15. November 2009 by Steven.

As a purchasing professional you already know that much of you organization’s spend is, or should be, under contract.  That is, your group is likely split between more junior contributors, such as Buyers, and more senior contributors, such as Commodity Managers, and the spend managed by the two types of contributors is also often the split between spend under contract and not under contract.  The more senior people are often tasked with the implementation of contracts with strategic suppliers where the junior people support those contracts with funding vehicles, purchase orders, or otherwise act to purchase those things not under contract.  The ‘Tail Spend.’

As a purchasing professional, you are likely well acquainted with Spend Analysis.  For those of you who are not yet, the topic will be briefly covered.  As the name implies, Spend Analysis is the assessment of your organization’s spend.  More specifically, where is that spend occurring by functional area, by supplier or by commodity area [e.g., MRO versus Travel].  Is overall spending increasing or decreasing while unit prices or decreasing [or increasing]?  In short, Spend Analysis is a routine, regular, periodic sanity check as to where your people should spend there time.  Normally, the overall spend will be segregated accordingly to Pareto’s Law in which, most often, 20% of the suppliers will have 80% of the organization’s spend.  When graphed, the remaining portion of spend trails asymptotically to almost nothing and looks like a tail.  That’s right, the converse of Pareto’s Law is that 20% of your spend is likely spread across 80% of your suppliers.  These are the suppliers that do not necessarily warrant much activity or contracts and do not, often, rise above the line for strategic consideration.  These suppliers are often left to the junior contributors, the Buyers, for short negotiations and order placement.  High churn activities.  The tail spend is also some of the easiest green to go get.

As you know, with the high volume tail spend, we are not likely to have items being purchased that are technically sophisticated.  Instead, the spend is more likely to be addressing MRO [Maintenance, Repair and Operating] needs or for Administrative cost such as office requirements.  Within the MRO and Administrative areas there are a number of quick items one can implement for greening the company.  First, note that both areas really have to do with people and the facility [housing of the people].  Second, note that many of the elements from one organization’s MRO and Administrative needs are, likely, to be very close to any other organization’s MRO and Administrative needs.  Sure, there will be differences and some of the differences will be very salient.  In sum, though, MRO and Administrative purchases are common among most organizations. 

MRO.  Many of your organization’s facility costs will be borne in MRO.  However, as an experienced purchasing professional, you may still not be aware of all the different thing that are purchased for facility and site services.  If you are not fully versed in this area, you should look to take a ‘tour of duty’ with your site services personnel to better understand their responsibilities and the physical issues with which they deal.  For site related activities, think about your own home.  You need to clean your house [purchase of chemical cleaning agents].  You need to repair your house [perhaps to replace shingles after a storm].  You will need to clear debris in the form of lawn maintenance or, potentially, snow removal [purchase of labor and removal of clippings, etc.].  You will need to heat and cool your house [purchase of fuel and energy as well as the maintenance of machinery].  You will also need water [purchase of water and the potential treatment of water before, and possibly after, use].  As a work facility, you may also have other issues not witnessed by the average homeowner such as water run off from your facility.  Nonetheless, you can see the corollary to home ownership and have the implied import of what is required to support this area.

For example, to undertake the ‘simple’ task of lawn maintenance one would need:

• Labor;
• Machinery [such as lawn mowers, trimmers, etc.];
• Consumable elements [such as gas, oil, blades, etc.];
• Removal of use of the clipping [i.e., grass, branches, etc.].

From a purchasing organization’s point of view, to undertake one common ask, you may have multiple purchase orders with multiple suppliers.  Obviously, most organizations subcontract the entire effort to outside firms, but for illustration purposes, assume your organization purchases each element.

In the area of Administrative costs you can again use a corollary of a home office.  You purchase paper, a computer, a printer a phone, pens, pencils, staplers, etc.  At the office, these items are usually provided to everyone and most people do not think beyond that.  Their needs are met.  As a purchasing professional, you know your organization either procures these items are has a system, such as a pCard, for allowing others to procure on your behalf.  These items are all inputs and like the MRO example above, they result in an output.  For this discussion, the output is trash.  Whether it is shredded documents or documents that need to be shredded or just trash, there is also a cost, and an environmental issue, on getting rid of the materials

In both instances, the materials used are very well known to most of us.  Many readers will cut their own lawns or perhaps cut lawns for extra money as a kid.  In running a mower, you know that you need fuel for it and that means a container for the fuel.  A gas can.  You know you will need oil for moving parts or for the engine itself.  You know that you will need a replacement air filter.   What do you do with your old oil and air filters?  Do you just throw them out or do you have a disposal plan?  Likewise, when your home printer no longer works and you act to replace it.  What do you do with the old printer? 

As stated before, the act of Purchasing is Tactical and represents some easy to implement ideas for improving your organization’s environmental score.  By demonstrating a couple of common items for MRO and Administrative purchases, we can show these green alternatives.  First, realize that some baseline must be established to see how your organization can progress.  You may find your organization is doing well already.  However, for the moment, assume you are only starting on your organization’s journey to environmental stewardship.

In the example of lawn cutting, we have a few factors to consider.  Those are:

• Use of fossil fuels;
• Disposal of consumables [oil and air filters];
• Labor;
• Disposal of grass clippings and the like.

The use of Labor is arguably not a green issue.  Others may argue that it is a green issue.  For example, can more labor reduce the other issues?  If so, can this be put into the purchase decision.  The easy to implement items for this example are really the oil and air filters and assuring proper disposal of them and the disposal of grass clippings.  For example, does your organization require that the oil be disposed of according to local laws and does it seek to validate that information?  Can your organization work to assure the oil is recycled as opposed to simply thrown away?  The same with the air filters.  For the grass clippings, does this biodegradable material represent an opportunity?  Is it taken to a landfill or is it used for mulch or for compost?

With your organization’s Administrative costs, does your organization specify recycled paper?  If so, is it 100% or something less?  Does your organization allow for the removal of trash to a landfill or require an alternative solution that is more environmentally responsible?

On a tactical level, your Buyers can begin to have early green wins by being educated on the subjects for which they buy and by being empowered.  Ask yourself, do your Buyers know that when the purchase copier paper that they can purchase the environmental choice over the alternative if the cost is the same?  Is there direction?

As stated before, the tactical issues are driven from strategy and the strategy is often modified due to the reality of the available tactics.  It is a spiral of activity that will lead your organization.  In future editions of this blog, in addition to other purchasing areas, we will revisit in greater detail options within MRO and Administrative purchases.  In the next edition, we will briefly cover the Strategic portion of Green Procurement.

www.recyclechain.com

© 2009

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6. November 2009 by Steven.

As highlighted in the last edition of the Green Procurement Blog, the framework was established showing the Purchasing is really a verb that, per the functions of a purchasing organization, identifies tactical activities such as the issuance of a purchase order. The framework also established that the term Procurement really implies the organization or result of the activities of Purchasing. Procurement is truly a higher level concept and therefore a concept that implies strategy.

The need for this framework is really meant to better deal with what it means to ‘go green.’ At the time of the writing of this blog edition, there is no real consensus on what Green Purchasing or Green Procurement actually means. If one were to conduct some basic research on those two terms, one would see a wide variety of concepts and efforts. Some of the concepts and efforts can also be questioned as to if they are truly ‘green’ or not [more on that in a future edition of this blog]. By identifying the fact that there are tactical issues and activities as well as strategic issues and activities to the act of buying green, then we can establish the differences of actions and issues and better reconcile them into a holistic approach. Without a holistic approach to the concept of green buying we will not be able to find the best known methods for success.

That is part of the overall goal of this blog and website. To establish the best known methods for developing a professional approach to Green Procurement and Green Purchasing.

Tactical issues. Every organization has tactical and strategic issues with which to deal. We can all identify some of these issues readily. For a typical buying organization tactical activities may include dealing with or issuing: RFIs, RFQs, RFPs, Purchase Orders, Purchase Requisitions, SOWs, Specifications, Receiving, Inventory Management, Reporting, etc. For an organization that is improving its environmental impact, there are some obvious elements to implement. First, there should be an overall goal, or goals, be which the effort can be measured. This goal should also be followed up with Standard Operating Procedures [SOPs] and Standard Work Instructions [SWIs]. While organizational goals, SOPs and SWIs are arguably strategic in that they impact the whole organization we are considering them be a foundation for tactical activity. These tools are the tools by which direction is given to the individual in their daily work.

In that daily work, there are also some easy-to-achieve elements for improving the organization’s green score. These elements will be listed to build out a body of knowledge, but, for most professionals, these easy-to-implement concepts are likely already in place. Such concepts include: use of recycled paper only, recycling printer cartridges, reduction of copies, use of eDocuments as opposed to printed documents [e.g., RFx, etc.], use of compact fluorescent bulbs, turning off lights and other readily implemented activities.

In this short list, you may already be wondering why some such activities are listed as Green Purchasing activities. You would be right to question this. As an organization, your group really has two roles:

i.) Providing service to your internal customers;
ii.) As an internal customer to others [e.g., Site Services].

In short, you group as two sets of responsibility. First, you must adapt environmental stewardship as part of your organization’s DNA. You must walk the talk by reducing your consumption, by turning off lights, by adopting those principles you would otherwise be advocating for your whole enterprise. The second element is your group as a Service Provider to internal customers. This is the real intent of your learning to improve Green Purchasing and the in depth topic of the next blog edition.

Think of your Buyers as the front line in your initiative to go green. They are the more junior people who hourly decision will impact the cadence and viability of your green program. They are also the future generation of your senior people. Inculcate your junior people today with green knowledge and develop them into Subject Matter Experts over the long term. To develop your junior people is another aspect of your green strategy for developing your Green Procurement function. As one can see, tactic ties to strategy and back to tactic.

Bringing together the act of Green Purchasing to the goal of Green Procurement requires an iterative approach. At the strategic level, your organization will need to set high expectations for success but provide for development of the organization to reach those expectations. The goal is to be successful, or best in class, but that goal is supported by a strategy that requires learning, the development of skills, the development of new tools, the development of new criteria.

Even after your group has ‘gone green’ and developed its strategy and implemented tactical level tools and reporting, one could argue that your group will still not be well suited for the future. Sure, you may have best known approaches and really smart contributors to make it all come together, but the remaining issue is a definitional one. The issue that remains, in this nascent period of time in which Green Procurement is still truly being defined, is the issue of the Green Supply Chain.

In sum, a simple mathematical formula will suffice: A + B ≠ C. Moreover, Green Purchasing + Green Procurement do not equal a Green Supply Chain. Why? How could this be true? As will be demonstrated in future blog editions, tactics will lead to better practices. Strategy will lead to more tactics that are more aligned and efficient. However, the rudimentary element of your buying organization is that: it buys. Most buying organizations speak to the concept of a supply chain but they do not actively work to manage that supply chain. There is a built-in disincentive for suppliers to allow that. For a Green Supply Chain, much additional work, both tactical and strategic, will be necessary.

www.recyclechain.com

© 2009

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31. October 2009 by Steven.

In 2008 the world entered into a new era. Most of us felt it. Many us of identified it. Many of us also thought it went away. The ‘it’ was the inflationary spiral of commodities such as food and fuel. As gas topped near $150 per barrel there were huge strains in the global economy. The importance of alternative fuels, less consumption, more fuel-efficient cars, solar energy and the like, in short, Green Technology, was evident to most every person.

Since the summer of 2008, the world economy has migrated from the concerns of high commodity values to the more basic question of keeping jobs, cash flow and the supply base intact due to the economic downturn that started in the fall of 2008. Popular concern, and will power, for Green Technology went down the drain with positive GDP growth. Everyone has been concerned about making it through the ‘Great Recession’ and not about what happens after the recession ends.

It is not a known fact, but a highly likely event, that the world will again, very soon, see high gas prices and other commodity prices. As procurement professionals, we all need to entertain and understand that we may be facing the same challenges in future months as we did in 2008. More so, the challenges to provide assurance of supply for our organizations will, this time, come out of the crucible of the recession and the bankruptcies, mergers and other events that have reshaped our respective supply chains. In fact, if one looks around to see the world from 2008 one would note that the price of petroleum fell and rose but the price of gold has basically stayed the same – at all time highs. The prices of copper and silver decreased, but the price of many foods remain the same from 2008 or have already moved higher. In short, the world as we have known it, is being redefined. The end result of this reshaping is not fully contemplated here, but one overriding concept shines through – the need for Green Procurement and Green Purchasing. The need for each of us to develop our green supply chains.

Why distinguish between Green Procurement and Green Purchasing? Purchasing, or procurement, has been around for a very long time, arguably hundreds of years, so why make a distinction? For me, there are two reasons to make the distinction. First, at the time of this writing, there is really no consolidated view of Green Procurement. Basic research indicates that different firms all over the world approach this concept differently and with different standards and vigor. As such, and for the purpose of helping to establish a dialogue as to what ‘green’ means, I believe there should be a distinction in Purchasing versus Procurement.

Purchasing, for the purpose of this blog, will really refer to the verb ‘to purchase.’ Purchasing truly is the activities associated with the purchase of an item and the transfer of title from one party to the other party. It is tactical in nature. The issuance of a Purchase Order, receiving against the Purchase Order, bargaining with the Supplier are examples of the act of buying. By contrast, Procurement, is more of the result of the verb. For example, we have the verb ‘govern’ meaning to govern or to rule by authority. Then we have the word ‘government’ which is the establishment use for the act of governing. Similarly, Procurement, to this author, is the establishment that conducts Purchasing. It also connotes a strategic element to it whereas Purchasing is limited to tactical measures.

In the arena of Green Procurement and Green Purchasing, one can now begin to make valuable distinctions. First, what is your organization going to do on a daily basis to promote green actions and activities? That is Green Purchasing. Second, how is your organization going to develop its supply base for environmental sustainability? What criteria will it use to correctly work to assure that environmental sustainability? These are questions of strategy and of Procurement. Without some form of distinction between the short term [tactical] and long term [strategic], it would be very difficult to appropriately explain how one can go green.

Having now established a basic framework for this blog, please come back to review the next steps in which we get into the concepts of Green Purchasing and Green Procurement in greater detail and develop the concept of the Green Supply Chain.

www.recyclechain.com

© 2009

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