managing suppliers using a sustainable business network approach

Newport Consulting Group, LLC


Discussion Document Managing Global Suppliers Using a Sustainable Business Network Approach

Presentation to PMI Great Lakes Symposium William Newman, MBA, CMC, SA

April 24, 2012

April 2012

Newport Consulting Group, LLC PMI GLC Symposium - Managing Suppliers Using Sustainable Business Networks 2012-0424 vF.pptx

The Changing Global Environment

Today’s Sustainability Mandate

Enterprise Risk Management and the Supply Chain

Creating “Value Chain 2.0”

Working Examples and Case Studies

Key Take-away Points

Summary and Discussion

Contents


A Brief Introduction …

William D. Newman, CMC, MBA, SA

– ASUG Recognized Influencer

EPM, GRC, Sustainability

– Member, SAP Sustainability Executive Advisory Council

– Certified Management Consultant (since 1995)

– Over 25 years in industry, professional services

– Professional Speaker (ASUG, SAP Insider, TEDx, Sustainable Business Forum, Michigan Assn. of CPAs)

– Adjunct faculty, Northwood University (International Management)

– Adjunct faculty, University of Oregon (Sustainability Leadership)

– Management Consulting Taskforce (Michigan Assn. of CPAs)

– Author (Understanding SAP BOBJ EPM)

– Numerous articles on program oversight, stakeholder engagement, mobility, strategy, sustainable supply chain

– Twitter (@william_newman)

– Google+ (+William Newman)









Contents


The Changing Global Environment / 1

(cc) Library of Congress



(cc) Elizabeth Swider



In today’s global marketplace it is not enough to know what you make and how you make it, but also

what your suppliers make and how they make it, and their suppliers, and so on … and so on …

What do I make?

How do I make it?

What do they make?

How do they make it?

What do they make?


What do they make?


What do they make?


Product Materials

Social Performance

Quality and Price

Product Materials

Social Performance

Quality and Price

Product Materials

Social Performance

Quality and Price

Product Materials

Social Performance

Quality and Price

Brand / OEM

Manufacturer

Tier 1 Suppliers Tier n Suppliers



The Dow Jones Sustainability Index (DJSI) created in 1999 represents over $US 9 billion in total

market capitalization. The DJSI STOXX40 has outperformed the nominal DJ STOXX50 by 7.5%

through Q3 2011 (and up to 15-20% during the period preceding the financial crisis).

Source: SAM Sustainability Annual Review, September, 2011

The investment community is

giving increased weight to

Corporate Sustainability to guide

rating and investment decisions.

The DJSI comprises publicly

traded organizations that

follow the Global Reporting

Initiative (GRI) for

Sustainability reporting









Contents


Today’s Sustainability Mandate / 1

The Challenge: A Real World Story

Photo: Sulekha.com



Photo: Sulekha.com

The Challenge: A Real World Story



Key Sustainable Supply Chain Trends:

Increasing use of “Strategic Suppliers”

Working with suppliers to build internal capacity

More training, less auditing

All industries struggling with how to manage sub-contractors

Collapse of recognized company boundaries

– Acceptance of full supply chain responsibility

Integrating social compliance into sourcing operations and performance measurements

Shift from “the stick” to “the carrot”

Sustainability trends in the global supply chain demonstrate a “shift” in demeanor and interest from

telling and mandating, to collaborating and improving. This is a positive transformation across brands.

Source: Social Accountability International (SAI, www.sa-intl.org)

http://www.sa-intl.org/





According to a survey of

global CEOs conducted by the UN

Global compact over 90% of those

surveyed considered sustainability

issues either important or very

important to the future success

of their business.

But what does

sustainability really mean? It

depends on your framework.



The University of

Oregon

Sustainability

Leadership

Program is

tracking over 50

emerging

standards,

guidelines and

frameworks in the

area of

sustainability.

Source: University of Oregon, Sustainability Leadership Program



So, how are we doing? I thought you might ask…

Well, if you were to ask me the global 1,000

corporations, you know, how many of them

are sincere and seriously about

sustainability and long-term value creation,

our own implementation survey and other

leading think tanks would probably suggest

we are probably at 15 percent.

- George Kell, Director

United Nations Global Compact

Source: American Public Media, Marketplace Morning Report (April 18, 2012)









Contents


Enterprise Risk Management and the Supply Chain / 1

A series of parallel yet unrelated studies confirms a disturbing executive trend when it comes to

enterprise risk management – everyone believes it’s important, few are satisfied or have the

understanding to do it. This is what we call the practitioner gap in the industry.

Discontinuity of risk management practices, in terms of demand, satisfaction, and board level understanding (various sources):

The Economist Intelligence Unit Survey, Ascending the Maturity Curve (March, 2011);

McKinsey Global Survey, Governance since the Economic Crisis (March, 2011);

Report on the 2011 Accenture Global Risk Management Study, (February, 2011)



Reporting and Disclosure

Global Reporting Initiative

DJSI

Integrated Reporting (IIR)

EPA / EU Mandates – US EPA MMR, CA EPA Title 27

– ROHS, WEEE, ELV

– REACh

– UN Global Compact

Frank-Dodd Act

Company Code of Conduct

Operational Effectiveness

ISO 9000 / 14000

Timing, quantity of delivery

Profit Margin

Smart Delivery, Packing

Traditional “Top 10 / Bottom 10”

Supplier Management Practices

Two main areas of enterprise risk management for the supply chain: (1) reporting and disclosure of

various positions in sustainability, and (2) operational effectiveness. Visibility and transparency are key.



One of the challenges in the field of sustainability is the vast reporting and disclosure spectrum that

organizations – from small not-for-profit associations to F1000 global enterprises – may choose from.

Complexity of Disclosure

Fo

rma

lity o

f S

tate

me

nt

Statement of

Direction

DJSI / 10K

Statement UN Global

Compact

GRI Report Code of

Conduct

Intra-company

Scorecards

Sourcing

Audits

Simple

Complex

Company

Sustainability

Plan

Source: Newman, William. “Disclosure and Green Marketing for Sustainability,” Sustainable Business Forum (2012); MACPA briefings (2011)



A Statement of Direction – Similar to a 10K President’s Message – is a publicly communicated intent

to address particular goals, mandates, or targets. This is generally non-binding and can be confused

with company “green washing” of marketing efforts.

A Statement of

Direction is a

document intended

to convey to the

public, customers,

shareholders,

analysts and other

stakeholders the

position of the

organization and its

intent.



A Code of Conduct is a statement of policy which governs how the company will behave inside its

business ecosystem, as well as the individual behavior expectations of its employees and

stakeholders. Codes may be binding from a performance management perspective.

A Code of Conduct is

interpreted by

organizations abiding

by them in the form

of policies,

procedures and

guidelines.



Pre-defined, quantified Key Risk Indicators (KRI) linked to KPIs can automatically trigger preventive or

recovery responses when risk events threaten or actually do occur.

Logistics

Disruption

Business Process KPIs Market Share

Customer Satisfaction

Earnings

Key Risk Indicators (KRIs) 1.1 Average time to clear customs

1.2 # of restricted goods held in customs

2.1 % of purchases from non-preferred vendors

3.1 Trends in weather and route requirements

Supply Chain Planning

and Execution Drivers

Import / export custom restrictions

Purchases from non-preferred vendors

Hostile waters / ports or poor weather and shipping routes

Impacts

Decline in Number of Customers (Market Share)

Late Product Deliveries (Customer Satisfaction)

Increased Costs and Expenses (Earnings)

Transfer Accept Avoid Mitigate Control

Preventive responses reduce probability of event

Recovery responses reduce impact

of event

Source: SAP America (as modified by Newport Consulting Group)

Responses

KRI Design Purchases of goods from non-preferred vendors. Specify tolerance as % of spend. Trigger when ≥5%.

EXAMPLE









Contents

Newport Consulting Group, LLC PMI GLC Symposium - Managing Suppliers Using Sustainable Business Networks 2012-0424 vF.pptx Newport Consulting Group, LLC

Creating Value Chain “2.0” / 1

Conventional value chain management activities include a number of manual activities, including

questionnaires, phone calls, and surveys. Information is rolled into central reporting databases for

use across the value chain - other times not. The risk of error and non-compliance is high.

Source: Newman, William. Increase Supplier Compliance with Sustainable Business Networks, GRC Expert, July 18, 2011

EXAMPLE

A variety of

information

sources across

multiple

suppliers in the

value chain

creates a high

degree of

uncertainty and

error with very

complex

substance

structures.


Creating “Value Chain 2.0” / 2

The use and reporting of management processes, components and substances is further complicated

by the use of certain critical raw materials – some of which are known as “conflict materials” –

throughout the global manufacturing landscape. All these items require transparency and reporting.

Source: iPoint, GmbH (2011)



26

Source: Newman, William. Increase Supplier Compliance with Sustainable Business Networks, GRC Expert, July 18, 2011

Rather than each manufacturer or organization agency managing its own network, the concept of a

sustainable business network is gaining acceptance as a way to share, exchange, and development

similar materials across multiple industries and supply chains.



What is a Sustainable Business

Network?

A Sustainable Business Network

consists of supply chains that provide

financial, environmental and social

value. It thus

1. returns profit, or at least does not run unprofitable,

2. enhances the lives of people involved in it, or at least does not create disadvantages for them,

3. enhances environmental health, or at least does not harm the environment

27

Source: SAP Research









Contents


Working Examples and Case Studies / 1

A number of initiatives based on TBL for

residence, communities (CTVs), and

Businesses.

Initiated a pilot study of three contiguous

cities for broad bio-diversity and land-use

planning.

Leverages both County ERP purchasing /

vendor sources and large stores of

Geographic Information Systems (GIS) data

to help map land-use to area plot and what

providers can be used for specific public

initiatives in each locality.



Software company SAP has developed

a sustainable business network for

supplier management analysis.

Leverages:

– Value chain membership

– Member questionnaire responses

– Purchasing histories per member (planned)

– Location in-flows / out-flows (planned)

– Library of existing best practices (data instruments, business improvement programs)

– Other information (as potentially modified)

Solution is in limited ramp-up available to SAP

customers and used internally.

Info video (You Tube) http://youtu.be/crTeFxIpBcE

Source: University of Oregon, Sustainability Leadership Program

http://youtu.be/crTeFxIpBcE

http://youtu.be/crTeFxIpBcE



31

Source: SAP Research

http://www.youtube.com/watch?v=crTeFxIpBcE









Contents

Newport Consulting Group, LLC PMI GLC Symposium - Managing Suppliers Using Sustainable Business Networks 2012-0424 vF.pptx 33


Sustainable within value chains can have many forms and uses

– Simple supplier look-up and coordination

– Deep embedded use of processes, functions across 3BL domains

– Broad business network compliance and reporting

Determine what is needed by your organization

– Focus on what guidelines, methods and frameworks apply

– Integrate into both supply chain and enterprise risk management issues

– Align to the strategy of your organization, not just compliance

Look for solutions and industry groups that promote openness, collaboration

– Chances are there will be many, many information sources across the value chain

– You will not have all of the answers when you start, and neither will your suppliers

– If you consider a management solution look for one that is open across multiple principles, domains, platforms and industries

Newport Consulting Group, LLC PMI GLC Symposium - Managing Suppliers Using Sustainable Business Networks 2012-0424 vF.pptx 34

References

Psycho-sustainability: A Model for Personal Sustainability, TEDxFlint, October 11, 2011

Increase Supplier Compliance with Sustainable Business Networks, GRC Expert (July 18, 2011)

Best practices for managing sustainable supply chains, searchManufacturingERP.com (July 14, 2011)

Mastering the IT demands of a sustainable supply chain, searchManufacturingERP.com (July 7, 2011)

A Framework for Social Media in Sustainability Programs, Sustainable Business Forum (February 22, 2012)

Strategic Intent for Green Marketing and Disclosure using Social Media, Sustainable Business Forum (March 30, 2012)

Leverage ERP for a Greener Supply Chain, Sustainable Business Forum (January 14, 2012)

Sneak Peek: Sustainable Procurement as an Embedded Process in Supplier Management Activities , GRC Expert (December 1, 2010)

Comply with the EPA’s MRR Standard with SAP Carbon Impact OnDemand, GRC Expert (January 7, 2011)

http://www.youtube.com/watch?v=8BmLVpdWvFk



http://www.grcexpertonline.com/article.cfm?id=5991



http://searchmanufacturingerp.techtarget.com/news/2240037770/Best-practices-for-managing-sustainable-supply-chains



http://searchmanufacturingerp.techtarget.com/news/2240037609/Mastering-the-IT-demands-of-a-sustainable-supply-chain

http://searchmanufacturingerp.techtarget.com/news/2240037609/Mastering-the-IT-demands-of-a-sustainable-supply-chain

http://sustainablebusinessforum.com/williamnewman/56585/framework-social-media-sustainability-programs

http://sustainablebusinessforum.com/williamnewman/57188/strategic-intent-green-marketing-and-disclosure-using-social-media

http://sustainablebusinessforum.com/williamnewman/55898/leverage-erp-greener-supply-chain













Contents


Discussion


Contact


William Newman, CMC, MBA, SA

Managing Principal

[email protected]

7286 North Village Drive O 248-978-2000

Clarkston, MI 48346 USA M 248-635-9902

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