Purchasingb2b June 2011

JUNE 2011

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5/20/2011 2:09:19 PM

editorial

features

Defining sustainability

How to protect your company

13 Office Solutions Little eco-friendly products can add up

T

he notion of sustainability is tough to define, and the term can be used by different people and organizations to mean different things. But our expert panel was up to the challenge when talking about sustainable procurement during our roundtable event on the topic. Sponsored by Grand & Toy, the roundtable first looked at what it meant for organizations to embrace sustainability in their procurement and supply chain practices. As you’ll notice from the resulting article on page 14, the road to arriving at a working definition was not entirely straight.

But one aspect of the definition process I appreciated especially was the attention paid to the idea that sustainability practices offer benefits to an organization. Rather than strictly a burden—or something organizations take on as corporate social responsibility— sustainability can provide advantages. During the discussion, Tyler Elm of Canadian Tire offered a definition of sustainability as “deriving economic benefits from enhanced environmental and social outcomes”. Rightly, he pointed out that sustainability policies were unlikely to last if the focus remained solely on the environmental benefits. A business case is also needed.

Of course, such practices offer benefits to the environment, but to actually be “sustainable” they must also offer an ROI to the organizations enacting them. Our roundtable listed saving money, improving customer service and supporting creative thinking and innovation as some of the benefits potentially realized from embracing sustainability.

While not absolutely necessary to pushing forward with a sustainability program, our roundtable identified support from an organization’s leadership as an advantage.

Hopefully, the list of advantages offered by our panelists will give procurement professionals some ammunition to present to the C-suite if called upon to provide a list of sustainability’s advantages.

On another note, Purchasingb2b has some news of its own: We’ve joined the Business Information Group (BIG) at Glacier Media. Glacier is Canada’s largest publisher of specialized business information. The organization publishes more than 90 magazines and directories, over 25 websites and 22 email newsletters.

What’s also positive is we at Purchasingb2b—along with our sister magazine MM&D— will continue providing timely, relevant and helpful information in the same format as always—both in print and online.

Vol. 53, No. 04

12 Risk Management

14 Sustainable Procurement Our roundtable feature on the business case for sustainability

20 Professional services What to do when you need the vendor’s help

• 8 Fuel efficient vehicles Cut fuel, keep power

• 12 Driver training The benefits of training yourdrivers

• 14 Voice navigation Talking you to safety

• 16 Road test 2011 Ford Edge

departments

5 Commodity Pricing 6 Business Front 8 Buylines 10 The Law 21 Le professionnel 22 The Professional

JUNE 2011

Publisher/Editor-in-Chief: Emily Atkins, 416-510-5130, eatkins@mmdonline.com EDITOR: Michael Power, 416-442-5600 ext 3259, mpower@mmdonline.com Managing Editor: Deanna Rosolen, 416-442-5600 ext 3234, drosolen@foodincanada.com Art Director: Sandy MacIsaac, 416-442-5600 ext 3242, smacisaac@hpacmag.com Production Manager: Karen Richards, 416-764-1688, karen.richards@rci.rogers.com Sales Manager: Dorothy Jakovina, 416-510-6899, djakovina@purchasingb2b.ca US Advertising Manager: Tom W. McGavin, 312-264-5854, tmcgavin@rubloff.com Circulation Manager: Barbara Adelt, (416) 442-5600 x 3546, BAdelt@bizinfogroup.ca Executive Publisher, Industrial Group: Tim Dimopoulos, 416-510 5100, tdimopoulos@rbizinfogroup.ca Vice-President of Canadian Publishing, BIG Magazines LP: Alex Papanou

Purchasingb2b, ISSN 1497-1569, is published eight times a year except for occasional combined, expanded or premium issues which count as two subscription issues, by Glacier BIG Holdings Company Ltd, 80 Valleybrook Drive, North York, ON, M3B 2S9. Subscription price (plus tax): Canada $99/year; $160/two years; $18/single issue; outside Canada US$170/year. Annual salary survey issue: $40; outside Canada US$67.70. Group rates: Six or more subscriptions $79.20/year per subscription.

Subscription Price: Canada $99 yearly, 2 years $160, single issue $18, outside Canada $170.00 US per year. Annual Salary Survey issue, Canada $40, outside Canada $67.70 US. Group rates: 6 or more subscriptions $79.20 per subscription per year.

Taxes extra. Publications Mail Agreement No. 40070230.

We acknowledge the financial support of the Government of Canada through the Canada Periodical Fund (CPF) for our publishing activities.

Purchasingb2b receives unsolicited features and materials (including letters to the editor) from time to time. Purchasingb2b, its affiliates and assignees may use, reproduce, publish, re-publish, distribute, store and archive such submissions in whole or in part in any form or medium whatsoever, without compensation of any sort.

Printed in Canada

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orn for July delivery closed up 22.75 cents (3.3 percent) at $7.2025 per bushel on May 17 in Chicago, amid concerns farmers will plant fewer acres than intended because of heavy rain. Farmers are struggling to sow corn in the eastern Midwest and northern plains and may give up on planting unless the weather improves.

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6/2/11 3:48:31 PM

Business Front

By Michael Hlinka

Canada’s most precious resource

C

anada is blessed with many natural resources. It’s both a cliché and a truism that our most important resource is our people. The reason we enjoy the quality of living and standard of life we do is because of the way generations before us transformed and tamed this wild land.

I cited a cliché previously. Here’s another one for you: Canada is a nation of immigrants. Therefore, any discussion around this issue can easily become emotionally charged. But given the importance of immigration policies to both our present and our future, it is irresponsible not to have an informed and rational discussion about optimal public policy.

Recently, I came across research from the Fraser Institute entitled “Immigration and the Canadian Welfare State 2011”.

In its summary, the document cites one of the most important findings: “This publication provides an estimate of the fiscal burden created by recent immigration into Canada…The study concludes that in the fiscal year 2005/06 immigrants on average received an excess of $6,051 in benefits over taxes paid...the fiscal burden in that year is estimated to be between $23.6 billion and $16.3 billion…these estimates are not changed by the consideration of other alleged benefits brought by immigrants.”

The methodology, as far as I can tell, is virtually flawless. The current system

costs native Canadians a lot of money.

Recall the report’s title. A nuanced reading suggests that the problem isn’t immigration—it’s the Welfare State. The writers acknowledge that the “textbook” case for free immigration is based on the assumption that government doesn’t engage in income redistribution. That is, hungry and talented people eager to make a better life create wealth that benefits everyone—themselves and the people there before them.

Except that the current cradle-tograve security that many Canadians support (and I find repugnant—but that’s another column altogether) inevitably leads to the situation that exists today. Immigrants are provided all the wrong incentives and the selection process is driven by bureaucratic decision-making.

The Fraser Institute identifies the problem and provides a solution. It would like to see immigration policy driven by employer need. It uses the present NAFTA model, which allows a flow of workers between the US, Mexico and Canada as its template.

Workers from other countries would secure valid employment contracts—in advance of arriving in Canada—and then after a “probationary” period, they would be allowed to pursue a path towards full citizenship. This would take the decision about who becomes a new Canadian away from bureaucrats and put it in the hands of the private sector.

Controversial? Yes. But if you indeed believe that Canada’s future depends to a great extent on who we select to join us, then it’s an idea that deserves serious consideration. b2b Toronto-based Michael Hlinka provides daily business commentary to CBC Radio One and a column syndicated across the CBC network.

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BUYLINES

PMAC partners to launch new purchasing index

By Michael Power

T

he Purchasing Management Association of Canada (PMAC) has partnered with UK-based financial information services company Markit and the Royal Bank of Canada to launch the monthly RBC Canadian Manufacturing Purchasing Managers’ Index.

The PMI is a composite indicator designed to provide a single-figure snapshot of the health of the country’s manufacturing sector. The survey tracks changes in: output; new orders; employment; inventories; prices and supplier delivery times. Index readings above 50 signal expansion from the previous month, while lower readings indicate a contraction.

“For us, the overarching reason for being involved is that one of PMAC’s

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core mandates is to promote the strategic value that supply chain managers contribute both to their enterprises and to the Canadian economy as a whole,” said PMAC president and CEO Cheryl Paradowski, during the launch of the index in Toronto. “For us, the PMI does an excellent job of enhancing the profile of purchasing and supply chain management decisions.”

The headline PMI registered 54.8 in May, down from 56.3 in April. The latest reading posted above the 50 nochange level and signaled an improvement in business conditions for the eighth month in a row.

Key findings from the survey include: • T he PMI fell for the second month running;

• T here was a rise in employment but at a slower rate than the previous month; and • Suppliers’ delivery times lengthened further as vendors struggled to source raw materials.

Business conditions in the Canadian manufacturing sector improved at a slower pace in May, the index showed, indicating weaker expansion of output and new orders. However, job creation remained solid and similar to that registered in the previous survey period. Suppliers’ delivery times lengthened further, while input prices rose at a marked rate during May. The index is available online at www.rbc.com/newsroom/pdf/pmiJune_11-rpt. b2b

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6/2/11 12:19:54 PM

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6/2/11 12:24:45 PM

The Law

By Robert Worthington

Principals, beware apparent agency

Appearances count when examining an agent’s authority

I

n a previous article, I addressed principals outsourcing their procurement functions to independent contractors.

We suggested if outsourcing is done with careful planning and with an understanding of agency law it can be an excellent corporate strategy. To help readers understand how agency law can impact a principal’s relationship with outsiders, we cover here the topic of agents and agents’ authority.

In procurement—indeed in all forms of business—most of an organization’s work is done by authorized representatives (i.e. agents) of an organization. The organization (i.e., the principal) expressly authorizes each agent to act on the principal’s behalf, for example, to make contracts with outside third parties. This express authority given to an agent is usually limited, for example, by type of contract, contract dollar value or another restriction to protect the principal from becoming liable for things they did not authorize their agent to do.

In many organizations, creating these internal limits on authority is as far as principals go, wrongly believing they’re protected from liability. Unfortunately, such principals can be creating problems for themselves.

In law, the onus is on a principal to place limits on their agents and then to publicize these limits to the outside world. By doing so, the principal will not be legally bound if their agent does something in excess of their known express authority.

If, as is unfortunately all too common, a principal doesn’t make known to third parties an agent’s authority is limited, third parties are entitled to assume an agent’s authority is what is usual or what appears to be that agent’s authority.

However, merely publicizing an agent’s authority limits is only part of the solution. A principal must also 10 | JUNE 2011

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avoid the appearance of authority (or what is known in law as “apparent authority” or “apparent agency”).

Apparent agency is designed to protect an innocent third party, not the agent, or, in practice, the principal. How it works is as follows. The principal, by word or deed, leads a third party to believe an agent is authorized to do something, even though in fact that agent is not. The third party, relying upon this appearance of authority, does something they would not otherwise do (i.e., negotiate a contract with the apparently authorized agent). To protect the third party who was misled by the appearance of authority, the law won’t allow the principal to deny the resulting contract.

In such a situation, a principal who has created an appearance of authority must face the consequences of that misrepresentation with respect to the transaction with the third party.

Between the principal and the agent however, as they both knew that the agent was not authorized, depending upon the facts, the principal may sue the agent. Practically, however, few principals sue agents for recovery of such losses (many simply fire them).

For a third party to claim an agent had apparent authority and that therefore the principal is bound, the third party must point to some statement or representation from the principal that led them to believe the agent had authority. The misrepresentation may be verbal, written or implied but it must emanate from the principal. Statements from the agent as to the extent of their authority do not amount to apparent agency.

A third party, when making a claim based on apparent agency, must also prove they were reasonably relying on the appearances of authority. If a third party was being unreasonable in relying on appearances or if they should have been suspicious, the law holds

that the third party has a legal duty to check with the principal and can’t claim apparent authority.

For principals, apparent authority of an agent is troublesome, since it’s based on appearances, not realities. Wise principals will take steps to protect against apparent authority by, for example, having double signature requirements on cheques, head office approval requirements stated on contract documents, published levels of staff authority available to contractors and vendors via the web and so on, to demonstrate what authority their agents have.

Apparent authority claims can’t be made if no agency exists. A person must already be an agent before an apparent authority claim can be made.

Thus, principals can’t be made to abide by what a non-agent did.

For agents, the concept of apparent agency is scary business. It allows an agent to create personal liability and gives them no protection for their own actions. Agents are in positions of utmost good faith and trust and if an agent exceeds their express authority but the transaction falls within their apparent authority, the agent can potentially be held personally liable to the principal. If a principal is forced into a contract they didn’t authorize, they can sue the agent. The outcome will depend on whether the agent proves the principal was more at fault than the agent (agent not liable), or that the agent was the real cause of the problem (agent liable).

When examining an agent’s authority and its potential to create liability for a principal, all principals must take care. As with many things in law, appearances count. b2b For more information on Robert Worthington’s products and services, visit his website at www.purchasinglaw.com. purchasingb2b.ca

6/2/11 2:26:52 PM

Risk management

By Deanna Rosolen

Know your risks

Risks can lurk in procurement contracts; take steps to mitigate them

N

avigating a procurement contract can be like navigating a minefield. Some risks are obvious, others aren’t. The key is knowing what to look for and what your options are. How do you protect your company? Here’s an overview of the kinds of risks that crop up and how best to mitigate them.

Sole-source risk means there are no alternative sources for that product or service; in other words one supplier. If that supplier increases the cost, there’s an plant accident or the supplier shuts down, the buyer is potentially stuck.

Bill Michalopulos, general manager procurement for Canada Post, says his organization tries to avoid sole-source situations altogether, but if that’s not possible the organization does “an analysis and determines whether there’s any serious impact to the company from a revenue, cost or service standpoint.” But the biggest mitigation activity, he says, is ensuring the organization doesn’t put itself in a sole-source situation in the first place.

Try reverse engineering Shawn Casemore, president of Owen Sound, Ontario-based Casemore & Co, has another approach to consider. He suggests sole-source situations don’t have to exist at all. “There’s a myth that if I have a sole source they’re the only company that can provide me with this product or service,” he says. Buyers could instead investigate reverse engineering. Keeping intellectual property rights in mind, there are companies out there that can take a finished product and “work it backwards” by taking it apart and figuring out how it was made. They can then reproduce a similar product.

Another way to work around sole 12 | JUNE 2011

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sourcing, says Casemore, is to collaborate with the supplier either to have buffer inventory or to arrange to have a second supplier. The first supplier would be the main source for the product, owning all intellectual property rights to it, but a back-up supplier could help if production hurdles spring up.

Other risks include misunderstanding lead times for delivery. If a supplier says the expected or approximate delivery date is 16 weeks, it’s critical to look into all the factors that contribute to that date. Where did the date come from? How firm is it? Casemore says it’s really a matter of having an open dialogue with your supplier. Buyers shouldn’t have to chase their supplier when the date has passed only to hear that it’s going to be another few weeks.

Michalopulos says the contract with your ERP provider is another element to keep in mind. What happens once that contract is over and your organization has to switch to another provider?

Implementing an ERP system once is tough enough, he says. “It’s a difficult one to mitigate in a lot of ways because the pain to change it is so significant.”

Another issue involves suppliers not updating their ERP systems to keep up with technological advances. Michalopulos says you have to assess how important that technology is to your organization. “If you engage technology to do something core, something critical, you have to keep that in the back of your mind: what’s going to happen in the future? What’s going to happen five years, six, seven or eight years from now?”

Another risk is not determining the full cost of ownership of a product or piece of equipment. Procurement professionals, says Casemore, must look at the whole lifecycle, right from planning

to the end-of-life. “Often procurement professionals aren’t looking at the total cost of the lifecycle of that asset, they’re looking at what it costs to buy it and get it here, but they’re not looking at what it might cost to get rid of it down the road.” The risk lies in thinking they’ve got a great deal without accounting for the disposal costs later.

Also, guard against over-specifying or under-specifying products. If an organization over-specifies what it needs in a valve, for example, will that valve fit correctly in that organization’s system? Will it meet or exceed the same rigor? There are risks in how the specifications are set. If the wrong product arrives, an organization will have to buy it again, says Casemore.

Geographic diversity Risks can be out of an organization’s control, like natural disasters and terrorism. But organizations can prepare by ensuring they have alternative suppliers that are geographically dispersed, says Michalopulos.

As organizations look for more ways to cut costs, the risks in procurement contracts have come to the forefront.

While the responsibility to identify the risks lies mainly with procurement professionals, says Michalopulos, it’s often now shared across organizations.

“Procurement has a responsibility to expose the risks to the total organization, but it’s something the whole organization should be sensitive to,” says Michalopulos. “If you disrupt your supply chain, it can have huge negative implications for your revenue, your reputation and your service. Risk management now is a corporate issue and procurement plays a leading role in identifying and outlining mitigating factors one can take.” b2b purchasingb2b.ca

6/2/11 3:57:38 PM

By Michael Power

OFFICE SOLUTIONS

Small products, big difference

Small, sustainable office supplies add up to a big impact

W

hether it’s biodegradable pens, binders and notepads made from recyclable materials, or environmentally friendly toner cartridges, little things add up when it comes to sustainability.

Taking note of sustainability The Blueline MiracleBind Notebook is made from 30-percent post-consumer waste and vegetable oil-based ink. It has a twin wire binding with hard-rib embossed covers.

There are 150 removable and repositionable micro-perforated pages with ruled margins. The books include 10 telephone/address and note pages, an index sheet and self-adheisive tabs.

Staples Advantage offers a line of products under the name EcoEasy.

Products under that brand must meet one or more environmental criteria, including being made with 100-percent post-consumer recycled content, third-party environmental certifications or standards, or those that use various other environmental design features.

For example, Staples Advantage sells notebooks made from 80-percent sugarcane waste. The company’s Sustainable Earth eco-friendly notebooks have a heavyweight craft cover and two full-sized kraft pockets. The 91/2in x 6in, 200-page notebooks also feature a heavy-duty coil and perforated white college ruled sheets. They’re printed with vegetable and water based inks.

Leaving a mark Pens offer another opportunity to promote sustainability. The Zebra Sarasa Eco Retractable Gel Pen is made from 81-percent post-consumer waste.

The pens feature a soft, rubber grip for purchasingb2b.ca

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comfort.

It’s spring-loaded and the clip easily attaches to notebooks binders. The pens are acid-free and come in boxes of 12.

As well, Paper Mate Biodegradable ball pens and mechanical pencils are made from renewable corn-based material. Most of the pen’s components are biodegradable in soil or compost within about a year. As well, BIC ecolutions ReAction Ball Pens are made with 74-percent recycled materials originally used in other manufacturing processes. The pens are retractable ballpoints with smudge-resistant writing.

Eco-friendly ink Procurement managers looking for sustainable toner cartridges can check out HP’s “closed loop” process, which the company says is the first of its kind.

Recycled plastic from HP ink cartridges is combined with recycled plastic bottle materials to create new Original HP ink cartridges.

The recycled plastic used in the Original HP ink cartridges has a carbon footprint up to 22-percent smaller than products with virgin plastic—even

including the effects of collecting, transporting, and processing the empty cartridges and plastic bottles used to make the recycled PET. HP has produced one billion Original HP ink cartridges containing post-consumer recycled plastic. Eight hundred million of those cartridges were manufactured with recycled plastic from the HP closed loop process.

Xerox also offers cartridges—such as its Enviro+ Print Cartridges—that feature reused hulks offering the same quality of prints while preventing stilluseful cartridges from winding up in landfills.

Xerox said quality testing ensures the last print is as good as the first.

The product features one cartridge per carton, with a capacity of 3,500 prints each. For those who have purchased a printer from another manufacturer, cartridges from Xerox are still compatible with those machines.

The toner-based printer cartridges are called Responsible Brand BioBlack Toner Cartridge. The product has a high “bio” content, the company said.

Bio-based products are composed in whole or large part of renewable agricultural or forestry materials.

Staples Advantage also carries Sustainable Earth Laser Cartridges, which are remanufactured toner cartridges.

The product is backed with a one-year quality warranty and is 100-percent post-production tested. b2b JUNE 2011 | 13

6/3/11 3:44:54 PM

COVER STORY

Sustaining v Sustainability and supply chain management In recent years, sustainability has morphed from a nice-to-have item to a must-have pursuit.

Purchasingb2b editor Michael Power takes a look at what’s involved when organizations focus on sustainable procurement practices.

I

n today’s procurement world, few topics spark as much discussion as sustainability. Practically every procurement conference features speakers, panels or education sessions highlighting how sustainability issues affect purchasing. But what are the benefits in pursuing sustainable policies? What’s the business case?

How do organizations implement strategies once they decide what sustainability initiatives look like?

To answer these and other questions, Purchasingb2b—along with sponsor Grand & Toy—assembled a group of experts to discuss sustainable procurement. Our panel included: Patricia Moser, Grand & Toy’s vicepresident of supply chain; Cory sponsored by

Canadian business leaders from a cross-section of industries met at Purchasingb2b’s sustainability roundtable on April 12, 2011. The event was sponsored by Grand & Toy, a Canadian business solutions provider dedicated to promoting thought leadership on sustainability and strategic procurement in the Canadian supply chain and procurement industry. This is an editorial report detailing highlights of the event.

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Searcy, assistant professor, department of mechanical and industrial engineering at Ryerson University’s faculty of engineering, architecture and science; Tyler Elm, vice-president, business sustainability, corporate strategy and real estate; Kevin Boehmer, director, sustainability, CSA Standards; Marcia Seymour, senior manager, special projects and change management, strategic sourcing group at TD Bank Financial Group; Frances Edmonds, director of environmental programs, HP Canada and Bill Horrocks, vice-president, Enterprise Supply Chain Logistics Group, Rogers Communications. Emily Atkins, Purchasingb2b’s publisher and editor-in-chief, led the discussion.

To begin, the group discussed how to define sustainability. Frances Edmonds praised a definition from the 1983 Bruntland Commission that sustainability involved “meeting the needs of the present without compromising the ability of future generations to meet their needs”. But, she said, that might seem “airy fairy” to those without a sustainability background,

L-R: Frances Edmonds, Kevin Boehmer, Patricia Moser, Cory Searcy, Marcia Seymour, Bill Horrocks, Tyler Elm

purchasingb2b.ca

6/3/11 3:50:58 PM

value

❰ By Michael Power ❱

potentially leaving them wondering: “How am I compromising future generations?”

Tyler Elm cited Canadian Tire’s definition of business sustainability as “deriving economic benefits from enhanced environmental and social outcomes”. Sustainability policies were unlikely to last if used only for environmental benefits, he said.

Therefore, it’s best for businesses to focus on sustainability as a strategy for organizational enhancement, value creation and organizational efficiency.

Businesses can be challenged in transferring from the Brundtland Commission’s definition to an organizational definition, Elm noted. “It may be the right thing to do, but if that’s the only reason for pursuing sustainability you’re either a non-profit or going to become one,” he said. “We have to be true to ourselves in terms of what is our mandate and how do we incorporate sustainability into that for-profit mandate?”

“One of the definitions I’ve always liked is ‘Sustainability is about enhancing corporate value,’” Kevin Boehmer said. “It’s not something that gets published a lot in terms of quotes, but I think that’s what it comes down to.

And certainly making sure that you consider these environmental and social issues in decisionmaking.”

An important part of any definition of sustainability is the need to encourage like-minded behaviour among partners throughout the supply chain, said Boehmer. Patricia Moser agreed: “It’s important that we understand it from supplier, to us, to client—and that we’re all partners within that realm,” she said. “We can’t do anything unless everybody is involved.”

Show me the benefits The discussion moved to sustainability’s business case. Many businesses had “low-hanging fruit” in terms of opportunities to adopt sustainability, said Edmonds. “First off, it can save money; and the first duty of business is not to maximize profit but minimize loss,” she said.

Every initiative Rogers undertook included a benefit, such as improving customer service or the bottom line, said Bill Horrocks. That push has propelled the company towards adopting sustainable policies. “To be honest, that’s how we started,” Horrocks noted. “It was in our drive for efficiency, and then a light bulb went off over our heads and we said ‘wait a minute, we’re actually doing the green stuff.’”

Grand & Toy also considered sustainability in all its business decisions, said Moser. “We never move purchasingb2b.ca

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COVER STORY

“We’re kind of in the wild west right now in terms of metrics and standards.” forward on anything unless that’s taken into consideration and, actually, it’s driven a lot of creative thought,” she said.

Companies often start moving towards sustainability by searching for operational efficiencies, said Elm. Once companies get some “quick wins” they can begin expanding the scope.

“At Canadian Tire we’re looking at operational efficiency initially then we’re looking at sustainable design, sources of revenue, sources of growth—and that’s all about competitive strategy and now we’re already looking at corporate strategy,” Elm said. “So, using sustainability as a platform related to diversification; how do you take your assets, your core competencies, your skill sets and—based on what you’ve learned in operational efficiency and sustainable design—how does that prepare you for new sources of growth?”

What it costs To show customers the costs associated with sustainability, HP had tools measuring costs, said Edmonds.

Procurement managers previously were unable to calculate the total cost of owning an HP product, she said, noting the company now makes those 16 | JUNE 2011

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evaluation tools available to customers. “Somebody in your position can actually know up front before you buy a product what it’s going to cost you to operate it in any given province, what the footprint associated with that is and then also build in the end-of-life management,” she said.

Stipulations within RFPs could also hinder sustainability, said Moser. For example, some companies asked for 24-hour delivery with no minimum order. “That’s totally contra-indicated to having a sustainable program where you don’t have to order every day and we shouldn’t have to ship out one pen,” she said. “You almost have to go back to what is the need-to-have and what’s the nice-to-have.”

While acknowledging there are costs associated with sustainability initiatives, Searcy noted some organizations were willing to incur short-term costs in search of longer term benefits.

He cited a Toronto beer company that had bought brewing equipment initially more expensive than other options. But the equipment would help save money over time.

“Corporations are looking for stuff that does enhance value,” he said. “I think many corporations will do things that perhaps don’t have an immediate

return and maybe not even an obvious return. But I think they do expect that long-term return, that long-term impact on their economic bottom line as well as the associated environmental and social benefits.”

While the initial costs of equipment or services may be high, organizations should also look at lifecycle costs such as operational and maintenance, said Elm. “Sustainability is about breaking down the silos within the organization to look at a system and what do those systems cost,” he said. “What’s the enterprise value as opposed to the value within a single department?”

Sustainability also offered value in terms of “organizational enhancements”, said Elm, for example removing silos, promoting innovative thinking and stakeholder engagement. “The two go hand-in-hand—the economic and the environmental benefits,” he noted.

But does adopting sustainable policies depend on executive leadership?

While that represents the ideal it’s not necessary, said Edmunds. A team, group or department within an organization can affect change by working towards sustainability, she said.

“Because it’s a journey you can start small and grow, you can start from the top and go down, you can start from purchasingb2b.ca

6/3/11 11:06:17 AM

“It’s important that we understand it from supplier, to us, to client—and that we’re all partners within that realm.

We can’t do anything unless everybody is involved.” the bottom and go up,” she said. “It’s definitely easier if you’ve got a champion who has some bigger picture, who can look at the organization as a whole, set some objectives as a whole and try to break down some of those silos for you, but it’s not strictly necessary; it just means it will be harder.”

Often, issues like sustainability are given to a specific department that’s then tasked with offering solutions, said Elm. He stressed the importance of people learning from each other rather than working alone. “Transportation people, working with packaging people, working with merchants, to get at the systems perspective and these innovation networks are really the mechanisms by which we get sustainability in the business,” he said.

“But they’re not nearly as successful in isolation as having also the executive leadership from the top.”

That executive leadership leads to sustainability becoming ingrained in that organization’s “DNA” said Moser, who noted at Grand & Toy “pretty much everybody, when they put forward an initiative, thinks about sustainability”.

The shift was encouraged from senior management, she said, with top-down influence not the only way to adopt sustainability policies. “But it makes it purchasingb2b.ca

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easier,” she said.

Building sustainability initiatives on existing policies streamlines the journey, said Searcy. “Always start with what’s in place,” he said. “There’s probably all kinds of things people are doing that are relevant to sustainability even if it’s not called the sustainability initiative. There are probably all kinds of systems that people are using that work perfectly well and it doesn’t make sense to go create some parallel or separate sustainability system or management system.”

Measuring results, such as through sustainability reports, can help pull pieces together within an organization, Edmonds said. Compiling such reports can help organizations realize consequences and map what’s already been done. But “we’re kind of in the wild west right now in terms of metrics and standards,” she noted.

Elm weighed in on the importance of benchmarking sustainability initiatives, saying momentum increased when sustainability’s economic value got measured. “And now, when I go to see senior executives—hear the results for the quarter—they’re pouring over the metrics to see where they can derive additional value for the business, and because that value is linked

to environmental value,” he said.

“Measurement and quantification of the business and environmental value is an essential component of implementing the strategy.”

Organizations should work towards establishing a starting point on sustainability. From there, the business can benchmark whether they’re moving forward, work on continuous improvement and engage like-minded groups and people. “You have to benchmark yourself and then see how you’re doing in improving your packaging or your greenhouse gas emissions,” she said.

“I hear so often that people say ‘I don’t know where to start’. That’s where you start.”

She encouraged setting short-term, relatively easy goals, especially in the early stages. Once those are achieved, organizations can move onto longer term “stretch goals”.

But sustainability can be tough to measure directly, Searcy noted. His students looked at about 90 Canadian corporate sustainability reports, pulling out the indicators companies shared, he said. Although there were 585 such indicators, there was little agreement on which should be reported.

“There’s really no standardization at all in terms of measuring,” he said.

JUNE 2011 | 17

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COVER STORY confusing—like putting your cell phone in a blue bin,” she said. “And it varies across the country because different provinces have different end-of-life management programs.”

Barriers to sustainability

“We really are the wild west at this point. There were very few [indicators] that had anything explicitly to do with supply chain management.”

Getting suppliers on board The group agreed on the importance of working to get suppliers to support sustainability initiatives. For example, HP had developed a “code of conduct” for the company’s supply chain, Edmonds said. “We developed it and then we realized, ‘well, in the IT world we’re buying from the same suppliers—wouldn’t it make sense, it would help our suppliers, if all our customers were asking the same questions in the same way?’ So we took it to an industry body and made it an industry standard so the suppliers were expecting information to be provided in the same way so that the supplier can do it much more quickly and easily.”

Horrocks noted Rogers had helped with the re-design of a product’s packaging. The move helped reduce the supplier’s costs as well as reducing Rogers’s transportation costs, he noted. Although sustainability wasn’t the company’s goal, the project helped kick off Rogers’s sustainability journey, Horrocks said. “It had a cascading impact all the way through and we had less damage to handle at the other end,” he said.

In helping a product’s users support sustainability—for example, at the product’s end-of-life—any action an organization takes must make the process as painless as possible for the end user, Edmonds said. “It has to be convenient, it has to be easy and not 18 | JUNE 2011

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What barriers do organizations face when trying to implement sustainability programs? Citing his research, Searcy noted several main barriers: resources, monitoring and a lack of understanding of the concept of sustainability.

“The last one is the one that jumps out at me,” he said. “We could probably have been here all day trying to define what sustainability is because it means different things to different people—it’s ambiguous. The Brundtland Commission definition has wide acceptance, but I think it doesn’t say a whole lot about what we actually do in practice.”

Searcy noted a lack of leverage over suppliers as another sustainability barrier. “If you’re not a particularly major purchaser of their product—or they’ve got a very wide customer base—they may not be so interested in changing,” he said.

Seymour stressed the importance of not trying to “boil the ocean” by taking on too much at once. “Pick one or two or three key programs or projects and put some focus on them, and be willing to go in for the long haul,” she said. “If you try to do it all, you’ll never be able to do it. So find those things that will work.”

As well, people in the organization must also be accountable in terms of sustainability, Seymour said. “have everybody just do it because they want to do it,” she said. “It’s got to be

“Everybody can do more, but baby steps. I’m sure there are some quantum leaps once in a while, but it takes time to integrate this stuff into a business.“

somebody’s job and it’s got to start to infiltrate [so that] everybody has some accountability to participate.”

Made in Canada sustainability Much of the sustainability innovation originates from organizations in the US and other countries rather than Canada, said Horrocks. Still, there’s been more Canadian activity such as conferences and roundtables surrounding sustainability in recent years, he noted. “A lot of focus is on the low-hanging fruit that I know we have and just as Rogers, as an entity, we’re constantly coming across stuff where we say ‘Well, I didn’t do this five years ago.’”

Searcy characterized the Canadian experience with sustainability as a “mixed bag”, adding the country was in the early days of adopting sustainability in business. Still, he noted, many companies were doing great work and making improvements.

“Sometimes you talk about sustainability and people use it as a hammer—you should be doing more,” he said. “Everybody can do more, but baby steps. I’m sure there are some quantum leaps once in a while, but it takes time to integrate this stuff into a business.”

Traditionally, sustainability initiatives have been viewed as a corporate social responsibility. The roundtable stressed sustainability’s measurable benefits, and that more organizations are focusing on it as part of their mandates. Procurement managers are now in an excellent position to encourage their organizations to adopt sustainable practices. b2b purchasingb2b.ca

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IT NEGOTIATION

By Phil Downe

Negotiating professional services Time and materials or fixed price?

T

en years have passed since my first article for Purchasingb2b in 2001.

Not much has changed since then.

When licensing software beyond the shrink-wrapped applications, there are typically five negotiation areas: license fees, annual support fees, professional services, travel and living, and training. Let’s focus on professional services (PS) over an implementation period where the buyer needs the vendor’s help (or a certified third party) to configure the software. Beyond the “activate/de-activate” functionality, there’s also a need to build interfaces with the existing in-house systems.

The specifics of how the buyer wants the new application to work is detailed in the request for proposal (RFP) as a statement of work (SOW).

The vendor’s response usually comes as a systems implementation plan in MS Project, detailing the timeline and tasks from kick-off to post go-live tuning support.

You want a fixed price, but there’s no possibility of that without fixed specification. Before you start writing a RFP you must get your subject matter experts (SME) working on the SOW. Ten years ago you’d be lucky to find anyone with a well-defined process document for the existing system, let alone a detailed version for how the new system would work. Even today I see internal process documentation lagging behind the active system.

Your vendor bids a fixed price—based on their interpretation of the SOW—then adds a healthy contingency, or they bid a time and materials (T&M) alternative with an estimate with a much smaller contingency, if any, based on their interpretation of the SOW. The vendors are still in a competitive bid process so they need to keep their offer as low as reasonably possible while still complying with the tech20 | JUNE 2011

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nical requirements. If it doesn’t say, “Yes, and included in the PS estimate”, you’re probably not getting it unless it was clearly defined in the SOW. With a fixed bid there should be a detailed list of everything not included to ensure the scope is clear. Have the vendor submit the exclusions list with the RFP response, with the proviso that any functionality not excluded is automatically included in the PS quote.

For T&M, that’s a leap of faith unless you have a solid SOW, and in that case why not go fixed price? Who wants to carry all the risk of a budget overrun with T&M? To be fair to the vendor, in lieu of a very detailed specification, they can’t know your system’s every data flow.

Those idiosyncrasies usually don’t appear until the discovery phase after the deal is signed and the boots are on the ground. Then your SMEs might be hard-pressed to know enough about all the functionality in the new system to write the SOW to exploit its potential.

My preference is to see a RFP response with a T&M offer hopefully based on a solid SOW. I’d want to see the daily rates for each category of resource the vendor is proposing from their ranks. I’d also like to see where those resources are engaged within each task of each phase for the entire systems implementation plan. Vendors may not like providing that level of detail. But they have it, because how could they price the effort without it?

How much contingency have they built into the estimate? They wouldn’t have much credibility if there were none, which would raise the question of a low-ball bid. If it were 20 to 25 percent on a T&M, I’d say that’s reasonable. Now you have some rationale to negotiate the PS costs to 75 to 80 percent of what was proposed and reserve the contingency for changes that

were not anticipated in the SOW. Next, I’d address rates. At $1,800 a day for a full-time equivalent (FTE) vendor resource, five days a week, less three weeks vacation and a dozen statutory holidays and the vendor is billing out 233 times $1,800—$419,400 for that FTE. That’s probably north of a 200-percent markup, leaving room for a project-rate discount. If you needed one FTE for a week it would be different, but two or three FTEs over a six-month period and I’d expect a volume discount.

Another benefit of mapping the resources with associated rates to the implementation plan is it provides the rationale for meaningful milestone payments. Make sure you have reasonable holdbacks. It’s not about putting in the time. It’s about results, which usually means a user acceptance test (UAT). The completion of a UAT triggers a payment. Fail the UAT and the payment gets held back until the work meets the specifications. Depending on whether the agreement is fixed price or T&M presents different levels of risk to the vendor, but the onus remains on the buyer to ensure the agreement covers lost time, increased costs and non-performance penalties from vendor mistakes or misinterpretation of the SOW. Once both sides are confident of the specifications and that they are unlikely to change, the parties might come to a final agreement on a fixed price. Check with purchasing or legal first—in fact before you send out the RFP—to ensure you are within your procurement policy. b2b Phil Downe (phil.downe@itnegotiations. com) is an independent IT contract negotiator, founder of Relations Management Group Inc. and a member of the Purchasingb2b editorial advisory board. purchasingb2b.ca

6/2/11 2:28:23 PM

MC

Par Cheryl Paradowski

le professionNel

L’ACGA est fière d’annoncer son nouveau partenariat canadien en gestion de la chaîne d’approvisionnement avec CAL

B

ob Armstrong, président de CAL Canada, partage mon enthousiasme à l’égard de notre nouvelle relation. « CAL est heureuse de travailler avec l’ACGA, et la signature du protocole d’entente confirme le désir de chacune des parties d’aller de l’avant pour le mieuxêtre de tout le secteur de la chaîne d’approvisionnement au Canada. » L’ACGA a travaillé fort pour établir des liens avec des organismes du domaine de la chaîne d’approvisionnement du monde entier, notamment avec l’IFPSM, un organisme regroupant 43 associations nationales du secteur qui a d’ailleurs accrédité le Programme de leadership en gestion stratégique de la chaîne d’approvisionnement de l’ACGA. La signature en 2010 d’ententes de réciprocité des titres avec les deux associations en GCA les plus importantes au monde, l’Institute of Supply Management (ISM) et le Chartered Institute of Purchasing and Supply (CIPS), témoigne de la qualité de notre programme d’accréditation des p.g.c.a. et de notre réputation sur la scène internationale.

Ces réussites à l’échelle mondiale sont très importantes pour l’ACGA, mais nous croyons qu’une meilleure collaboration avec d’autres associations canadiennes partageant notre vision est aussi nécessaire et qu’elle pourrait déboucher sur des occasions mutuellement profitables qui rejailliraient sur l’ensemble du secteur canadien de la chaîne d’approvisionnement.

C’est pourquoi je suis fière d’annoncer que les premiers pas ont été faits en vue de travailler de plus près avec des organismes canadiens qui partagent notre vision. En effet, l’ACGA vient de signer un protocole d’entente avec l’Association chaîne d’approvisionnement et logistique Canada (CAL) afin de collaborer sur des sujets tels que la recherche, la

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politique publique et la sensibilisation à l’importance de la GCA stratégique dans l’économie canadienne.

Il était tout à fait logique et opportun de conclure ce partenariat puisque les mandats de nos organismes respectifs sont davantage complémentaires que concurrentiels et que ce partenariat comporte des avantages mutuels pour nos membres et pour le domaine de la GCA dans son ensemble.

Bob Armstrong, président de CAL Canada, partage mon enthousiasme à l’égard de notre nouvelle relation. « CAL est heureuse de travailler avec l’ACGA, et la signature du protocole d’entente confirme le désir de chacune des parties d’aller de l’avant pour le mieux-être de tout le secteur de la chaîne d’approvisionnement au Canada. » Le partenariat nous permettra de parler d’une voix forte et unie afin d’influencer la politique publique et de sensibiliser le marché à la nécessité de recourir à des gestionnaires stratégiques de la chaîne d’approvisionnement et aux avantages d’une telle expertise pour la compétitivité des entreprises.

La recherche en GCA profitera également de ce partenariat puisque les deux associations pourront combiner leurs ressources afin d’offrir des créneaux de recherche pertinents pour notre champ d’exercice.

De plus, les membres des deux associations auront accès à du contenu et

à de la formation sur certains aspects de la GCA dont ils ne pouvaient bénéficier par le passé. Par exemple, les membres de CAL auront accès à une plus grande expertise en approvisionnement, et les membres de l’ACGA, à une plus grande expertise en logistique.

Ce partenariat constitue le début d’une meilleure collaboration canadienne et ouvre de nouveaux horizons. Nous avons hâte de constater les avantages qu’il procurera à nos membres au fur et à mesure que l’ACGA approfondira sa relation avec CAL Canada. b2b À propos de CAL L’Association chaîne d’approvisionnement et logistique Canada (CAL) est le chef de file des associations nationales et représente la communauté de la chaîne d’approvisionnement et de la logistique au Canada depuis plus de 40 ans; ses membres touchent à toutes les facettes de la chaîne d’approvisionnement et de la logistique.

CAL est la seule association canadienne qui s’adresse à l’ensemble du domaine de la gestion de la chaîne d’approvisionnement tant par ses effectifs que par ses programmes.

CAL est à l’avant-plan de l’industrie et renseigne ses membres sur les tendances en logistique, tant sur le plan national que mondial. Nous contribuons à promouvoir la gestion de la chaîne d’approvisionnement et la logistique comme un facteur important de rentabilité des entreprises, nous assurons un leadership dans la mise en œuvre de solutions intégrées de logistique et nous menons des recherches dans notre secteur.

« CAL est heureuse de travailler avec l’ACGA, et la signature du protocole d’entente confirme le désir de chacune des parties d’aller de l’avant pour le mieux-être de tout le secteur de la chaîne d’approvisionnement au Canada. » - Bob Armstrong, président de CAL Canada JUNE 2011 | 21

6/2/11 12:22:17 PM

the professional

TM

By Cheryl Paradowski

PMAC is pleased to announce SCL as our new partner in strategic supply chain management in Canada

P

MAC has worked hard to build relationships with many of the leading supply chain organizations around the world.

This has been primarily achieved through our involvement in the International Federation of Purchasing and Supply Management (IFPSM), a body of 43 national supply chain associations worldwide.

PMAC’s Strategic Supply Chain Management Leadership Program is accredited by IFPSM. The establishment in 2010 of Designation Reciprocity Agreements with the two largest SCM associations in the world, the Institute of Supply Management (ISM) and the Chartered Institute of Purchasing and Supply (CIPS), speaks not just to the high quality of our new SCMP accreditation program, but also to our reputation on the world stage and the respect that we have been able to build for PMAC abroad.

While these international success stories are very important to PMAC, we’ve often felt that more collaboration with the other associations right here in Canada, who share our vision for the field of practice of strategic supply chain management, was necessary and could result in mutually beneficial opportunities for the domestic associations and the supply chain field in this country as a whole.

That is why I am proud and excited to report our first step towards achieving this goal of working more closely with like-minded organizations in Canada.

PMAC has just finalized a Memorandum of Understanding (MOU) with the Supply Chain and Logistics Association Canada (SCL) to collaborate on areas such as: research, public policy and raising awareness of the importance of 22 | JUNE 2011

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strategic SCM to the Canadian economy.

Recognizing that the mandates of our two organizations are more complementary than they are competitive, and that mutual benefits can be achieved for our respective members and the SCM field as a whole, it was a logical step to establish this partnership at this time.

Bob Armstrong, president, SCL Canada, also shares my enthusiasm and support for our new relationship.

“SCL is pleased to be working with PMAC and the signing of this MOU confirms that each party has a strong desire to move forward to the betterment of Canada’s supply chain community.”

This partnership will provide a stronger, united voice in shaping public policy and building awareness in the marketplace of the need for strategic supply chain managers and the benefits of such expertise in building a company’s competitive advantage.

SCM research will also receive positive gains as the two associations will now be able to combine their resources and jointly develop research opportunities relevant to the field of practice.

Members of both organizations also gain access to content and educational programs in aspects of SCM that have not been traditionally the focus of their respective associations.

For example, under this arrangement SCL members will have access to more procurement expertise and PMAC members will have access to more logistics expertise.

While this is only a first step towards closer domestic collaboration in our field, we are very motivated by the opportunities it represents.

We look forward to the benefits that will be available to our members as PMAC continues to work more closely in our new partnership with SCL Canada. b2b About SCL With individual members representing every facet of supply chain and logistics management, Supply Chain & Logistics Association Canada (SCL) is the leading national association, representing the supply chain and logistics community in Canada for over 40 years. SCL is the only Canadian association that covers the complete supply chain management spectrum through its member base and program offerings.

SCL is at the forefront of industry developments with access to information on national and global trends in logistics. It actively promotes supply chain and logistics management as a significant factor in business profitability, provide leadership to implement integrated logistics solutions and conduct research.

“SCL is pleased to be working with PMAC and the signing of this MOU confirms that each party has a strong desire to move forward to the betterment of Canada’s supply chain community.”

- Bob Armstrong, president, SCL Canada purchasingb2b.ca

6/2/11 12:22:30 PM

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