Graphite: To capitalise Australia needs to invest in conversion

An article from The Conversation caught my eye and I thought it was an interesting piece on adding value to graphite…….Australia is pivoting its economy away from dependence on resources like coal and iron ore, but are there other commodities we can bank on to take up some of the slack? In this “future commodities” series we explore the economic future for commodities we’ve always relied on, and some we haven’t.

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Australia can capitalise on graphite if it considers new technologies that convert it to synthetic diamonds and for use in creating carbon fibres, rather than just mining the mineral.

Graphite is a form of carbon, the same element which also appears in nature as coal or diamonds, depending on the geological roots of its formation. At present high quality graphite is used in a range of technology from refractories to lithium ion batteries to carbon composites that aircraft such as the 787 Dreamliner or the Airbus A350.

Global demand for graphite was estimated by the U.S. Geological Survey to be around 1250 kilotons in 2014 but could triple by 2035., with the largest growth occurring in its heavy use in lithium ion batteries. Tesla motors massive investment in this technology for domestic home energy storage may provide a major boost to the market. The “Gigafactory” being built by Tesla in the US state of Nevada is expected to raise global graphite demand by 30%.

Australian companies have been proactive in anticipating graphite demand growth and there are now several ASX-listed mining firms with graphite ambitions. The New South Wales government has even noted graphite in its prospectus document on industrial mineral opportunities.. At present there is only one functional graphite mine in Australia, the Uley graphite mine on the Eyre peninsula run by Valence Industries. At least 8 other ASX listed companies are known to be exploring for graphite.

The supply of graphite from mined sources is not well-understood due to lack of exploration and geo-science investment in this arena. However, a more integrative approach that considers synthetic sources as well as mining is needed to harness the full potential of graphite.

More than seven decades ago, scientists at General Electric devised a process to convert graphite to industrial quality diamonds using very high pressures and temperatures. These diamonds were not of the quality for an engagement ring but worked very well on the edge of cutting saws as “superabrasives.” Stanford researchers have since been working on even easier means of diamonds through catalysts. Most diamonds used now in industry are synthetic.

Although these diamonds are unlikely to be in demand in the jewellery retail sector any time soon, their prominence could grow for industrial uses. A subsidiary company of international diamond miner De Beers, called Element 6, has been working on a range of high technology uses of industrial diamonds, such as infra-red sensors and radiation detectors. This will spark more interest from businesses in this sector.

However, there is potential to convert coal to graphite and its related nanotechnology material “graphene,” for use in greener energy technologies. The technology to accomplish this exists but needs to be made far more cost effective and energy-efficient. Graphene use, like diamonds, by volume will be small as well, though of high importance in terms of its use in strategically important technologies. The large volume uses of graphite would come from demand growth for large structural uses in batteries, buildings and vessels.

There is another type of graphite, high grade vein, that is relatively rare. Currently, the only functional mine for vein graphite is in Sri Lanka which boasts some of the world’s largest reserves of this particularly high-grade material. China remains the dominant player in other forms of graphite mining because of public sector investment in its geological reserves, but increasingly is willing to partner internationally on mineral projects, exemplified by efforts such as Rio Tinto’s Mines to Markets partnership.

Finding better ways of converting coal to graphite for making carbon fibres and other products, could also lead to innovations that make the material more recyclable as well. This goes towards realising the goals of what the Economy. “This is when materials cycle back through the production and manufacturing processes. Metals that are traditionally used in large structures corrode over time, whereas carbon fibres have much less propensity for such corrosion and hence have a life cycle more conducive to recycling.

Graphite presents an important opportunity for seeing the value of partnering business and science to remain “ahead of the curve” in sourcing essential materials for the future. As the bad press increases for the burning of coal for fuel, its value could be in conversion to other forms of carbon – like graphite.


Controlling Indirect Spend: Procurement Trends

There are many trends prominent in procurement today, Reggie Peterson is Director of Indirect Products at AmeriQuest Business Services and discusses this as well as greater collaboration between stakeholders; digitization and automation of processes; and a focus on data and analytics. However, one of the most notable trends in procurement is the focus on indirect spend and the ability to control it.  

The difference between controlling direct and indirect spend. 

Would question the ability of procurement to manage a companies direct spend. Optimal management of direct spent is directly related to the fact that these types of expenditures on goods and services are incorporated into the product being manufactured, and is usually centralized within the procurement department itself, with controls in place that ensure accurate accruals and a well-managed cash flow.

Consequently, indirect spend is often decentralized and managed in functional areas or business units of the enterprise. These materials are often managed in silos leaving procurement professionals feeling inadequately equipped to control this category of spend. When it comes to indirect products like stationary, uniforms, MRO supplies, laptops, and myriad other products and services, the anticipated smaller transactional cost may seem inconsequential when viewed in a vacuum. However, life, business and reality do not exist in a vacuum. Aggregating the cost of these indirect purchases from all locations, functions and departments can lead to a shockingly high amount of uncontrolled expenditures for the business.  

The 80/20 rule becomes the 20/80 rule when it comes to indirect spend. 

How high? In a report on tail spend, a smaller subset of indirect spend, consulting giant Accenture found that a billion-dollar company will waste about $15 million annually due to a lack of control. Extrapolate that amount over a company’s total indirect spend, estimated at about 20% of total company spend and the projected waste is even more daunting. What makes it more difficult to control are the numbers of suppliers involved, the proverbial 80/20 split, if you look at the percentages, 80% of a companies spend is on direct spend and usually involves 20% of all suppliers. The exact opposite is true of indirect spend, where 20% of the company’s total spend involves 80% of all suppliers.

It’s vital that this 20% of expenditures be controlled, but the sheer number of suppliers and the amount of paper and manual effort needed to gain that control has often been declared to be too costly for the business. That assertion has started to change with the growth in automated financial solutions entering the market, including P2P (Procure to Pay) solutions that specifically target indirect spend.

This growth has created a virtual sea change in the industry. These procure-to-pay solutions strengthen the procurement and AP collaboration, ensure contract compliance by validating pricing and terms across the organization, increase visibility to both internal and external stakeholders, enforce budget accuracy, eliminate manual errors and maximize cash flow. Gartner observed the growth of these solutions, stating that they “witnessed a 67% increase in end-user inquiry on the subject from January through August 2015 compared with the same time in 2014.”  

Additional benefits of an indirect spend solution: Collaboration and goodwill.

While accuracy and compliance are key benefits of implementing an indirect spend automation solution, there are additional benefits to consider. One is the new role that both procurement and AP can play as strategic players helping the enterprise achieve its financial and process improvement goals. The other is the good will and trust that will be cemented between suppliers and customers due to everyone having access to verifiable information at any time; that means fewer disputes, faster payments, and potential captured discounts.

The question shouldn’t be “if” you should implement an automated solution to help control and manage your indirect spend; the question should be “when.”

For more information on implementing Automation to manage your companies indirect spend, contact Business Improvement Advisory.

Blockchain: Remove Waste from the Supply Chain

 

You’ve heard the term blockchain. What does it mean? How does it work? How can companies use the technology to help make their supply chains more efficient and cost effective? And what does it all mean for procurement leaders?   

To get the answers to these questions, Susan Avery met up with Brigid McDermott, Vice President of Blockchain Business Development at IBM. The discussion follows: 

How do you define blockchain?

Blockchain is a technology. It is not one of those lightning-bolt ‘aha!’ technologies in terms of a revolution. It’s lightning-bolt in that we realized we can apply current technologies—distributed systems, cryptography, data management—in ways no one has thought of before to create a trusted distributed ledger. If I have to define blockchain in one sentence it is ‘Blockchain is a trusted distributed ledger’ and it is the technology that makes it possible.

For me, it’s important for people to understand that blockchain presents a tremendous opportunity to really transform how we do supply chain, get rid of waste and solve problems of inefficiency. To make that happen, we need the community to come together in ecosystems.

That’s part of why I’m an evangelist. It is going to take getting everyone engaged and contributing. The output is making business work better, saving money for companies. But also, if we look at things like food safety, one third of the world’s food supply globally is wasted every year. Part of that is supply chain inefficiency. We can also help solve real global problems. 

But what does that mean? Can you describe with examples?

Fundamentally, blockchain is about trust. It’s about creating a trusted system of record that you can use among all the parties in your supply chain. What we have now is a world in which everyone maintains his own records. Sometimes that means people accidentally have different records. I fax you a document with a nine and you incorrectly input a zero and we end up on the phone for days trying to figure out why our numbers don’t match.

Or, say, a trucking company has a four-hour window to make a delivery. It knows the location of its truck, the driver has stopped for coffee and will make the delivery near the end of the four-hour window. If we can get the four-hour window down to a four-minute window, think of how much more efficiently you can manage your warehouse, forklift and workforce.

As we think about using blockchain across supply chain and procurement, what we are thinking is, can we get everyone looking at the same set of information and trusting that it is correct? That’s what blockchain does. It creates a distributed shared ledger that’s immutable and permissioned. 

You’re a technology evangelist and obviously passionate about the technology. What is IBM’s role?

At IBM, we are basing our work on the Hyperledger, which is the open standard the Linux Foundation is running. Doing this on anything other than an open standard is unfathomable. The system is permissioned which means you know the identity of everyone using it. Once everyone party to the transaction knows they are looking at the right piece of information, you can start thinking about your business differently. You can manage inventory not only within your four walls, but also across the entire supply chain. If you have real-time data, you can potentially help facilitate customs clearance. You can drive towards longer shelf life because you can do a better job managing transit time. You can do a better job at cost management because all the paperwork and all the processes associated with getting a delivery from the factory in China to the retailer in New York are shortened and facilitated.

IBM announced in October that we are working with Walmart on a food safety project. This is about providence and traceability. To prevent an outbreak or food scare, you need to know where things come from and you need to know immediately. A few years ago, there was a case in which retailers pulled spinach from their shelves because of E. coli. There was no way for anyone to tell quickly which packages were good and which bad. It turned out it was one shipment from one farm. It took years for spinach consumption to rebound. Farmers, retailers and shippers were hurt. Seeing common linkages and triangulating them helps pinpoint the issue.

How does it work?

With blockchain, the information is on the blockchain. You can set up the system, so it becomes more broadly available in the case of an emergency when more companies might need to access it. You can have permissions in general, but at other times you can easily let academic statisticians get on quickly and try to triangulate the problem if you don’t have the calculating ability in your own process. You can do all sorts of things once you have the data and everybody agrees with it.

The flip side to providence and traceability is the idea of visibility. Providence tells us the location of goods. Visibility tells us the location of the goods as they make their way along the supply chain. With visibility into data, a shipper can redirect a shipment if needed. Blockchain is not magic. It does not make all problems go away. But with information in real-time, you can make changes.

Say, a retailer has a delivery window for trucking companies. As an incentive for a trucker to deliver within the window, the retailer charges a late fee if it misses the window in an agreed upon amount of time. The retailer wants to narrow the window. Is there something the trucking company can do to ensure the delivery arrives on time? If the first truck is broken down on the side of the road, can it send another and avoid the late fee? Right now, that information is not aggregated in such a way that companies can use it. We are doing some in-house work looking at whether this is valuable to companies. From a technology perspective, how can we help make this happen?

Are some companies using blockchain?

No one is currently in production. But, as you may know, IBM runs its own global financing organization. It’s a $44 billion business. At any given time, we have $100 million tied up in dispute, with an average dispute of 40 days. When we first got excited about blockchain a year ago and approached our CFO about it, he, like every CFO, wanted proof. He asked us to figure out how to make the disputes go away.

In late spring, we started putting together a system with a group of suppliers running blockchain for dispute resolution in parallel with our existing system. We were able to reduce the length of time spent on disputes by 75%, from 40 days to 10 days, and reduce the capital tied up by 40%. This is in a matter of months. Our CFO is now a believer.

For me, this is a good proof point because disputes occur is so many places in the supply chain. Companies have people in the back office on the phone all day. They’re not customer service advocates who make people happy, improving the brand, making it worthwhile. No, they are spending days cleaning up discrepancies. Blockchain makes it go away.

What is it going to take to get to this point? 

While I may be dating myself with this example, let’s look at VHS and Beta technology. Beta was great, but VHS won because it was a great technology and it built an ecosystem where we could not only watch movies, but movies we wanted to see. So, with supply chain, while there’s some great technology, there also needs to be investment to build the ecosystems. We are starting to see a groundswell.

How do we build an ecosystem? How do we get all the participants who are interested in making supply chains work better, making business more efficient, making customers happier—farmers, manufacturers, packagers, logistics companies, carriers, customs agents, government regulators—engaged and aligned to share information? How do we make this happen? It’s going to take real work.

Could cost be a burden, especially on smaller companies?

This is one of the fun things about thinking about the business model. For an ecosystem, you may need someone to participate who does not see as much direct benefit as you do. Using a hypothetical example, say there was a way for a retailer to use blockchain that would reduce its costs by 50%, but it needed information and participation from small manufacturers which put a 1% burden on them. The answer then is the retailers to figure out a way to pay the manufacturers to participate in the system. There are potential cost savings that can help pay for the investment to build the system.

 

From a technology infrastructure perspective, we are at a place where we can build these ecosystems. That’s what software as a service (SaaS) lets you do, by working in the cloud you can put systems out there that everyone has access to.

We can take advantage of things that already exist. Most people have smart phones. Designing a lightweight app, a trucker can download to his smart phone that allows him to update his location is not a burden.

Are we on our way? When you mention using SaaS and smart phones, do you see us moving in the right direction?

If you think of blockchain as a trusted set of data, then the more data you have as input, the better. Changes over the past 10 years or so are enabling this to happen now.

 

You spoke of having and giving permissions to view data—how secure is blockchain? Is security a concern?

Security is one of the fundamental reasons to use blockchain. Look at bitcoin. It came into being because people wanted a secure way to spend cash. It’s been running for years and no one has been able to break into it. As IBM sees it, the success of blockchain is going to depend on making it enterprise-class encompassing security, scalability, reliability, auditability. That’s why IBM supports Hyperledger, the Linux Foundation’s open standard. I like their approach and the way they are building Hyperledger because they are thinking about the way enterprises would use it. They are considering security from the beginning.

From an IBM perspective, we have a high-security network offering which leverages our experience. IBM runs ATM networks. You cannot let people break into ATM networks. You have to have security that involves hardware and protected crypto keys leveraging that with the immutability and security inherent in the software. You end up with something impressive. Enterprises we are talking to feel comfortable with this from a security perspective.   

Are there competing technologies?

There are competing standards. IBM looked at them and decided that the permission nature of blockchain is necessary, that there wasn’t another technology that’s an open standard, open governance and built from the ground up with permission as a fundamental tenet. That’s why we decided to go with this one. Using databases is another option. Databases are great when you’re working inside an organization, but when you work across organizations, they don’t imbue trust into the technology in the same way that blockchain can.

How to Find Ideal Clients

Recently Paul Kennedy wrote a very interesting article on finding your ideal client, it has some very good points that are worth using in your search for that “ideal client”

If there’s one challenge all businesses share, it’s how to find ideal clients. It begins with the business plan. In the words of Thomas Edison:

Good fortune is what happens when opportunity meets with planning

Business plans are important to:

  • identify and document goals and outcomes;
  • create a blueprint on how to get there;
  • develop relevant marketing initiatives, activities and actions; and
  • build the business profile and brand amongst ideal clients and networks.

Key questions for functional and relevant digital marketing

Simon Sinek is a British / American motivational speaker, marketing consultant, and author of three bestselling books including “Start with Why.”

Meeting someone for the first time, instead of asking “so what do you do?” Sinek suggests the first question should be “so why do you do what you do?”

What does this have to do with the business plan and finding ideal clients?

In building the plan, the question Sinek poses is a great place to start: “Why do you do what you do? (what drives you, what motivates you – your purpose, cause, belief – why does your business exist?).” Answering these questions first helps ensure business and personal goals are aligned, consistent and complementary.

Sinek says everyone has a ‘why.’ Sinek’s TED Talk can be found here Having established the firm’s ‘why’, will then lead to ‘how’ and ‘what’ needs to be done (not the other way around). This approach will also help identify who the business’ ideal clients are (and why they are ideal – what makes them ideal).

Ask ideal clients what they need and want (and why) – focus on delivering those needs and wants (rather than on what the business makes or provides). Asking and answering these questions will open up a whole world of where the business may go and how to get there. There’s plenty of advice readily available on what headings (slides) to include in the business plan (so that advice is not repeated here).

Completing the business plan is just the beginning – it’s the implementation and day to day living of the plan that delivers success. That’s the difference between having a plan and achieving goals.

Key criteria for success

The key criteria for success are:

  • having a well thought out and documented business plan; and
  • sticking to that plan on a daily basis (living the plan each and every day).

In developing the plan, “Nirvana” is to have ideal clients seek out the business. So anything that takes the firm towards that goal is positive. Having addressed the core issues of mission, vision, values, value proposition, services, structure, people, etc., the plan should focus on clearly identifying:

  • who the firm’s ideal clients are (who they currently are, who the firm would like them to be, who they could be, and why they are ideal – the types of organisations, their background, profile, traits, characteristics);
  • where they can be found (how do they spend their day; what activities do they participate in; what groups are they members of; what events do they attend; what are their interests?); and
  • how to engage with them on a daily basis (raising the company’s profile amongst its ideal clients and networks; building the firm’s brand; what events and activities the firm should attend or organise).

Marketing initiatives, activities and actions

The plan should identify and commit to a series of marketing initiatives, activities and actions that ensure the business:

• constantly surrounds itself with ideal clients; and

• engages with ideal clients on a daily and on-going basis.

This way, new business won or existing business retained, will be of a type that is consistent with the business plan.

These initiatives, activities and actions should be specific and detailed in the plan headings (slides) titled:

• Marketing initiatives, activities and actions; and

• Calendar of marketing initiatives, activities and actions (with timelines covering the next 18 months).

These two headings (slides) are amongst the most critical because they detail exactly what the business is going to do to attract its ideal clients (including how and with specific dates covering the next 18 months).

Non-ideal clients

The plan should also identify non-ideal clients (because they too will seek the business out – and when they do, it’s imperative they don’t distract from business goals – and that they are re-directed to competitors!)

In doing so, consider what makes them non-ideal – the types of organisations, their background, profile, traits, characteristics. For example, because they are too small, can’t afford the business’ services, don’t value or act on good advice, are slow payers, are high maintenance, or will never be ideal clients.

A business plan is just as important for individuals

A business plan is just as crucial and valid for an individual as it is for a business. Everyone needs a plan – irrespective of whether they are a business, a not-for-profit, self-employed, an employee or “seeking new opportunities.”

For individuals the plan should include both business and personal goals. These should be mutually consistent, complementary and take individuals to their desired outcomes, both business and personal.

It’s best to discuss and agree the plan with partners, ensuring their views are reflected in the plan.

Generally, there isn’t just one type of ideal client – usually, there are many different types of ideal clients (across a wide range of industries, each with different characteristics and a different profile). Identify them all, prioritise them and then set about getting the firm’s story in front of them.

Also think through why the firm is the best solution for ideal clients’ needs and wants – in communicating with a prospective client, focus on the benefits to them of doing business with the firm.

In identifying ideal clients, consider who their trusted advisers are (confidants they discuss their business matters with and take counsel from – e.g. their lawyer, accountant, or financial adviser).

Think of the parties who will be involved in discussions and the decision-making process when a transaction is being considered. Where practical, include these trusted advisers in the firm’s marketing and business development activities.

Other thoughts and comments

Much of the background information required in preparing the plan is readily available from the firm’s website, marketing material, LinkedIn profiles, CVs, other business and personal documents. It’s not a matter of starting from scratch or re-inventing the wheel. If the plan is right, it will lead the business to ideal clients and desired business outcomes. Identify who ideal clients are – build a profile of them – what industries are they in; what are their demographics; what characteristics and traits do they have; why are they ideal clients; what makes them ideal?

A final thought on business planning

Have a business plan – but also be open to other opportunities that may not have been considered or identified during the planning process.

Building the client avatar

Julie Mason (LinkedIn Sales Strategist and founder of LinkedSalesFormula.com) is a strong believer in developing and knowing the firm’s client avatar (a detailed profile of target customers / ideal clients).

Mason’s advice is: “If you’re struggling to identify and find your ideal clients, or your marketing is failing to generate results, it could be you haven’t fully developed a client avatar for your business.”

“Your client avatar needs to go much deeper than simply ‘small business owners’ or ‘accountants’. While this is at least a start on the demographics, it doesn’t even touch the surface of emotions that will motivate your ideal clients to purchase your goods or services.”

Mason also notes “every sale is based on emotion and justified with logic in the purchaser’s mind – if you haven’t delved into what makes your ideal clients tick, then you are leaving money on the table.”

Drilling down

Mason concludes: “This information will help find your ideal clients by using business tools such as LinkedIn, where you can search on the demographics and then create marketing material and content that will appeal to their emotions and draw them towards your business.”

“Unfortunately, most businesses don’t dig deep enough on this topic opting for the basic ‘my ideal clients are accountants.’ Yet, studies show that businesses that take the time to really drill down into the emotions and motivations of their ideal clients will enjoy far more success.”

CASE STUDY ONE

Who are the firm’s ideal clients currently – who would the firm like them to be – who could they be?

A leading Australian consulting firm works with medium to large companies in helping develop their strategic thinking, leadership, and sales and marketing skills.

In the past, the consulting firm typically delivered their program at a single location chosen by the client (e.g. the client’s head office). The program runs for ten months and involves the client’s senior management team coming together for a day each month.

A prospective client approached the consulting firm about engaging their services. However, the prospective client was a national firm with offices and managers located throughout Australia. The cost and down time of bringing 30 senior managers to a central location every month for a day, for ten months, was prohibitive. Other than cost and logistics, the prospective client and the consulting firm were an ideal fit.

The solution was to hold the monthly team and individual meetings via video conference, with all managers coming together in the one location twice during the ten month program.

The outcome was that the consulting firm delivered exactly what the client wanted – all that changed was how they delivered their service. As a result, the consulting firm has totally re-defined who their ideal clients could be (and opened up a much broader range of prospective clients they can now offer their services to).

CASE STUDY TWO

Know your ideal clients and where to find them – even better, if they find you!

A wonderful example of someone who truly understands and knows their ideal clients comes from Helsinki in Finland.

The magnificent Uspenski Cathedral was built from 1862-1868. It is set on a hillside overlooking the city. The Cathedral is said to be the largest Orthodox Church in Western Europe and attracts over 500,000 visitors a year. In front of the Cathedral, there’s a large area for tourist buses and cars to park while people drop in to have a look around.

Every day a homeless man sits at the bottom of the steps leading from the parking area up to the Cathedral. He looks bedraggled and down trodden – sitting there sad and down faced, shaking an old and dirty coffee cup with some loose coins in it, every time someone walks by.

This man knows exactly who his ideal clients are – every day, the system delivers him more than 1,300 ideal clients – busloads of tourists on holiday, visiting a grand place of worship, feeling grateful for their situation and no doubt empathy for the homeless man.

Who could walk past him without dropping a Euro or two into his cup? Those Euros all add up.

If Nirvana is ‘to have your ideal clients seek you out’, then this homeless man has created the perfect business model. Businesses can learn from him!

Some final thoughts on business development

  • identify ideal clients (the types of organisations and people the firm wants to do business with);
  • invest time with ideal clients;
  • know what ideal clients need and want;
  • be the best there is at delivering those needs and wants;
  • constantly surround the firm with ideal clients;
  • “appoint” everyone the firm knows as their business development manager (so if they hear of an opportunity, they can refer ideal clients to the firm);
  • keep it simple; and
  • love and enjoy what you do!

About the Author

Paul Kennedy is the Principal of PGV Consulting (a Brisbane based business planning and business development firm with a focus on the Australian and New Zealand markets).

The Role of Procurement in Business Process Outsourcing

Today, outsourcing is no longer a buyer-vendor relationship but a long-term partnership that is more than just cost-cutting. Anisha Khushlani, Senior Consultant for GEP discusses the subject.

It helps bring about better business outcomes by leveraging high-end technology and other expert capabilities from the vendor. Thus, there’s been a shift from Business Process Outsourcing to Business Process Management. This shift has brought about a change in attitude where the end goal is to not negotiate the lowest prices but create a win-win situation for the partners.

Some key trends in outsourcing include:

  • Vendor consolidation. Multiple vendors are no longer the preferred choice. Companies are moving to a more centralized system and consolidating their supplier base.
  • Outsourcing is on its way to adopting cloud technology and Robotic Process Automation.
  • The expectation from service providers now is to provide an end-to-end solution for the client’s needs. Companies are looking for a full suite of services from vendors.
  • Due to the economic slowdown of traditional outsourcing destinations such as China, Brazil, Russia and India, new destinations such as Colombia and Sri Lanka are emerging.

Reasons of Outsourcing and Types of Services Outsourced

Companies are outsourcing, on average, more than 50% of their products / services for several reasons, including:

  • Focusing on their core competencies while outsourcing less important processes/tasks.
  • Lowering costs by outsourcing to a low-cost country.
  • Accessing technology or resources not available within the company.
  • Having the flexibility to expand or downsize more easily.
  • Accessing new markets by choosing a supplier closer to the end customers.

The major services that are largely outsourced include Information Technology services (software design, computer services, etc.), Logistics and Distribution services and Business Process Outsourcing (back office activities, contract functions, HR departments, etc.) 

The Risks of Outsourcing

There are several risks associated with outsourcing, ranging from strategic risks such as determining whether to outsource, selection risks in evaluating the right set of potential suppliers and implementation and management risks.

Some of the more crucial risks that pose a threat to outsourcing are:

  • Cyber security. When working internationally, there is a considerable risk of security breaches or compromised intellectual property rights.
  • Failure to deliver. It is necessary to implement a contingency plan in case a vendor fails to deliver and exposes the company to substantial risk.
  • Noncompliance with government regulation. The entity in charge of vendor selection must ensure vendor compliance with industry requirements.
  • Other contract considerations. Managing risks with change related costs, risks with defining SLAs (Service Level Agreements) correctly and ensuring compliance with these service levels, etc.

Role of Procurement in Risk Management

With numerous benefits to outsourcing, companies are dependent on suppliers more than ever before, thus exposing the company to several risks. Today, procurement’s role is not just ensuring best prices for the products and services sourced, but also managing supplier risk for the organization. Procurement can manage this risk in a number of ways:  

Rigorous supplier selection processes. This ensures the right supplier is selected based on the needs of the organization process. It is always a good practice to solicit bids from different suppliers and go through a tight selection process involving RFX, reference calls, onsite presentations/demos, etc. 

Financial analysis. Reviewing the supplier’s financial statements to ensure the supplier’s business is profitable and the supplier is not at risk of insolvency. The larger the spend with the supplier, the more critical it is to assess the supplier’s financial health.  

Data security. Safeguarding the company from data breaches by putting non-disclosure and master agreements in place. The master agreement should have clauses around:

  • Data ownership clearly gives the ownership of data to the company
  • Data security outlines rules, standards and policies with respect to data security, for the supplier to adhere to
  • Destruction of buyer data upon termination.
  • Intellectual property gives all ownership of work developed during the agreement to the company.
  • Data-sharing agreement. Companies today have a dedicated data sharing agreement in place if any customer/personal identity information is shared with a vendor to protect data confidentiality.
  • Termination clause in case of any breaches caused by the supplier.
  • Business continuity. Supplier should adhere to a commercially reasonable data backup policy. It’s good practice to include SLAs in the contract that set minimum targets for the supplier to meet and ensure performance levels and mitigate supply disruptions. A penalty could be incorporated in case a service level falls short of the target.
  • No hidden costs. Ensuring the contract covers all possible costs in sourcing that product/service, including cost for additional services/resources required and has no scope for any hidden costs.
  • Change in ownership. The master agreement should safeguard the company’s rights in case there is a change in ownership of the supplier resulting from merger, acquisition, consolidation or otherwise.

These are some of the ways in which procurement can manage the risk of outsourcing to an external party and ensure smooth running of the company.

For a confidential discussion on how Business Improvement Advisory can assist your business with outsourcing, please contact us:

Creating a Roadmap for a Sustainable Procurement Future with ISO 20400

In January this year Suchismita Dhal published an article about the International Organization for Standardization has recently released ISO 20400, a standard for sustainable procurement. It provides guidelines that can lead to improved economic, social and environmental outcomes. Sustainability goals are of high priority for most organizations.

 

There is often an equivocation between “sustainable purchasing” and “green purchasing”.  Whereas the former is built on three pillars (i.e., the environmental, social and economic aspects of procurement) the latter does not.

The new ISO 20400 creates a standard that will enable every organization globally, regardless of size, industry, and location to have a flexible guidance framework on sustainable procurement. Unlike ISO 26000, guidance on social responsibility, ISO 20400 focuses specifically on the purchasing function. The Standard includes seven core subjects, including the environment, fair operating practices, labour issues and human rights.

Currently, the discussion has moved beyond sustainability where companies used to focus on doing the right things with selective objectives. Business leaders now understand that there is a whole spectrum of concrete benefits, ranging from supply flexibility, building brand and reputation for the organization, managing sustainability risks and getting ahead of future regulatory requirements. This new standard offers guidelines for developing, documenting and implementing a sustainable procurement policy to govern all purchasing decisions in the upcoming years.

This provides a platform to differentiate oneself from the competition and demonstrate leadership and innovation within the industry. Problems such as carbon emissions, water shortages, rising temperatures and climate change directly affect resources. It is not another accreditation but a guide to develop procurement goals, plan, and source and manage procurement sustainably.

As per ISO 20400 standards, sustainable procurement focuses on the sourcing of goods and services

 

that have the most positive environmental, social and economic impact across their life cycle. According to the standards, the procurement goals should align to principles such as accountability, transparency, ethical operation, fair opportunity, labour rights and health work conditions, economic resource optimization, and innovative solutions. The sustainable procurement objectives should complement business objectives; it should be relevant, measurable and target oriented.

An organization’s sustainable procurement strategy should address the following elements:

  • Good governance: Planning, reporting, control and monitoring
  • Fair Operating Practices: anti-corruption, fair competition
  • Labour Practices: Labour protection, safe and healthy working conditions
  • Human Rights: avoidance of unethical collusion; encouraging diversity
  • Environmental Impact: climate change, pollution control, saving water, recycle waste
  • Consumer Rights: Transparent and unbiased information
  • Community: Giving back to the community, cycling economy

Sustainable procurement though sounds to be relatively new term; however, it is not new. The approach to embracing sustainable procurement has changed. Sustainability is no longer only seen to gain competitive advantage but is now considered a prerequisite to business survival. After only a few short years of implementation, it has proven to deliver operative and financial results, in addition to enhancing brand reputation and supplier relationships.

 

In the global age of business operation, when companies are dealing with suppliers across the globe, procurement has no boundaries. Apart from adhering to international trade rules, regulations and addressing risk avoidance, businesses need to acknowledge their social responsibilities as sound sustainability and corporate social responsibility practices are crucial to supply chains.

 

Many Fortune 500 companies are currently investing heavily to ensure that sustainability is ingrained across all aspects of their supply chain and procurement

Institutions and standard accreditation bodies from 38 countries across the world worked together with ISO to develop this standard. There are a few organizations that started their journey years back, that have placed themselves in a position to help write the standard. As a matter of fact, the early movers get rewarded. ISO 20400 can provide sources of inspiration for companies that decide to get onboard for a sustainable procurement journey.

 

References:

https://www.iso.org/obp/ui/#iso:std:iso:20400:ed-1:v1:en

http://dqs-cfs.com/2016/07/sustainable-procurement-need-know-new-iso-20400-standard/

https://www.cips.org/supply-management/opinion/2015/july/international-standard-for-sustainable-procurement-forging-ahead/

http://spendmatters.com/2017/03/17/iso-20400-need-know-new-sustainable-procurement-standard/

KEEPING YOUR IT DATA SAFE

At ProcureCon IT in Amsterdam, Procurious company founder Tania Seary picked the brains of two leading security experts:

  • Kaushik Yathindra, Manager, Procurement Analytics, HSBC
  • Florian Schroeder, Head of IS Commodity & Contract Management, Bombardier Transportation

to learn more about how to implement data security and the Internet of Things. 

Why is data security so important?

As Florian Schroeder pointed out, you wouldn’t leave your most valuable possessions at the front door, you’d hide them away somewhere secretive. We should consider our data in the same way and not leave it exposed to hackers.

Data security is one of the fastest growing areas of IT spend. An estimated $1 trillion is going to be spent globally between 2017 and 2021. But how do you make sure your money is well spent, and your information secure?

Whilst data protection is a huge concern for organisations, it can be difficult to know where to start, particularly given the multiple types of data security on offer. Here are a few points to consider:

  • To ensure the security of both your and your suppliers’ data, it’s first important to understand the roles of everyone concerned. How will your procurement, legal, compliance and IT teams collaborate to ensure that contracts fulfil the level of service required in your organisation?
  • Consider data security in all your organisation’s decision making whether it be Sales, Accounting or IT.
  • Take what you need and nothing more. There’s no point in collecting useless or excess information. The more you have, the more that can get stolen. Likewise, only store information if your organisation has a need for it. And when you do dispose of it, do it securely!
  • Ensure your service providers have adequate security measures in place. And don’t just take their word for it – get it in writing!
  • Use complex passwords Make sure they’re stored securely and keep the most sensitive information secure throughout its lifecycle by encrypting data when it is transferred.

You can never ensure 100% security while there are hackers looking for it!

The End of Safe Harbour

Changing privacy regulations can make choosing where to store your data a complex process, particularly for global organisations.

In the EU, for example, privacy laws forbid any citizen’s data to be moved outside of the EU unless transferred somewhere with adequate privacy protections. Safe Harbour was an agreement between the EU and the U.S. in which the U.S. government promised to protect the information of EU citizens if transferred to the U.S. by American businesses.

This has been an extremely convenient agreement for companies such as Facebook. These companies were, up until now, able to store all of their EU data in U.S. centres.

Last month, however, the European court of justice ruled the agreement invalid. This will mean a lot of paperwork and red tape for U.S. businesses trying to move information out of the EU.

Perhaps the future is in establishing EU-based centres to handle data for EU citizens? Google, Facebook and Apple are already leading the way on this.

And it’s not just the end of Safe Harbour that will shake up Data Protection policies. The General Data Protection Regulation (GDPR) framework was formally adopted by European parliament in April this year to be implemented by May 2018.

If the UK has completed Brexit negotiations by this stage, they will face pressure to adhere to the GDPR framework to continue trade within the single market.

Digitisation and the Rise of the Internet of Things

Kaushik explained how banks are moving towards complete digitisation to accommodate the next generation of customer who expect to be able to do everything online. Whilst this is great in terms of customer convenience, it presents additional data security challenges.

The worldwide Internet of Things market is predicted to grow to $1.7 trillion by 2020. More than half of major new business processes and systems will incorporate some IoT elements. It won’t be long until every aspect of our daily lives is connected. We’ll have smart bridges, smart cars, smart houses, smart vending machines…we could go on!

Of course, with great tech developments comes greater data protection challenges. The Internet of things adds a significant threat layer in which physical devices can now be hacked, have their information stolen, and even be remotely controlled.

There are many ways that organisations can manage data security relating to the Internet of Things. These include:

  • Encrypting sensitive data as close to where it’s generated as possible, rendering it useless to attackers in the event of a breach.
  • Only sharing information on a need-to-know basis.
  • Applying end-to-end encryption to ensure that sensitive information captured by IoT devices is protected throughout its lifecycle.
  • Procurement teams can help move the market towards a world where security becomes a part of IoT products.

In the words of Gandalf, when it comes to protecting data, keep it secret keep it safe. 

Business Improvement Advisory can provide advice of IT security and the Internet of Things, for more information contact us:

Email               enquiries@bizia.co.au

Mobile             0450 457 196   or   0411 500 015

Website           www.bizia.com.au