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2012

I interviewed Rob Lemos who discussed new investment opportunities and emerging inovations in the supply chain.

 

Supply Chain Innovations and Investment Opportunities from Dustin Mattison on Vimeo.

 

Dustin: Thanks, Rob, for spending your time today to share your views on the supply chain industry from an investment perspective. Can you start by providing a brief background of yourself?

 

Rob: Sure. Before I started the current fund that I have here, called Rail Fence Capital, I was at grad school, getting my M.B.A. at MIT in Boston. Previous to that, I was working for United Technologies, the large conglomerate headquartered out of Hartford, Connecticut. When I was with UTC, I worked in a number of operational capacities, from shop-floor foreman to manufacturing consultant, to working as a supply chain manager, and doing a lot of work with our distribution for optimal performance, working with truck routing and that sort of thing. I also did financial analysis and business analysis, so I kind of ran the gamut when I was at UTC in terms of all the operational disciplines. I decided to head to MIT to get my M.B.A. and focus more on entrepreneurial endeavors. While I was there I was really focused on entrepreneurialship and studying finance as well.

 

While I was there I really dove into a lot of different technology and science disciplines that they have there and really looking across industries. One of the things that really struck me was how math is being applied and science is being applied and engineering is being applied to industries that have really, haven’t used those kinds of techniques, haven’t really used statistics in the past, haven’t really used the scientific method to apply to their own businesses and to their own industries and that sort of thing. That’s when I really started to notice the big opportunities that exist in supply chain.

 

Now, with Rail Fence Capital, I’ve been spending a good deal of time looking at the logistics industry and trying to uncover where the opportunities are for an entrepreneur like myself to invest in or buy a business and contribute operationally to help grow the business. I’m really looking for big opportunities that apply the same disciplines that I uncovered at MIT—math, science, technology, engineering—to really extract value and create new value in many cases as well.

 

Dustin: Thank you. Can you discuss your views on the supply chain industry from an investment perspective?

 

Rob: Clay Christensen, who is a professor at Harvard Business School, outlines three types of innovation that occur. There’s emerging innovation, there’s sustaining innovation, and there’s efficiency innovation. Emerging innovation creates new markets, creates new products and new services; it’s an entirely new platform. Sustaining innovations just replace the old; they just replace what was already in existence. Efficiency innovations, they take what’s currently there and make it more efficient, typically by reducing the number of people that are required.

 

When I look at supply chain, the spend that exists in the industry, the amount of money that is spent on supply chain and on logistics across the United States alone is enormous; globally, it’s absolutely huge when you’re moving goods. Everything that you see and touch had to get there somehow. It was on at least one truck at some point; probably an ocean freight, maybe even as air cargo.

 

 

So, I’m looking at what kind of innovations are happening in supply chain. Are they emerging innovations, are they sustaining innovations, or are they efficiency innovations?

 

 

By and large, I see a lot of efficiency innovations, meaning reducing the cost of moving goods. I’ve heard it said that in the 1990s and in the early 2000s, the cost of shipping goods to a single household was reduced by a thousand dollars per household per year. That’s huge efficiency gains over that period. The question I’m asking is: What’s going to create the next thousand-dollar reduction? Is it even possible? What verticals within supply chain are gonna make that happen?

 

On the emerging innovation side, I’m curious: What’s creating new opportunities, new ways of distributing products, new ways of creating value for shippers and for truck carriers? And what are the emerging innovations that are really platforms for later investment and later opportunities. Sustaining innovations I don’t find quite as important or quite as intriguing simply because they’re just replacing the old. But, ultimately, those are important because you have to continue to innovate to stay relevant in the industry. But I’m mostly interested in the emerging innovations and in the efficiency innovations, which, by and large, are happening in the software side, but there’s also some other interesting pockets as well.

 

Dustin: Is there anything more you can say about the market potential?

 

Rob: Absolutely. The market is absolutely huge. Trucking alone is a several hundred-billion-dollar industry. Same with ocean freight; same with cargo. The third-party logistics industry continues to grow rapidly, ten to twelve percent per year, on the high side; on the low side, six to eight percent. There’s just tremendous growth potential. As technology, as software, as new business models like SAS, software-as-a-service models, start to pervade the industry, it allows companies to go from fixed costs to variable costs, which completely changes the way that business has been done in the freight industry. There’s certainly opportunities in deploying those technologies across warehouses, across transportation systems, across global trade, across truck carriers, across freight forwarders.

 

Really, the market potential here is absolutely huge because the market continues to grow. There are more people who want more goods and services all around the world. Just purely looking from a demographic standpoint, more things will be shipped in the future than are shipped today. So, I see a growing market, and that’s a market that’s already huge.

 

Dustin: And where are some of the opportunities that you see?

 

Rob: I see a lot of opportunity, as I mentioned, in the technology space. New software that really can unite shippers with carriers and with their intermediaries. There’s some interesting things happening in the application of technology, particularly software, to the trucking carrier and trucking industry, and also on the freight-bill auditing and on payment processing and that sort of thing. There’s tremendous opportunity in those spaces. For enterprising entrepreneurs who want to start companies, there’s great opportunities there with low cost of start-up.

 

And for existing companies that already have huge transportation-spend budgets, there’s great opportunities to take cost out of your business simply by deploying these software models. I think that’s interesting. There’s a lot of robotics that’s interesting. Look at the purchase that Amazon made of Kiva Systems, I believe it was earlier this year. They’re making a pretty strong statement about how important robotics is to their business, and the number of robotics companies that are merging is quite significant. There are great opportunities in that space as well.

 

New methods for processing payments and using computers to analyze and track how things are shipped and performance and dollars spent will also help to decrease the costs across the industry. I also think that there’s a lot of interesting things in terms of new partnerships that are being formed and the way that companies are uniting geographically to partner in terms of creating more density in their networks in terms of their delivery and that sort of thing. I think it’s a pretty interesting space right now, and it’s a wide-open market for enterprising entrepreneurs.

 

Dustin: Thank you. Do you have any final comments or recommendations?

 

Rob: Well, if I were running a large company with a big transportation budget, I would be having very significant conversations with anybody on the software side and also be looking at the application of statistics to my business and where I’m spending money. I’d be looking at how data can influence and drive my decisions using decision analytics and new decision-making processes to capture data, to process the data, and then to implement the data.

 

If I am a smaller company who’s looking to break into the market, these types of things that I just outlined are…those features, you can add those on to your business quite easily, and they can produce a new product feature set that you could offer to medium-size companies that will make you more enticing, that will allow you to capture new customers and new markets.

 

Ultimately, the name of the game in logistics is about service. Having great service is really what creates staying power. It’s all about getting customers, but, really, it’s more important to retain them. I see tremendous opportunity in supply chain, I see tremendous opportunity in logistics, and I think it’s a great space, a really exciting space to be in and will be for the next ten years.

 

Dustin: Thank you, Rob, for sharing your views on the supply chain industry from an investment perspective.

 

Rob: Absolutely, Dustin. It’s been my pleasure.

 

Dustin: Thank you.

 

About Rob Lemos

 

 

RobLemos2.jpg

 

Principal

Rail Fence Capital

 

I interviewed Jeffrey Plumley who discussed innovation as it relates to logistics and supply chain.

 

JeffreyPlumley from Dustin Mattison on Vimeo.

 

 

Dustin: Can you start by providing a brief background of yourself?

 

Jeffrey: Sure, I’d be happy to do that. I’ve been in the business for, about twenty-five years or so. I actually come from a long line in the industry. One of my parents worked for a steamship line for twenty-five, thirty years as well. I came into it from that perspective. I’ve spent the majority of my career in the Eastern half of the United States, and more specifically in the Southeast. I’ve held positions from starting in a sales position and moving my way up through just about every department and branch management-type position and ended with being a regional vice president for ABX Logistics in the Southeast before they were acquired by DSV a few years back.

 

Dustin: Thank you. My first question is: Can you discuss innovation in ocean freight?

 

Jeffrey: Sure, absolutely. I think that’s a very interesting topic. The old ocean freight moving containers and product from point A to point B is pretty simple. I think that most logistics companies are quite good at this. The thing that has become very interesting to me over the last several years and has taken me in a direction is looking at the business and looking at some unusual commodities, things that not everybody can really do. It’s fairly easy to move a container of knocked-down furniture from Malaysia to the U.S.; that’s pretty simple and ninety-nine percent of supply chain companies can do that kind of business.

 

Where it gets interesting are moving things like liquids. One of the things that I’ve been really on the forefront of over the last few years is the moving of a technology by the name of Flexitanks into the market.

 

What a Flexitank does is it takes a standard twenty-foot container and it turns that twenty-foot container into a bulk liquid container. It’s a bladder that fits inside of the twenty-foot container, and it’ll allow you to carry, roughly, the equivalent of an Isotank container of nonhazardous liquid. You can’t have anything hazardous in it, but you can you move nonhazardous products in that.

 

The thing that becomes interesting is when you look at something like the Isotank shipping market, it’s something that is very much tied to the old law of supply and demand. There’s a finite number of Isotank containers. If you’re looking at something even more finite within that market, that’s the number of, say, food-grade containers. Once an Isotank carries anything other than a food-grade product, it can never be used to carry food-grade products again. The cost, then, of the Isotank one from, again, a scarcity and a supply-and-demand aspect, and then there is the issue of an Isotank has to be cleaned afterward each time; there’s cost there.

 

The Isotank has also to be repositioned; so, if you move an Isotank of, say, liquid fertilizer from the U.S. to Brazil, you then have to try to find another liquid product coming out of Brazil to reposition that container, and oftentimes that doesn’t happen. What you find the different Isotank operators are doing is repositioning those Isotanks empty. It’s just added cost; you don’t get anything from that. With a Flexitank container, you can reposition that container filled with anything, because once it’s done, you roll up the Flexitank and you dispose of it and the container can be used to move widgets or any other dry product. It’s really a very innovative approach to the market.

 

Dustin: What about innovation and information technology, specifically in terms of small versus large forwarders?

 

Jeffrey: Yeah, I think this is really interesting. I have had the experience of working for some very small companies and for some very large companies. Currently, I work with one of the largest in the world, so going from a smaller company to a larger company, you find that, in many ways, the large companies are very tied to antiquated technology. They’re still running on AS/400, they have countless millions of dollars sunk into these kinds of platforms.

 

There are also a lot of smaller freight-forwarding logistics companies that don’t have these huge assets on their books. They are not worried about writing down the value of a large AS/400 server or something like this, so they’re able to bring on new technology and by outsourcing.

 

I think that you’ll see a lot of small to midsized companies possessing superior technology to what I would call the major multinational companies. A lot of these major multinationals out there have very large IT staff. They like to write all of their own software, and they are not getting that economy of scale from an innovation standpoint that you would get if you were utilizing an outsourced kind of product. It’s really leveling the playing field; that’s how I see it, where ABC Company might have six offices in, say, the United States is able to really go toe-to-toe from a technology and integration with the customer perspective as a Kuehne-Nagel or an Expeditors. It’s really leveled the playing field a lot, and it’s all to do with innovation and going with newer technology.


Dustin: Talking further about innovation in small versus large logistics companies, do you have any final insights you’d like to share about innovation in small versus large companies?

 

Jeffrey: Yeah, I think that that’s one of the things that the larger companies have got to do better. With a very large company, you have these great resources. We like to talk about deep pockets and things like that, and being at the large company where cash flow isn’t an issue is one thing. However, the large companies are very tied to the same old way of doing things. They don’t innovate as quickly as most of the small companies do.

 

With a small company, if you want to do something new, it’s usually a very flat leadership chain within those companies, and you can get approval to do something quite quickly. However, if you’re dealing with one of the major multinationals, if you’re looking at one of the top ten logistics providers globally, getting innovative ideas really through the sort of gauntlet of approvals can be quite daunting. In many ways, I feel, just from that aspect of being nimble, the small company has an easier road of innovation. However, on the other side of that, the larger companies, when it’s time for innovation, certainly have the wherewithal to be innovative from a financial standpoint.

 

Whereas the small company doesn’t have a lot of money to sink into an innovative, new idea, the larger companies can pull it off. It’s a really interesting balancing act that I see out there, where you have the small companies being the first movers, and then, hopefully, you have, some of these larger companies are then able to become early adopters and maybe their second in the market.

 

You see this constant battle of the large companies buying up the small, innovative companies, and it seems that so many—such a great percentage of the time, will buy a small, innovative company, and then they put it under the same rules that they have in the big company and they lose that which they’re trying to purchase. And then the next thing you know, you have the next small, innovative company pop up to fill a need, to fill a niche out there in the market. I don’t know that I have any great answers, but it’s a very interesting thing to observe, and I’ve been watching this for many years, and I’ve found it very, very interesting and have, luckily, been able to take a lot of activity and bring some very innovative ideas to companies both large and small.

 

Dustin: Thank you, Jeff, for sharing your insights on innovation in logistics and logistics companies.


Jeffrey: Thank you. I really appreciate the time.

 

About Jeffrey Plumley

 

 

JeffreyPlumley2.jpg

 

Global Logistics Executive

LinkedIn Profile

I interviewed Oscar Cuevas who discussed 3PL inventory control.

 

Oscar2 from Dustin Mattison on Vimeo.

 

 

Dustin: Thanks, Oscar, for spending your time to discuss your views today on 3PL inventory control. Can you start by providing a brief background of yourself?

 

Oscar: I’m Oscar Cuevas. I currently work at Affymetrix, a health care biotech company, and I’ve been having, the last five years, experience in this field, on 3PL outsourcing, warehousing, and outsourcing logistics to a third-party logistics provider. In this case, we use UPS, but I also have experience with other companies like New Breed and others.

 

Again, my name is Oscar Cuevas. My view of a 3PL is that in today’s business, a lot of companies need 3PLs. Here in the Bay Area we can just expand or contract, and it is, for us, very expensive to keep a warehouse and also to do all logistics [ourselves]. It’s easier for us to subcontract to an expert in 3PL for warehousing, and logistics. They provide a better service. Also, they have expertise with other clients. They consult with a lot of clients, not only ourselves, and they can also provide a service not only to us, but other clients.

 

In our case it’s the medical field, so they not only have Affymetrix as a client, but other clients as well. There’s a lot of success. In this case, we’re using UPS. UPS also does small parcel and freight. We constantly take both warehousing and freight into one house, so it’s very convenient on both sides. We acheive a lot of savings with that.

 

My other task is to do cycle counts, review any inbound-outbound issues with UPS. We have a system-to-system interaction, so every time they receive or send something, we get those reports instantly in our MRP. In our company we use JD Edwards, and they have another system, but we get those instant interactions. Whenever we have an order; we ship it to them and they fulfill. And they are able, every quarter, to send us a logistics bill that I review and at month end for the warehousing or any other service that they provide. They are able to keep a very good control of inventory, so we’re very pleased to have this 3PL experience.

 

Dustin: Is there anything more that you could say about who benefits from 3PL inventory control and why?

 

Oscar: I think both the business and also the 3PL provider benefit, because, on our side, we are not taking on those expenses for employees and we’re not keeping a big space for warehousing. In cases like the Bay Area, where business contracts and expands, it is difficult to get good employees. A lot of the businesses in the Bay Area have gone away. Also, another benefit is that we have a central location, not here on the West Coast, but on the East Coast, where most of our customers are, so we also save a lot on shipments by having a 3PL that is closest our bigger customer base. The 3PL benefits by having us as clients—not only us, but other clients—and having experience to do business, so it’s a win-win situation for both.

 

Dustin: Where have you seen some success?


Oscar: A lot of success has been seen in the inventory-control side and also in having a better fulfillment for orders. Our 3PL being close allows us to have better accuracy in our inventory.

 

Dustin: Thank you. Is there anything else you think we might want add to the interview that might be interesting? Maybe something about the Bay Area or a trend that you’re seeing.

 

Oscar: The trend right now is to have a lot of the fulfillment, like in our case, closer to our customer. In our case most of our customers are closer to the East Coast. That’s why we have a central location on the East Coast, in Louisville, Kentucky.

 

Dustin: Thanks, Oscar, for sharing your views today on 3PL inventory control.

 

Oscar: Thank you, Dustin.

 

About Oscar Cuevas

 

218cc5c.jpg

 

Supply Chain Analyst

Affymetrix

LinkedIn Profile

 

 

Dustin: Can you start by providing a brief background of yourself?

 

Richard: Sure, Dustin. It’s been about a thirty-year career, primarily working for technology companies, so companies like Unisys, Digital Equipment, Microsoft. I also worked with a lot of software companies, such as EXE Technologies, Numetrix, Syncra Software, Information Resources. I also got to spend time launching and founding the supply chain advisory services for AMR Research, which is now part of Gartner. I was the first research director for supply chain. Of course, that gave me the opportunity to be on the team that developed the first SCOR model, supply chain operations and reference model, which formed the basis for the supply chain council, of which I was a North American director and also a board member. I currently have a couple of roles.

 

I’m serving as a director of strategic development for the Council of Supply Chain Management Professionals, CSCMP, out of Lombard, which is probably one of the largest professional associations for logistics-orientated operations folks. I also, under the auspices of writing the book, had my own independent consultancy, Gold & Domas Research, which I utilize, basically in terms of speaking engagements, like consulting engagements. Iv’e also been engaged by a company called Trissential, out of the Minneapolis-St. Paul area. And Bob Sabath, my mentor from Mercer Management Consulting, who formerly headed up the supply chain consulting practices at Mercer and then also at AT Kearney when I first met him, Bob and I have been engaged by Trissential to help expand and broaden their national supply chain practice here in North America. It’s been a long career, but it continues to grow, and it’s a busy career.

 

Dustin: Thank you. Can you tell us about your new book and what it’s about?

 

Richard: Sure. For many years, people have heard me speak and kind of always said I fire-hose them with information and they wish I had had more time and they wish they had more time to digest it, so I met with the publishers at Wiley & Sons, and they gave me an opportunity to write a book, Supply Chain Transformation: Practical Roadmap to Best Practice Results, which enables me to say all the things I’d like to say in a presentation but never have enough time. It gives people plenty of time to digest all of the information at their leisure. In fact, I just got an e-mail from a person who is reading the book and said they were really taking their time because they didn’t wanna miss any of the gems of information. The book really is, I like to call it A Tale of Two Cities. The two cities are Leader City and Laggard City. My good friends over at APQC who maintain the open standards research database on benchmarks and metrics, we’ve partnered for many years, and I’ve always used their benchmarks to show that the gap between leaders and laggards is well over two to one. This is a book about how companies and individuals can transform their culture, their operations, and their organization to get on the journey and make it into Leader City.

Sherman Book Cover Final.jpg

Dustin: Who is the audience for your book?

 

Richard: I tried to write a book that would appeal to the general professional as well as students and nonsupply chain professionals. I think there’re tons of textbooks out there, but they’re always pretty specialized, they’re always written, generally, pretty technically. I wanted to tell a story; I wanted to tell the tale about two cities. I wanted to write it in such a way that anyone who wanted to pursue operations excellence, anyone who wanted to pursue excellence in any aspect of their business would be able to understand the concepts that I present, and then also for the supply chain professional, help them get a deeper understanding of the complexities of supply chain.

 

One chapter is devoted to getting management commitment. I know, Dustin, you have been to as many conferences as I have, and we always hear the case studies. Everyone always has in their study: You have to have top-management support. You need to have top-management commitment, and nobody ever tells you how to get it, so this is a book where Chapter Seven tells you how to get management commitment. I talk about the value, the supply chain drives for the chief executive officer, for the chief financial officer, how supply chain operations impact, really, every aspect of the income statement and balance sheet, and how supply chain managers can begin to present what they do and their projects in terms that the board of directors and the senior managers and the chief financial officer can all appreciate. But don’t skip to Chapter Seven when you buy the book. There’s also a whole aspect that I think appeals to anybody in the sense that in the beginning of the book,

 

I talk a lot about change management and how change is inevitable and growth is optional, and I do it within the context of transformational culture maturity. From an education perspective, my master’s degree was in educational administration and was very focused on systems thinking and organizational development. I kind of merged the power theories that French and Raven wrote about with Maslow’s hierarchy of self-actualization, and I describe organizational in terms of a survival culture, a social culture, a security culture, a self-esteem culture, and then a self-actualization culture. And, of course, I also got to work with Peter Senge many years ago, who wrote about The Fifth Discipline: The Art and Practice of the Learning Organization, so the self-actualization culture is all about being a learning organization and how do you build a case for change.

 

It can appeal to anyone who’s interested in managing change in their organizations and understanding corporate cultures. I include a lot of conversation because I lived in the sales and marketing function for most of my career, and so I wanted to show how companies have to organize both vertically and horizontally around functional, vertical organizational management and then, at the same time, process horizontal management and how those different processes and functions work together and separately.

 

From a student perspective, it talks a lot to what people do in every aspect of a company. It’s cross-industry, so I talk a lot about my retail experiences, wholesale experiences, my manufacturing experiences, so it really applies cross-industry, cross-function to anyone who’s interested in saying, ‘How can I lead my organization to this journey to achieve leadership and operational excellence?’ Unfortunately, it’s a journey that will never end, but the journey itself is the reward, so that’s kind of what I wanted to convey when I wrote the book.

 

Dustin: And why did you write the book?

 

Richard: As I mentioned, I’ve spent a lifetime of storytelling at industry conferences and different presentations, and I’ve worked with a lot of companies. I’ve seen the good, the bad, and the ugly of business. I’ve worked with, certainly, a lot of the market leaders, the Colgates, the Procter & Gambles, and the Unilevers, the Duponts, the Intels, the AMDs, so I wanted to share what those companies were doing. Procter & Gamble was probably one of the more fascinating ones that I’ve worked with early in my career because that’s, they really kinda got me into Peter Senge’s skills-development workshops and leadership and mastery workshops and course.Over the years I’ve seen how their culture has developed and changed, so I wanted to share those experiences with people because I think now that supply chain is becoming more of an academic as well as functional discipline people are coming out with a lot of good solid educational background. However, we are missing a lot of on the job training. I wanted to capture some of the history as well as evolution of supply chain and analytics.

 

There is a chapter on technology. I lived my life in technology. Mobile location services through GPS, big data, business intelligence and analytics. We are approaching the Smart Supply Network where we now have very intelligence automatic data collection devices that can collect data about product flow when at motion and at rest. That information can be fed to analytics engines on a real time basis. We can begin to optimize the supply network in a real intelligent way.

 

Amazon is a good example of a company that decided to build its own applications. As they manage that customer experience they are optimizing their supply chain globally in a real time environment. That is what companies have to compete with. If the laggards don't get on the road to leaders city. If they don't learn that the key to the city is collaboration, they will not be around. 80% of the original Fortune 500 are just not around.

 

I think it is crtical for companies to put an eye out on the future and take a look at the opportunity that change is brining them. They need to make sure they are on the journey to operations excellence and leader's city. I talk about building the House of Excellence. It is about ensuring supply chain strategy is aligned with the business stratetgy and that there are process oriented metrics maintained in a balanced scorecard and that the company has a process improvement culture.

 

If they do that they can extend their relationships to customers and suppliers and really institutionalize a performance operating system like the Toyota production system.

 

Where can you get the book?

 

The book is available at book sellers world wide, such as Amazon. The Council of Supply Chain Management will offer the book online. One of the unique things about the CSCMP bookstore is that I will  hand sign an autographed copy of the book from their bookstore.

 

About Richard Sherman

 

RichardSherman.jpg

 

Discipline Expert, Supply Chain Management

Trissential

LinkedIn Profile

 

 

 

 

 

 

Dustin: Can you start by providing a brief background of yourself?

 

 

Nikos: Yes, have been in the field of sustainability and CSR for more than twenty years. I was heavily involved in sales, starting from creating frameworks and guidelines for sustainability. Back in 1998 I was in charge of the creation of the European handbook for corporate social responsibility in collaboration with people at the European commission. Since then, we’ve created the CSE, Centre for Sustainability and Excellence. I’m the founder and president. We have activities in twenty-countries, mainly in Europe, North America, Middle East, and Asia. We are heavily involved in providing consulting services and training, supporting further stability integration within the supply chain. Personally, I’m involved in several committees, board of directors and conferences around the world regarding supply chain, and supply chain is a hot issue today.

 

Dustin: Thank you. And can you talk about the importance of sustainability in supply chain management?

 

Nikos: Yes, I have to say that it’s a topic which is becoming more and more important. Four or five years ago, a lot of organizations ignored the importance of sustainability in the supply chain. If we do energy efficiency programs in organizations and if you’re involved in charities, this is good enough for them. Unfortunately, today this is not the issue. More organizations, especially Fortune 500  organizations with global operations and supply chains understood that they need to integrate all these values of stability within the supply chain. They need to create code of conducts with strict criteria, they need to create ISO 6000 etc, they need to do a lot of things in order to protect their company representation, avoid the necessary risks, and, of course, be able to be competitive in this talent in global environment.

 

Dustin: And why is assurance in sustainability reporting needed?

 

Nikos: Yes, assurance is very, very important. The last years we’ve had growth of sustainability reports globally, and part of reporting is reporting your performance in supply chain management, so a lot of organizations, they’ve had code of conduct, they applied several tools and standards like GRI and ISO36000 and ISO14000 and so on, and they request to get certification from their suppliers, but it seems that there were a lot of problems. A lot of problems because a lack of sustainability in the certification bodies; a lot of problems because of the lack of credible disclosure and misinformation provided in the sustainability reports. So, more and more activists, more and more consumers understand that stability reports should be more reliable.

 

Because of all these reasons and because of the rising awareness within the investor community to see more in the sustainability reports, we have the trend of assurance. So, first part of assurance for the sustainability reporting but also for the supply chain sustainability integration is becoming more and more important. Let’s take a look at Apple,. Recently one their key suppliers in China did not meet particular human rights requirements, and that was part of the supply chain, so Apple actually referred to a very big NGO in order to make further investigation and see what was going on in their supply chain. Companies like Apple discovered what they can do, what they cannot do by themselves and they need to ask for support from third parties and independent parties in order to provide more credibility to their organization.

 

Dustin: How can the assurance and sustainability reporting be implemented?

 

Nikos: Yes. Actually, there are many trends in the implementation. I’m not going to talk about the code of conduct because this is a known thing. The issue with sustainability is that there’s a need for more credibility; there’s a need for more third-party assurance, so more and more companies, they pick up the suppliers that can be a big risk for them, for their brand representation and they apply audits or they use third-party organizations in order to provide evidence that these suppliers are meeting particular criteria. One great example is the Walmart sustainability index where in 2009 they created vast criteria for more than one hundred suppliers globally. Among these criteria were human rights issues, carbon footprint measurement, Life Cycle Analysis, etc. All of the suppliers need to do something about sustainability and report their performance to Walmart.

 

There are various ways of implementation but at the same time it is complex because we have different regulations and different cultures around the world. This makes the implementation of sustainablity in the supply chain more difficult.

 

Conclusion

 

Sustainability in supply chains in developing countries like India, China and Brazil have become big hubs for manufacturing companies. On the other hand we have consumers and activist considerations on the human rights and environmental concerns for companies operating in environments with a lack of regulations or where there is a lot of corruption. I think and I hope that organizations will do more on sustainability, especially the bigger ones. Hopefully, the smaller organizations will change their mind and we will see sustainability as an opportunity to become more competitive and gain more customers.

 

About Nikos Avlonas

 

 

nikos.jpg

 

Nikos Avlonas

Founder and President

CENTRE for SUSTAINABILITY and EXCELLENCE

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Global Certified CSR practitioner program article: cse-net.org/article/127/scheduled-trainings

 

 

 

 

I interviewed Tony Stephenson who discussed supply chain compliance.

 

Tony, can you tell us about yourself?

 

I’m a Director of iComply Pty Ltd.  We are an Australian based risk and compliance specialist.  The company provides compliance auditing and consulting services to a broad range of regulatory authorities and corporate clients, and highly sophisticated compliance auditing software.

 

iComply operates with two divisions – Compliance Technology and Compliance Auditing Services. The business model is to provide compelling risk and compliance technology and outsourced auditing services - designed to enable corporations and regulators to manage risk and compliance more efficiently.  We specialise in large scale, self-regulatory compliance implementation.

 

So how is compliance relevant to the supply chain today?

 

Focus has traditionally been on inventory quality, schedule and price, but a paradigm shift is occurring – with authorities and supply chain players.  There is now far greater responsibility placed on supply chains to identify and manage risks inherent or accumulated within the supply chain.

 

In the past the system accommodated rogue operators who are able to compete on price because they did not have, or ignored, good management systems and practices, cut back on maintenance, etc.

 

Compliance in the supply chain is now relevant because all partners need assurance that they are operating approved management systems.  Previously it was possible to rely on contract terms to pass legal responsibility to a contractor.  This is no longer applicable because you legally – or morally - share the responsibility, and stakeholders need positive assurance of compliance with regulations, standards and codes of practise.  Supply chains that ignore compliance are going to be very vulnerable in the future.

 

How are supply chains adapting to these changes?

 

They are struggling to come to terms with this, generally.

 

The volume of new regulations is a burden.  New regulations, like FCPA, appear daily, and they impact on existing relationships as well as new ones.

 

Systems that don’t talk to each other is another problem.  Advances have been made in terms of financial and product data, but in terms of compliance there is a need for a common platform (one that goes beyond certificates), with consistent tools and methodologies and reporting arrangements.

 

So despite new requirements, governments and supply chains and technology providers are still thinking in old ways and in isolation.  The focus tends to be on origin, traceability, and quality, but not on process, and not on agreed or legislated procedures.  And certainly not on rigorous compliance audit processes.

 

The recent tragedy in Pakistan where more than 300 people died in a factory sweatshop is sad illustration of this on two counts:

 

Firstly, businesses offshore their production based on price, but low prices are only possible because of low wages, poor living conditions, poorly constructed and maintained production facilities, and disregard for workplace safety.  Corporations at the head of supply chains cannot escape a share of the responsibility for disasters like this. It is no longer acceptable.

 

Secondly, the compliance process is too easily corrupted.  In the same incident, the factory was allegedly given a clean bill of health by an auditor who by all accounts did not have recognized accreditation to contact the audit in the first place.  Regrettably there are those who see auditing as a quick way to make a buck, and are willing to sign off on an audit under some fancy looking banner without having looked up from the desk.  There is a major discussion happening in the USA as we speak, over similar corruption in the auditing process for food safety.

 

So what do you see as the solution?

 

I see the need for more diligence, more rigor around this whole "sustainable compliance" requirement. Supply chains must move away from a pure quality focus, and get to grips with compliance.  This means monitoring and inspection, and comprehensive due diligence over all supply chain stakeholders.  Requirements must cover social and sustainability expectations as well as the new anti-terrorism, border protection, and anti-corruption regulations.

 

To do this effectively, supply chains need to start looking at technology that focuses on compliance, rather than “smorgasbord” solutions that attempts to solve every known supply chain contingency but does none of them well – particularly compliance.  This is understandable – compliance is tough, and the task of managing compliance monitoring even tougher.  That’s why supply chains need to look at specialist compliance solutions such as our iAppraise product, which goes into the right level of depth to do the job properly.

 

So you talking about more regulations, more due diligence, and doing it smarter.  How do people get started?

 

At first glance it is daunting. Even when you get your head around all the different compliance obligations, there is still the practical reality about how the heck to implement it in the simplest way possible.  If there is one thing I have learned over my 20 years in the compliance business, it is that humans make things overly complicated – especially when it comes to compliance!

 

So let me paint a process map of sorts, and offer some guidance on how to get going on the journey to supply chain compliance sustainability:

 

Step 1: you need to understand the rules – all the rules – in the markets in which you operate.  This includes all applicable international standards, international and local regulations, and codes of practise.  Start by isolating mandatory local product standards (such as U.S. Consumer Product Safety Commission) and other trade regulations such as C-TPAT and CBP and FCPA.  Then look at partner trading and production regulations.  Document every requirement.

 

Step 2: Conduct a risk assessment on every trading partner, examining the risks associated with each of the key standards and regulations you have identified in step 1. Compliance is risk management, after all, and in any event this step is mandated by some US and international regulations, so you have to do it.

 

If you have been diligent in the process thus far, you will have a reasonable idea of your key vulnerabilities.  This is the object of the exercise, remember.  Now you are in a position for step 3.

 

Step 3: Decide which risks you can live with and which risks you must control.  Risk management does not mean you have to control or eliminate every risk.  Control risks that will impact on quality, schedule, cost, and on your brand.  And in considering brand risks, think about sustainability factors, the environment, fair trading, social expectations, border protection, terrorism, corrupt practises, etc.  This is the “new” stuff.

 

Step 4. Once you know the rules you can establish the minimum requirements for each of your supply chain partners, or groups of partners along product lines, etc.  Minimum requirements must be auditable; therefore they must all be couched in terms of actions, outcomes, records, and other specific evidence.  This is a crucial aspect of implementing your compliance system as it will establish the basis for assurance that the risks you have identified are under control.  You must be in control of the assurance process, and there is technology that will give you this control.

 

Step 5. Set up your compliance system.  This entails the following:

 

  • On-board your supply chain partners.  Contract renegotiation may be required.
  • Decide on your assurance mechanism.  This may be self-assessment and attestation coupled with cyclical, risk based surveillance audits, product and facility certification, accreditation, or routine compliance auditing.  Audit questionnaires must be prepared.  This is essential for the smooth implementation of the system and to ensure that your supply chain partners have clarity as to your expectations and requirements.
  • On-board your assurance partners. I am talking about auditors here. If you are going to rely on external auditors as a key component of your risk management system, you must be certain about their qualifications and integrity.  There are many reputable international audit providers, but even if you select one of these you must still be diligent in monitoring the integrity of the process.  You need audit companies who are determined to give you an accurate picture and who spend at least 60% of the audit verifying what happens in everyday operations, on the shop floor.
  • So, summing up - at this point you have documented requirements, backed up by support materials, you have arrangements in place with your partners obligating them to comply with these requirements.  You have evidence-based audit tools covering key risk areas. You have agreements in place with reputable external auditing bodies and have formulated risk based audit coverage and frequency. The program is ready to implement.

 

Step 6. Operate your compliance system.

 

Managing a system along the lines I have described is pretty daunting and most of all because of the volume of compliance activities – and costs - this anticipates. Doing it without technology is unthinkable.  Here’s what the system needs to do:-

 

  • Provide a registration process, and store details of all supply chain partners;
  • Store a history of every audit undertaken for every partner, including nonconformities and implemented corrective actions;
  • Accommodate auditing bodies operating in difference countries and regions, as well as individual auditors and their credentials;
  • Store a library of audit questionnaires based on requirements for multiple standards, jurisdictions and products, and enable the rapid modification of these questionnaires as regulations change;
  • Allow access to your supply chain partners to conduct self-assessments, participate in the audit process by providing documentation and records, provide attestations, certificates, and the like;
  • Online dashboards and tools enabling auditors to schedule audits, assign auditors, conduct audits, manage nonconformities, and report on audits to you and to your supply chain partners;
  • Mobile applications for audits conducted in remote locations;
  • Dashboards providing online analytics, reports and constant feedback on supplier performance;
  • Finally, the system must recognise the cost of the compliance effort, and include online payment collection for compliance activities.  My reason for including this is that global trade provides enormous opportunities for vendors and service providers, but there are also obligations to meet the extended supply chain obligations. This comes at a cost to key players in the supply chain: the cost of setting up and managing the system, the costs of audit and surveillance activities, and a host of other elements. These costs can be encapsulated in a key activity – the compliance audit, with costs including the audit itself, or if this is paid direct by the supplier, all the other costs of maintaining the system, broken down into an audit unit.  These costs can be recovered at the point of scheduling or conducting the audit via an online payment system.

 

You will note from the above that I am strongly advocating complete control over the auditing process.  It is technology that makes this possible.  What makes it important is that this enables you as the supply chain lead, to provide a level playing field, using your rules, for all supply chain partners. Control over the audit process gives you:

 

  • Control over audit questionnaires.  This means you can be as specific as you need to be about the standards and limits you set for compliance, and all players will be assessed according to a common set of rules – not those chosen by a faceless audit person on the other side of the world;
  • Control over reporting. This means all players will receive a consistent audit report in terms of layout, content and data, with outcomes being assessed on a uniform basis.  Now you can have a meaningful and informed discussion with your partners;
  • Control over the audit process.  Using only pre-approved auditors, you can control the auditing standards applied to your supply chain, and you can monitor the audit process itself – including guiding auditors on evidence requirements, etc.  You know when audits are due, you know when they have not been done or are delayed, you can take appropriate action to enforce your requirements.  Because you also know which auditor and which auditing body provided the service to your supplier, you can also monitor auditing standards and consistency;
  • Control over issues, incidents and corrective actions.  You will have instant access to audit outcomes, including corrective actions and other issues identified at audit, and you can set, and monitor, actions implemented by the supplier to rectify these issues.  You will have ability to make decisions in real time regarding supplier status;
  • By controlling the end to end audit process you have unprecedented access to data.  This means dashboards, statistics and trend data on your sustainable compliance system.  Visibility enables transparent disclosure to other supply chain partners of supplier performance and status, giving integrity to the entire system.

 

Tony, you have painted a tantalising picture.  Is this an impossible dream for the average supply chain?

 

Not at all, Dustin.  The good news is that there is a solution, built specifically to handle the required complexity, available and in operation today.  It was developed by an Australian company, iComply. We have innovated not only the technology, but also our pricing and deployment, and you would be amazed at how quickly a system like this can be deployed and operational, at a small fraction of the investment it would take to build something comparable from scratch.

 

I will be happy to discuss this in more detail with any of your interested readers.

 

How can people get hold of you?

 

1c7f9ba.jpgWe are at www.icomply.com.au

Phone: +6139545 1452

 

Twitter: @ICOMPLYGRC

Facebook: ICOMPLY PTY LTD

LinkedIn: ICOMPLY PTY LTD

I interviewed Chuck Intrieri who discussed his experience working for the Schwinn Bicycle Company in Chicago in the 1960's and 1970's.

 

 

 

 

The Schwinn bicycle was a great product. It is good for the planet and atmosphere. There are no emmisions while riding a bike!

 

In the ’60s & ’70s we had a Supply Chain, believe it or not. We gave great schedules to our suppliers both domestically and internationally. Although these schedules were done by hand, they worked during the bicycle boom at this time.

 

Forecasts came from the Sales Department and went to Production Planning. The Inventory Manager created a “Short List” or Master Production Schedule (MPS) and generated Materials Requirement Planning (MRP) BY HAND! Each purchased component of the bicycle was broken down by month with the new requirements and the current inventory was applied by hand to each component. Manufactured parts were done in the Production Control Department in the same manner.

 

Purchasing received “TRs” or Traveling Requisitions with quantities,due dates and they observed offset lead times. Production Control issued Shop Orders to the Shop Floor by hand, in the same manner as well as well.These two departments then followed-up with hand written notes if they did not know the status of a components. The top of the note read, ” SCHWINN BICYCLE: AVOID VERBAL ORDERS.”

 

In International Procurement/Import there was a large map of the great lakes showing where the vessel was docked day to day with notes as to when it would arrive. Inventory Control knew what was on the vessel by documentation the received from International Purchasing/Import. The same was done with imports going to the East Coast in the winter months.The Import Department used a land bridge team from the forwarder overseas to the vessel to the port. Transportation was arranged from the ports to Chicago to the Customs Broker to US Customs to local drayage to Schwinn itself. Domestic suppliers were tracked as well.

 

There was a Materials Division who was responsible for warehousing, inventory, and Purchasing.

 

This was a total Schwinn Bicycle Team effort with no computers, no e-mail, no twitter, skype, et al.

We even had a frequent Supplier-Internal Schwinn Team-Customer (Schwinn Dealers) meetings frequently in various cities .We had our own Supply Chain but never used the term.

 

About Chuck Intrieri

Knowledgeable Supply Chain Optimization, 3PL/Logistics Consultant

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