to help them understand the rules and regulations of this protocol and how to measure their carbon emissions. The bulk of many company’s carbon emissions are from the energy they use, whether taking natural gas and burning it in a boiler or furnace, or the electricity purchased off the grid to produce their widget. They work with clients to gather that information and doing the conversion from BTUs to a carbon emission number for them.


Recommendations for supply chain managers


The critical issue for supply chain managers is information and data. You need accurate data which can be verified and audited by third parties. The requirements are getting more stringent. The days of using spreadsheets to collect data are over. There are a lot of good software packages out there which assist companies in collecting that data.


Because of the automation capabilities of these new software packages you can easily and quickly collect that data and audit and verify it. It is a critical opportunity for leading companies to get on in front of this issue because it is coming down the road and they will have to deal with it.


New requirements


The critical one is the new Greenhouse Gas Scope 3 Requirements. It has just been approved in the last few months. A lot of companies are not even aware it is occurring.


Within this requirement it talks not only about supply chain but end use, and how your customer uses your product. This is very critical and a supply chain manager needs to be aware of this.


One of the other things being talked about is cradle to cradle. What happens to your product at the end of its useful life? Companies are concerned about when your product dies and its useful life is over. Can you recycle it (internally or through another company to create another useful product), or will it go to a landfill?


This is really the key about what sustainability really is, which is doing more with less.


Regional differences


If you look around the globe Europe has a signature to the Kyoto Treaty. They are very advanced on their carbon reporting.

Europe works very ******* the energy side because of such a large impact on their carbon emissions.


In the US it is a voluntary program at this time. The emphasis to go today and do this for non-compliance issues is not as strong.


Urgency for US supply chains


There are a number of things coming down the pike. The SEC is pushing US companies to report their carbon exposure. They want US companies to look at what their carbon exposure is, whether from carbon emissions, to how they use their products. The SEC would like to see that reported.

In California you will have the first mandatory carbon reduction program in the US. This will start in the year 2013. California when taken by itself is the fourth largest economy in the world. It has significant impact in the US in terms of the whole US economy.


Even though we don’t have a US mandatory program, the fact that we have California going forward with their program will affect many companies in the US today.


About George Kehler





Sustainability Programs

Fellon-McCord & Associates


LinkedIn Profile