Tag Archives: monitoring

What Motivates Suppliers to Meet Sustainable Sourcing Requirements- The Carrot vs. The Stick?

17 Aug

Are you old enough to remember the opening lines of the Buffalo Springfield song  For What it’s Worth? “There’s something happening here/What it is ain’t exactly clear/There’s a man with a gun over there/Telling me I got to beware”. I am thinking there is a green supply chain revolution in play, just as there was political unrest and turbulence of the mid to late 1960’s from which this song originated. Methinks Walmart may be “the Man”, but are they really holding a gun to suppliers?  I’m not so sure.

Walmarts efforts internally to establish its sustainability index continue to slowly progress along (I still predict a 2-3 year process before anything tangible emerges).  But, the company is as I predicted last year, changing the rules in how sustainability is felt up and down the supply chain- mostly for good.  Many companies in the retail and electronics sectors, such as Proctor and Gamble and IBM have most notably stepped up to the plate, but many others are learning from Wal-Mart’s green supply as well (see “The surprising success of the green supply chain” http://bit.ly/digXmH).  So how is this “cat herding” happening at such a rapid pace and what are the key issues being driven through the ‘value chain’.  Is this just a matter of keeping up with the next guy?

First- the ‘drivers”.  There are a number of factors and issues, both internal and external that can be attributed to this hot phenomenon in the supply chain space. In a 2009 study by GTM Research, sustainability was clearly a driving topic in supply chain management, ranking behind only three factors:  improving customer service, reducing supply chain risk and managing and optimizing an extended supply chain network  (Greening The Supply Chain: Benchmarking Sustainability Practices And Trends- GTM Research 2009 http://bit.ly/cl1QlU ).   The same study found that several factors were driving the greening of the supply chain across a number of vertical markets, notably:

  • Lost sales (projected to be in the billions of dollars) because products in the supply chain were not “green” enoug
  • Increased energy and transportation costs (accounting to over 50% of the cost increases)
  • Damage to reputation and
  • Supply disruptions

In response, Walmart and other major retail and industry giants are driving upstream and downstream performance based changes, designed to reduce suppliers environmental footprints and focused on several key areas:  energy management, fuel cost containment, carbon emissions, water use and waste generation.  New issues also factoring into the mix include green chemistry and management of restricted materials, depending on the geographic reach of global markets served.

To that end suppliers, from Tier One on down through the chain are responding to varying degrees and the early results appear favorable. As I reported last week, companies like Herman Miller, Walmart, P&G and Johnson and Johnson (http://bit.ly/cFBzjD) are showing marked reductions in most of the key metrics that they have been focused on, with much of the credit due to those suppliers who have found business sense in sustainability.

Now to that you may say that suppliers are goaded, cajoled, forced, strongly encouraged, or perhaps threatened to comply, or else risk losing millions in contracts.  Actually, what I am seeing with the likes of Miller, IBM, Hewlett Packard and others continues to be more of the carrot and less of the stick- more collaboration and performance based incentives coupled with onsite verification- that’s all good because it encourages accountability.  But that’s a topic for a future post.

In the meantime, to paraphrase another line in that Buffalo Springfield tune:  “Stop [vendors] what’s that sound /everybody look what’s going round”.  Until next time.

This post was originally published on my New Green Supply Chain Blog, which can be found at https://community.kinaxis.com/people/DRMeyer/blog

Advertisements

Risky Business: Why Better Risk Management Can Protect Lives & the Environment- Part 2

14 May

In my last post, I called out the mining and oil industries, two of the most risk prone resource extraction industries, for lapses in risk management protocols.  In the past week, Congressional testimony over the BP spill has begun, the finger pointing has started- and yet the spill continues largely unabated (see BP calls blowout disaster ‘inconceivable,’ ‘unprecedented,’ and ‘unforeseeable’ http://bit.ly/b6YEHo ).  Rep. Henry Waxman was quoted as saying “This catastrophe appears to have been caused by a calamitous series of equipment and operational failures”.  It appears on initial investigation that BP, Halliburton and Transocean (the drilling contractor) could have proactively checked battery conditions, verified well plugging, weld integrity and electrical wiring, all believed to be contributors to the failure (see “On doomed rig, lapses sparked catastrophe – Reuters http://bit.ly/cjkdTM).

However let me applaud all those who have worked tirelessly to plug the leak.  Correctly, much of the discussion this past week has now shifted to how risk containment and control and proper contingency planning could have been better planned and executed.  So far, there have been many questions asked but few concrete answers- just deflection (http://www.theenergycollective.com/TheEnergyCollective/64685)

OK, enough table-setting, let’s get to it, shall we?

Step 1: The first step in the risk management process is identifying the key, significant routine or non-routine risks a that a business might face.  These risks can occur during operations, maintenance or post operations circumstances

Step 2: The next step in the risk management process is to analyze or assess which of the routine or non-routines risks might have the greatest negative impact on the company, its employees and the environment. In  prioritizing the risks, companies need to determine which of those risk factors identified (be they human health, environment or financial) the company has control over and which ones it does not can create the greatest immediate and long term impact.

Step 3: After assessing and prioritizing each risk, each risk must be evaluated against specific company criteria, health, safety and environment and industry protocols. To complete this step, specific reference criteria needs to be established that  characterizes and scores risks on the basis of scale and severity, probability and frequency of duration, feasibility of mitigation , stakeholder issues and costs. By specifically evaluating possible repercussions of each risk on the company or business objectives based on “reasonably foreseeable” incident scenarios, the company will be better prepared to deal with the outcomes.

Step 4: The fourth step in the risk management process is creating a risk containment, control and long term contingency plan for each potential risk scenario. Based on each risk and its effect on the company’s goals, the risk manager must determine what can be done to treat each risk and plan for each incident . Creating a contingency and treatment plan will require deciding which risks can be avoided and which ones can only be lessened or mitigated with administrative or engineered controls.

Step 5. Simply, implement the risk management and contingency process.  Make sure that employees are trained.  Ensure that both internal and external communication processes and in place. Test the emergency and incident response systems that have been implemented.  Make corrections and continually update the scenario planning.

Step 6: The final and perhaps most vital part of the risk management process is monitoring and oversight.   By keeping the eye on the ball, companies could have likely avoided the coal and oil disasters that occurred last month.  By continually monitoring, reviewing decisions made  and correcting issues that could contribute to catastrophic failures, companies can avoid or mitigate losses to life, property and the environment.  This is likely where the Massey and BP failures occurred.

In summary, a continuous risk management process helps organizations understand, manage, and communicate risk and avoid potential catastrophic conditions that can lead to loss of life, property and the environment.  Risk Management helps organizations:

  • Identify critical and non-critical risks
  • Document each risk in-depth
  • Log all risks and notify management of their severity
  • Take action to reduce the likelihood of risks occurring
  • Reduce the impact on  business, life, and the environment

It all sounds so simple, right? It will be interesting to see what emerges as the investigations into the recent oil and coal disasters continue to unfold.  What will be more fascinating will be the lessons learned and if businesses truly embrace risk management planning and implementation as a central function of business, take it seriously and hold themselves accountable.