Category Archives: Compliance

Developing a five-part SAP ERM strategy

Organizations have faced an increasing number of challenges with internal processes and external supply chains in recent years, leading to a growing realization among companies that enterprise risk management (ERM) is a necessary business process in its own right. An organization should develop a sound SAP ERM structure using five key elements in the SAP solution suite, including SAP GRC and SAP Business Suite applications.

Examples of supply chain risk over the last five years can be found everywhere. The 2011 tsunami in Japan wreaked havoc on automotive companies worldwide, many of whom depended on vendors in that country. Disney left Bangladesh as a contract manufacturing base after a factory fire, and later a devastating building collapse, which Disney blamed on the government of Bangladesh for lack of regulatory oversight.

Image courtesy of University of California

At the same time, companies are giving more attention to ensuring correct transfer of internal funds internationally (known as SWIFT accounts) to meet increasing financial auditing requirements. Corporate and institutional governance boards are also taking greater steps to reduce the potential for large scale fraud and low probability, high impact risks also known as “fat tail” or “black swan” risks.

The Five Elements

SAP customers often get derailed on how to structure business process audits – such as financial audits – using the vast SAP Business Suite and GRC tools available to them. To make that happen, companies should consider five key elements to successfully build out a strong and cohesive ERM program.

To learn more about the Five Elements of an SAP ERM strategy, read my article in its entirety on searchSAP.com.

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Snowden Case Illustrates Gaps in Governance Policy

While the world watches Edward Snowden and his serendipitous travels and possible end game as he faces charges of US espionage at home, the security world has been asking the same question since the Guardian made its bombshell disclosures: How did this happen?

Photograph: The Guardian/AFP/Getty Images

Indeed despite any personal views on whether Snowden is a whistle-blower, a spy, or a confused young man one thing is certain.  With a relatively low analyst role inside of the National Security Agency (NSA), Snowden had access to large data piles of sensitive information – both metadata as well as content data – on the US surveillance programs.  While the deep content data was under the auspices of US government efforts to get a handle on thwarting terrorist attacks and cyber espionage from commercial and political entities, it illustrates what can happen when large organization do not pay attention to those able to come and go from their own systems and what information they can see.

Commercial organizations have been dealing with this problem for the past two decades.  In the outsourcing shift of the late 1990s and early 2000s, American and other Western-based companies looked to offshore security, network administration, and call center services to countries with lower wage knowledge workers.  Countries like Brazil, India and China began to sprout data centers and call centers creating huge demand for trained and skilled tech workers.  While many of these workers used their positions to eventually emigrate to developed nations, many remained close to families and absorbed good-wage, local jobs with very exciting large, multinational corporations.

And that’s when the fun stopped.  Once in, unless you have multi-tiered governance and access models over all systems users, these third party offshore providers found there were ways to increase their value by siphoning off intellectual property (IP) for use with related home country industries.  Granted the vast majority of offshore information technology providers were of good repute and legitimate in their contracts and task execution.  However while working for a government contractor – a large multi-national subject to ITAR and other commercial export and technology transfer laws – the candy store was discovered not only open but unlocked.

It seems in their haste and desire to spin-0ff a large offshore company that had been created for the purpose of taking care of their systems in a joint venture, headquarters personnel of this multinational corporation became aware of unusual logs in the use and view of certain key data files.  These files related to the design and manufacture of product governed by commercial and government controls, and did not have anything to do with the core systems management processes the offshore company was now contracted to provide and maintain.  In short, network administrators had such broad access based on the definition of their user profile they could essentially view, edit, delete and copy any product related files.  This led to a large discussion and renegotiation of the service level agreement between the multinational and offshore provider. Eventually a domestic systems management services provider was contracted to take on the network care over product and manufacturing data.

There will always be the Edward Snowden’s of the world, who feel they must act on what they see or re-purpose information that is available to them.  However with greater governance and controls of information policy we can limit the availability of future Snowden’s to have full visibility of information that is not on a need-to-know basis.  We have the tools and methods available to put these governance policies in place.  In both government and commercial sectors, responsible management is needed to do so.

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SAP Inside Track: Align Risk Management Goals, Audits with Actions

This week I had the pleasure of attending and speaking at the joint SAP Inside Track Toronto and ASUG Ontario chapter meetings.  My presentation on the topic of Enterprise Risk Management (ERM) using the five key elements of SAP Business Suite – including a case study on internal audit management – attracted some attention.  The presentation is available now on Slideshare and will also be posted to the ASUG Ontario chapter event page.

I also took fourth in the annual “Canuck Hunt” contest at SAPPHIRE 2013.  Mark Richardson of the Ontario Chapter has a nice photo of me with my prizes orbiting in the twitterverse for reader amusement…  Thanks again Mark and the rest of the ASUG Ontario team for a great program.  See you all next week in Grand Rapids on June 27 for the ASUG Michigan chapter meeting!

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Can Supply Chain Visibility Save Lives?

My recent SCN blog post “Focused Brand Management via Supply Chain Visibility” has received nearly 1,000 views since it was posted earlier in the month following my interview with Markus Rosemann, Head of Supply Chain Execution at SAP during the SAPPHIRE Orlando conference.  It is provided here as an abstract to create visibility in non-technical circles so we can all consider if increased supply chain visibility can detect issues before they occur. Or kill. 

Read the full article on SCN under the Business Trends topic for Sustainability and Supply Chain.

Rena Plaza collapse (image courtesy NY Times, Reuters)

In the wake of devastating tragedies in Bangladesh and Paskistan over the past 18 months, OEMs are developing action plans and mitigation strategies to avoid collateral brand damage associated with poorly run and often dangerously unsafe external contract manufacturers.  During my recent podcast for the IXN (Episode IXN002 on iTunes) I was asked what is the top challenge facing global supply chains.  My answer was terrifyingly predictive: brand management and the impact it has on brand sales when a horrific event happens overseas.  Two weeks later, over 1,000 workers (mothers, fathers, sisters and brothers) lost their lives in the building collapse at the Rena Plaza factory in Bangladesh.  While the death toll rose, Disney was one of the first brands to pull out of the country, and the EU developed a memorandum of understanding that many appareland footwear manufacturers were voluntarily adopting.

This week at SAPPHIRE I sat down with Markus Rosemann, Head of Supply Chain Execution, LOB Solution Management, to discuss this problem.  Given the actions of the previous several weeks this issue is top of mind in supply chain operations and risk management functions inside, it was a familiar topic.

Integrated supply chain issues for brand management is a critical success factor because as Rosemann put it, “you cannot lose on this front. How you integrate with your partners is a growing need, not only the process and order level (for example, who was manufacturing on Bangladesh and what percentage of your portfolio), but also the need for the supply network to create visibility.” While this has been an issue for years, the impact on brand management today creates a new need to track and trace supplier activity so companies can protect their brand.

Social and sentiment analysis can also play into that from a demand signal management perspective. Social plug-ins can see the sentiment analysis on brands, platform, and customer preferences. So what does this mean having a true voice of the customer in the wake of a horrific supplier event?  According to Rosemann, “that is finally changing, best margin is not the only driving force” in industries such as apparel and footwear. “This is an area that we see changing in the market place – demand patterns which are changing, and this can all be viewed inside real-time analytics. We see this as a huge opportunity to leverage the power of HANA, for massive data which can be analyzed and understood. From this, information can be pushed onto strategy, supply planning, and then sourced.  This is the real integration and opportunity for a real time supply chain.” I agree and none too soon.

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Minding the C-Suite Gap: Preliminary Results from CXO Study, Webinar Invitation

Preliminary findings of the CXO Engagement study conducted by Newport Consulting Group and the University of Oregon were released last week during the ISSP National Conference in Chicago. I highlight some of the key points from my exclusive article for Sustainable Industries Magazine.  Join us June 13 at 1PM ET for a full briefing on the study findings, registration is now open.

As we begin to crunch the numbers for our findings of the CXO Engagement Study sponsored by Newport Consulting Group and University of Oregon’s Sustainability Leadership Program, we can now begin to take a step back and gauge where we thought sustainability was falling down inside organizations and what can be done to make sustainability strategies more strategic with the help of the right people inside of the C-suite.

Over 140 organizations responded to our survey which cut across a broad swath of roles, activities, intentions and experiences. Before I get too deep into the analytics, I’d like to offer a personal word of thanks to those of you who took the time and responded. We may yet invite you to serve as interview subjects as we probe a bit deeper into some of the findings and rationale. To our knowledge this is the first time any group or institution has tried to correlate CXO behavior with perceived sustainability performance. We understand and acknowledge we are treading into new waters, and we appreciate you being along for the swim.

First, the high level numbers. There was a predominance of C-suite participants with C-level and vice president titles (38%); directors and managers represented the middle reporting management levels (41%), and the remainder were staff, project team members and consultants (21%). Participant primary job functions were dispersed across a number of areas including management (27%), sustainability/CSR (21%), operations (11%), with areas such as finance, human resources and marketing all represented under 10% levels.

Based on our preliminary findings, we can make some high-level determinations as to what is happening. This will lead over the next several weeks into a clearer picture as to why these things are happening (or not happening) inside organizations.

You can review these trends in my exclusive article for Sustainable Industries Magazine.  Join us June 13 at 1PM ET for a full briefing on the study findings, registration is now open.

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IXN Thought Leadership Podcast Series: The Integrated and Intelligent Supply Chain

Last week I joined the Intellectual Xchange Network (IXN) sponsored by SAP to speak on the key issues facing the integrated and intelligent supply chain.  Joining host Donna Papacosta and I were fellow guests Robin Smith (Virtual Logics) and Stephanie Gruber (SAP America), and we spoke on key issues facing the supply chain such as data governance, brand management, and value chain transparency.  Stephanie and I worked together on a preview of the SAP Supply Chain Performance Management release 2.0 last year, and I provided a recap to my SCOR 11 review from the Supply Chain Council.  Excerpts of the transcript are posted here, a full podcast recording may be found on iTunes (episode IXN002).

SAP_IXN-Program_Podcast-Artwork_2013Donna Papacosta:

What are the most important issues facing mid-sized to large organizations today when it comes to their supply chains, and how do these issues affect the business in terms of cost and productivity?

William Newman:

From my side, I see a lot of things in the area of brand compliance, which continues to be an issue ranging from cost and quality control to plant safety. Several professional associations and non-governmental agencies have been seeing an increase in the phenomenon that I like to call audit theatrics. And I think we’ve all seen that in the field from time to time, but it seems to be on an uptick. In this case, a large organization, a brand, may sponsor a compliance audit in a contract manufacturer’s facility and the contract manufacturer then has ample time to create day-only improvements and compliance which reverts to what we like to call standard operating procedures, which can oftentimes be subpar. This results in quality control and worker safety issues. So this underscores the issue that we have, due to recent plant fires over the past months and years in Bangladesh and Pakistan, where communication breakdowns between brand manufacturers who lacked sufficient resources to monitor or govern these situations adequately and the contract manufacturers looking to stay in business through continued cost-cutting. This impacts both financial and social performance areas.

Donna Papacosta:

Robin, did you have something to add?

Robin H. Smith:

I think Bill brings up some very good points in his intro around brand compliance. To me, the single biggest issue that I see in the supply chain is actually the optimization of that supply chain. So, really, what does that mean? The efficient flow of information between partners who have a vested interest in an overall outcome with clearly measurable steps along the way, proper audit trails and solid governance, to me, is an optimized supply chain.

A proper risk assessment around that governance is also something I think that needs to be part and parcel of an optimized supply chain. In the past, and we don’t have to go back very far to see the big stick approach work. And in some sectors, retail, I think, is really still the norm. It seems that in a more complex supply chain, there’s a direct correlation between efficiency and partnership. What do I mean by that? In a less complex supply chain, I think the inverse is true. And really what that means is that the partnership, as the supply chain becomes more complex, becomes tighter.

Stephanie Gruber:

I would like to add to what Robin and William said that today’s environment, with the uncertainty and the global pressures, have really added a lot of complexity within the supply chain. So, I believe that a lot of companies also spend a lot of time focused on demand generation versus efficiencies in their supply chain. Sometimes that prime focus on the revenue generation drives the fact that they’re focused on product launches, marketing, branding and trade promotions but they really need to focus on meeting that demand generation. Because if the product’s not in the right place at the right time in good condition and minimum cost, then all of those activities won’t be successful. Without that visibility, a process supply chain and understanding the upstream and downstream impacts, companies cannot react quickly because of their non-visibility to risks and understanding what is truly driving and impacting their supply chain. I think as Robin pointed out, poor data and outdated applications will hinder a company from truly optimizing their supply chains, which often leads to costs.

Donna Papacosta:

Our listeners are probably familiar with the SCOR model, but with SCOR 11’s recent release it might make sense to get an update on what’s new about this iteration. Bill, I know that this is a key area of expertise for you, so what can you tell us about SCOR 11 that we need to know?

William Newman:

newman_thumb_2011-06 (292x392)Sure, Donna. So just for our listeners, the SCOR framework, which is the supply chain operations reference model and it’s sponsored by the Supply Chain Council, or SCC. This past December the Supply Chain Council issued SCOR 11. The SCOR framework has been used for decades as a standard approach to the design and implementation of supply chain practices and business processes, and these are recognized by many leading companies and practitioners around the world. It really does form an operating model framework for many companies that are either manufacturing goods and services or that are in the process of contracting for the manufacturer of goods and services. Given that a recent release of the SCOR framework comes every only two to three years, an update for SCOR 11, the 11th release, is a big deal in operational circles.

The previous versions of SCOR included several process steps, and they defined this as Level 1 in the framework, which include plan, source, make, deliver and return, which is also known as service. Underneath these Level 1 process steps are several Level 2 and Level 3 processes as well. Many companies’ operating models use these process steps and sub-level steps to define their business practices and procedures. In addition, some guidance around cost models based on process activities can also be gleaned from the SCOR framework.

So, in the new version of SCOR … What’s new? In the new version, the Council review team comprised of supply chain practitioners who walk the walk and talk the talk, as we like to say, noticed that a common Level 2 process, enable, was worthy of elevating this to a Level 1 status. This is really a big deal. Previous to SCOR 11, the framework considered a more linear, what I’ll call “waterfall flow” of activities associated with classical process mapping. So with SCOR 11 the Enable Level 1 process essentially provides guidance on how to support the original five process steps with best practices. This change, you might find, creates a closed-loop model similar to the current ISO 9000 models built on the classic Deming Plan-Do-Check-Act feedback cycle.

Now, an interesting point is that the SCOR model as of yet is silent on many take-back areas such as design for disassembly, or what we call DFD; the various kinds of recycling, upcycling, downcycling, and other cradle-to-cradle approaches. Specifically returns in the SCOR model means more of a service return of a product rather than a material return for these downcycling or recyclings. These areas are driving additional costs into organizations implementing these approaches, which are not accounted for in the current SCOR 11 model, but will be under consideration in the future.

Stephanie Gruber:

I would just like to go ahead and add on SCOR from the standpoint that we really consider it an industry best practice, because they’ve brought so many points of views from companies, industries and other experts. So it’s just not one company’s point of view how a supply chain should be measured. I would just recommend to companies to really look at that SCOR because it gives them a good start on how they can monitor their supply chain and also look at their processes. For example, often when I work with customers when they’re doing a supply chain transformation, I ask them to review SCOR and see what SCOR would recommend. Because from that perspective, the company does not start with a blank sheet of paper. They are looking at performance measurements and how the industry is measuring them. Then they can decide as a company what they want to adopt. But they also know that they can benchmark from those measurements. So from that standpoint, I would highly recommend that companies take this approach when really looking at how to to optimize their supply chain.

Donna Papacosta:

A little earlier you did touch on costs. So here’s a question for you. In a report in 2011, the Supply Chain Council said supply chain costs account for 60% to 90% of overall expenses. That seems high. It goes on to say that a 5% reduction in supply chain spending can increase net income by more than 40%. Now of course the SCC is a reputable organization. I’m not questioning this data. But if I were a CFO seeing these numbers, how would I go about uncovering these costs?

Robin H. Smith:

That’s a good question, Donna. Part of the process of looking at costs is to look at what are those costs are actually incurring throughout the supply chain. And it speaks back to optimization. Are the costs coming out of inefficient systems because those systems are outdated? Are those costs associated with things such as those that William raised earlier related to audit issues? Or are they related to the kinds of things that Stephanie raised?

William Newman:

newman_thumb_2011-06 (292x392)Robin, to your point, the SCC has several operating models that address the plan through the different stages of the product life cycle and associated risks and costs in those stages. These can be significant based on the complexity of product or services delivered. Now having said that, performance-tuning the various stages of the SCOR model for costs and other practices is definitely a leverage benefit. We’ve seen reports that significantly show an uptick in margin to a reasonably modest investment in supply chain processes by the Supply Chain Council. So there are certainly components of supply chain distribution processes, for example, where a relatively low reduction in process cycle time can yield huge incremental margin gains.

One of the areas that we often talk about in performance management situations, such as the SAP supply chain performance management solution, it really can quickly uncover the spend patterns that deviate from norms. The classic case is expedited delivery, and I think we’ve all seen this before. The make process bogs down or there are issues with the sourcing component into the make process so the final customer product needs to be shipped using expensive expediting methods, and these can be extremely cost prohibitive over time. So while the overall supply chain distribution budget may be on track, these expedited shipments appear as blips on the performance management dashboard.

And using these solutions and tools and dashboards, you can drill down into these anomalies and quickly uncover problems in specific plant locations, for example, or operating units. Working backwards, then, you can uncover the root cause of the issue, like saving additional costs during the make cycle, and other upstream places in the supply chain process. That’s real bottom-line money, particularly for company executives who are trying to increase their margins. As well, those funds can be used for new product development, research and other shareholder returns.

Stephanie Gruber:

So just to re-emphasize some of those points, I think it was interesting that one of our supply chain performance management customers wrote an article that stated an organizations that’s really wanting to seek to improve their supply chain need to incorporate key performance indicators, to actually measure their progress against it. I really appreciated the quote when they said: “Otherwise a report is just a report that fails to provide information that can be acted on.” So what’s the point of it? It’s also important to note that the visibility to data is only one component. Really understanding that data and what is driving the numbers are also important, and that’s the reason why SAP uses the SCOR model as the foundation for the supply chain performance management application. It focuses on those relationships between KPI’s and metrics and it also helps the company to analyze them, so they can make better decisions for the future.

Donna Papacosta:

OK. I think you’ve made it clear that SCOR can help CFOs and supply chain managers and operation staff put in place these best practices around supply chain management, but let’s talk a bit about, well, the elephant in the room, and that’s whether all data is being gathered and used productively throughout the supply chain, not to mention that the data has to be timely and accurate and all those good things. Robin, you’re working with companies who are integrating systems and automating supply chain processes. What are you seeing in the market that concerns you about companies and their supply chains when it comes to this data and integration?

Robin H. Smith:

I love the term “elephant in the room,” because it really is the elephant in the room. I look at it from two perspectives. One is poor quality integration, and what I mean by that is often custom-built stuff where somebody’s tried to build a program and also the single-silo approach, where data is viewed from a silo perspective. The other elephant in the room is bad data. Bad data is really the bane of any supply chain. Things fall down because data is poor, it’s inconsistent or there are issues with the overall quality of that information. It’s not timely.

Stephanie Gruber:

And I would just completely support what Robin said because managing data in large quantities are presenting challenges. We’ve actually seen that with the whole introduction of the SAP HANA technology. This technology enables the ability to build and handle a large amount of data, but it also needs to be combined with a data strategy and data governance practices so that it provides meaningful information and analytics. Especially when a company is combining these different sources, a strong data strategy and strong data governance practices are imperative. Otherwise you just have a lot of data.

William Newman:

Stephanie, that’s a great point. I think it’s important to know that HANA, as a in-memory platform, can accept a number of different data sets from many different types, fields and locations. It’s a great opportunity for brand organizations who are trying to get transparency to the data that their contract manufacturing and low-level supply chain are working with, to bring that into the fold and make that a real-time part of their operational data governance strategy and HANA completely supports that approach.

Donna Papacosta:

This is really an interesting discussion, and the topic of this podcast is the intelligent and integrated supply chain. Let’s look at what this “ideal” supply chain would look like. And I wonder if I could paint this picture. Number 1, it integrates suppliers and data seamlessly with little or no friction. Number 2, it’s modeled on best practices and mature, efficient and effective processes. And number 3, the information coming from supply chain transactions and processes is rolled up into performance metrics and dashboards. And of course, these help the CFOs and purchasing organizations to manage costs, predict supply and demand, and get those insights they need to help them make better decisions. Is this vision that I painted a pipe dream? And if not, what real-world examples can you describe where companies use people, processes and technologies to better manage the performance of their supply chains.

William Newman:

newman_thumb_2011-06 (292x392)Well, Donna, many organizations in manufacturing and retail are doing this today. They’re taking advantage of real-time dashboards, analytics, transparency throughout their value chain. And this is really separating the leaders from the laggards. Examples can range from basic order fulfillment and manufacturing cycles to even in-field mobile technologies with advanced mobile analytics really putting the information you need anytime, anywhere in the palm of your hand, which is great. These are all supported across the SAP ecosystem so that no matter what the data source or the process an organization may consider, the essential building blocks can be put together in a seamless information anywhere, anytime approach to managing and operating the business. Again, leading clients and manufacturing organizations are doing this today. I think the real opportunity is how they’re able to drill down into the transparency of their supply chain.

Donna Papacosta:

OK. So it is possible.

Robin H. Smith:

Yes, Donna, I completely agree with William. I think it is absolutely possible. I like the description of the forward thinkers and the laggards. I think for those laggards, the key element here is that they have to have a data strategy. If they don’t have a data strategy around how they’re going to integrate and how they’re going to use data, they’re going to continue to be in that space. Data cleanliness, it’s a huge risk to enterprises. I’m a big advocate, actually, that companies really need to have a chief data officer. That data officer, given that our world is so interconnected today and we trade, really, on the value of the data that we transmit back and forth, this I think is going to become increasingly important.

To listen to the podcast in its entirety, please download the episode for free on iTunes.

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A New Study Examines Engagement of the Entire C-suite in Sustainability Strategy

As a follow-on to my recent article “Why Sustainability isn’t Sticking with the CXO,” Newport Consulting Group colleague Cindy Jennings challenges us to open up to the honest challenge that there is an “engagement gap” with the CXO.  Rather than to simply state the obvious, Cindy calls upon us to ask the brutally honest questions as to why this is so and what can we as both colleagues in the C-suite and as staff members and stakeholders do to change direction.

Many surveys studying the attitudes and leadership of various C-level executives have been conducted over the years. A new CXO Engagement Study conducted by the University of Oregon and Newport Consulting will examine the leadership engagement and influence, motivations and engagement tools of the entire C-suite.  Cindy provides some additional context in her open letter on Sustainable Industries Magazine:

What is driving the CXO “Engagement Gap?” (photo credit: jeffreyholmes.photoshelter.com)

For years I’ve been reading and quoting surveys about CEOs and chief marketing officers (CMOs) to various clients and those interested enough to listen. More recently, stories and studies about the need for higher-level engagement of chief information officer (CIO) or chief technology officer (CTO) and the chief human resources officer (CHO) are also giving sound reasoning. The Wall Street Journal covered the Deloitte “ReSources 2012” study that outlined opportunities for CIO leadership in energy management systems – one of the most consistently measured performance indicators. Andy Savitz, author of “Talent, Transformation and the Triple Bottom Line: How Companies Can Leverage Human Resources to Achieve Sustainable Growth,” makes the connection for companies on how to leverage their employees — and their HR departments — to achieve their sustainability goals.

There is also speculation that we have reached “peak sustainability” in that chief sustainability officer position creation is on the decline. Within that speculation is whether or not sustainability is starting to be adopted as a standard business strategy that no longer needs a specific champion, or if it is being absorbed by the existing c-Suite. Read the “State of Green Business 2013” for more on that subject.

I agree with my colleague William Newman in his article “3 reasons sustainability isn’t sticking” when he writes “Many [CXOs] are able to ‘talk the talk’ but only a minority are able to ‘walk the walk.’ The survey seeks to help leaders better walk the walk by determining which C-level executive or mix of executives are able to effectively lead and influence triple bottom line strategy for their company, and how they do it.

Visit Sustainable Industries Magazine to read Cindy’s full article.  The survey is live and will run through April 26, 2013. The findings will be shared complimentary with those sharing their own viewpoints on the topic.  You may participate in the study by visiting the University of Oregon survey site.

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Why Sustainability Isn’t Sticking with the CXO Office

Over the next three months, I will be working with the University of Oregon Sustainability Leadership Program and Sustainable Industries to prepare for the online launch of new nationwide courses for the UO program.  In addition, SI, UO and Newport Consulting are partnering on a study of CXO sentiment around the topic of sustainability and executive engagement.  My article, the first of a series of three as part of this partnership also featuring colleague and Newport Consulting Principal Cindy Jennings, focuses on the issues facing the CXO office.  Cindy’s offering will suggest a hypothesis for why CXO behavior seems counter to triple bottom-line decision making.

Many CXOs survived a near-death experience during the Great Recession. Can they move from bottom-line thinking to triple bottom-line decision making?

It was the winter of 2009. Some would call it the “winter of our discontent” in the Motor City. As history would show, the U.S. automotive industry was hours away from stopping – not due to a major labor strike or natural disaster, but caused by a meltdown of the liquidity market.

I was meeting with a CXO who was affable and open to new ideas and conversations. We had met earlier at a local economic lunch and exchanged pleasantries. Now, in his C-level offices of a multi-billion dollar automotive supplier, his candor was striking.

“We just survived a near-death experience,” he summarized slowly and purposefully, as if he had given the answer a thousand times before to his employees. “As far as the triple-bottom line goes, we are going to focus on the bottom line for the next three to four years.”

And that was that. Sustainability and the thought of strategically embracing the triple-bottom line was off the table.

Fast forward those three to four years. While gains have been made to move executive thinking on the topic of sustainability and triple-bottom line decision making, little has changed in the psyche of CXO executives in many global organizations. Why?

No doubt the issue of sustainability is on the minds of executives. Countless studies confirm this. The now-infamousUN Global Compact Survey (2010) indicated 93% of global executives believed sustainability would have an impact or a profound impact on their operations. Striking in those figures was an improbably 100% affirmative response from automotive executives like the same CXO who scoffed at my overtures. A more recent study by Deloitte, CFOs Are Coming to the Table (2012), illustrates that spend on sustainability has risen commensurate with an increase in sustainability activities inside the organization. But the same study admits only 39% feel that it is important to communicate the value of sustainability to their employees.

If so many CXOs believe there is a strategic importance to move towards sustainable business models and triple-bottom line decision making, then why is it that a minority of those same executives feel the need to engage employees by communicating the importance of these business practices? I submit that there is an “engagement gap” among the majority of top executives when it comes to sustainability. Many are able to “talk the talk” but only a minority is able to “walk the walk.” I suggest three key areas to consider as possible reasons why this gap exists.

You can read the full article on the Sustainable Industries UO page.  Stay tuned for the next article in the series and an invitation to participate in our CXO Engagement Survey.

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SCOR 11 Goes Closed-loop with New Release, SAP Stays the Course

This week I completed a preliminary review of the new release of its Supply Chain Operations Reference (SCOR) model by the Supply Chain Council (SCC).  My findings are published in the full version of searchManufacturingERP.com online magazine.  Some highlights:

  • The Level 2 process “Enable” which was common across all Level 1 processes is no promoted to Level 1 status.  This in effect creates a closed-loop model for the first time similar to the Deming “Plan, Do, Check, Act” quality cycle.
  • SCOR 11 delineates certain best practices into specific areas of effectiveness.  This is very helpful for operational analysis and bench-marking using “level chart” and other similar techniques.
  • Best practice guidelines have been added to SCOR 11.

Major companies use the SCOR framework to ensure supply chain and operational consistency

SAP has long been a supporter in the area of adopting (and enabling) the SCOR framework for Supply Chain Performance Management, and has been the recipient of an Global Technology Advancement Award by the SCC in this area.  SAP Solution Manager, Stephanie Gruber says the SCOR framework is important for customer use inside their analytics environment to measure successful execution of business operations. “[Customers gain] complete visibility into supply chain performance, which complies with leading industry standards such as [SCOR] to define operational dependencies,” said Gruber.

Major customers such as Coca-Cola have leveraged SCPM as the key performance driver of their supply chain monitoring and management activities.  The new release of SCPM 2.0 also allows for integration into Risk Management (RM10) for comprehensive supply chain risk management tracking.

Read the full article here.  Thanks again to Stephanie for being available for comment.

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Filed under Business Analytics, Compliance, Enterprise Performance Management, Global Trade, Information Technology, Operations, Program Management, Risk Management, Strategy, Supply Chain Management, Sustainability, Technology

Dodd Frank Act Faces first Legal Test on Conflict Minerals Provision

Fresh from its US Security and Exchange Commission (SEC) final vote in August, 2012, The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 now faces its first legal test in US Appellate Court.

Filing documents by the US Chamber of Commerce (USCOC), the Business Roundtable (BRT), and National Association of Manufacturing (NAM) regarding its provisions around Section 1502 list several complaints and legal challenges.  These challenges were first posed in October, 2012 with initial filing documents and followed earlier this month with a full preliminary brief filed to the court outlining the multi-party complaint.

Image courtesy of Law.com

The main basis for the lawsuit is the projected “onerous costs” which would face primarily the American manufacturing industry.  Essentially the challenge to the provision is that the US Congress acted in haste to pass the law, and neither they nor the SEC could at the time consider the impact in terms of costs around the conflict minerals reporting provisions defined in Section 1502.  Nor is there any evidence, supporting or to the contrary, that the effected “conflict regions” of the DRC and the central lakes nations of Africa would “benefit from the provisions.” For good measure, the seven points of the formal complaint also takes into account First Amendment provisions for companies exerting their legal right to express their business requirements throughout their own organization and value chain.

While officials from NAM were reached, few comments have been offered in terms of where the lawsuit heads next.  Following the preliminary brief, the court may entertain additional hearings before assigning a formal trial date.  So what could foreseeably happen? While the court will proceed expeditiously to address the complaint, scheduling actual trial proceedings could be 12-18 months into the future.  For most companies affected by Dodd Frank and particularly Section 1502, these proceedings could well continue into several reporting cycles of the SEC filing dates.  Which means while the provision could go away (or modified based on judicial interpretation) eventually, companies still need to plan on filing the required SEC form SD beginning with quarterly cycles this calendar year.

While an immediate court injunction to delay the filing periods is possible, but unlikely.  The plaintiffs have yet to “go aggressive” to shelf the act while several additional interpretations and rulings are pending.  As well, divesting Section 1502 from the rest of the Act would create more questions than answers regarding the Act in its entirety.

More information, including the brief filed to the court by the plaintiffs, can shed more light on where the direction of the lawsuit will head in the coming months.

Note: this blog is not produced by an attorney and does not intended to provide guidance that can be suggested as forward looking on any matters.

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Filed under Audit and Oversight, Compliance, Operations, Procurement, Risk Management, Supply Chain Management, Sustainability