Larry Berglund

Much is being said about having a diverse work force. The message here is that a diverse set of skills, perspectives, and backgrounds, invites a broader view on any issues being discussed. This often leads to innovation, breaking out of complacency and finding options leading to better solutions to old problems. All good. Studies continue to show that organizations with greater ethnic and gender diversity outperform their competitors.

Where there is an affinity for values between the staff and the organization, the diversity supports a positive milieu. People know that their ideas will be weighed, even if their ideas are not adopted. They know that mutual trust and respect allow them to be creative and contribute beyond their pay grade. Their decisions will favour the whole rather than the few. Employees who feel they are being heard in the workplace typically put 4 times the effort into their work.

Employee engagement is one of the key outcomes of a positive workplace. Naz Beheshti, writing in ForbesWomen, states that engaged employees contribute 21% greater profitability. Its been shown that the 34% of engaged employees have 40% less absenteeism and 60% less turnover. Conversely, actively disengaged employees, those who have poor experiences in the work place, comprise 16% of the workforce – which is at an historic low, according to a 2018 Gallup survey. The other 50% of employees are not engaged – not cognitively and emotionally connected to their employer’s interests! This latter statement is quite astounding. This should cause leadership in organizations to reflect on building a culture which supports engagement, with diversity being one of the attributes to forming relationships.

The key to diversity bringing advantages to the organization is to have a common agreement on what value means. If people within an organization do not have a common concept of value, their diversity can lead to incongruence or passive engagement. As individuals, they will interpret value as they personally define it. As an example, is spending focused on the lowest cost or is it on the best value? Are profits to be realized by using any type of tactics? What would best value mean in your organization?

Procurement practices need to ensure that best value is the organizational view and not simply based on out-of-pocket savings. Without a common understanding of what value is, we invite bias in decision-making. Staff may choose to not buy products from a company because of a negative headline or internet story – regardless of what may actually have occurred. We lose the potential synergy found in diversity when we haven’t clearly defined value. The divergence of opinion on what value means, detracts from the collective actions.

Diversity in itself, is insufficient to drive values. The culture of the organization will need to demonstrate why diversity is important to its success in the future. Why does it matter that women’s roles in senior management increase as a % of employees? Why does it matter that LGBTQs staff are not being discriminated against? Why does it matter that ethical business practices be fair and transparent? Diversity in an organization is more effective where values are aligned across the workplace. 100% alignment would be nice but not realistic. Based on the statistics stated earlier, a target of 50% would be a significant achievement in employee engagement.

An organizational culture is affected by many external and internal factors and events.  The role of the CEO or CAO is to ensure the values being expressed and corporate behaviour resonates with customers and stakeholders. The conduct of the leadership within the organization should consistently reflect the value or mission statement being espoused. We refer to this as the “video needs to match the audio.” Where an unacceptable behaviour, in the eyes of the customers or shareholders, is not congruent with the leadership message, there is often a disconnect by employees as well. The disengaged continue to be just that.

We see how SNC Lavalin, in light of its previous corporate missteps involving bribery, has been forced to change its leadership. SNC must renew its commitment to ethical values in its business practices. SNC’s shareholders and the market have spoken. The Canadian engineering company is exiting the lump-sum turnkey (LSTK) market which SNC identified as the root of its poor financial performance. This has resulted in a ~$1.9 B goodwill impairment charge and intangible assets impairment charge, as reported in their July 2019 press release. Values matter. Behaviours matter. Rogue practices cannot be tolerated – no matter the intentions. Organizational culture is shaped by social values and business practices. While SNC embraces diversity in its workplace, a few individuals compromised their values and principles in favour of their self-serving interests.

Workplace diversity is one of inclusivity and the benefits for this have been widely acknowledged. The ethical conduct of individuals also speaks to the corporate culture and tolerance. If employees, clients, or customers see the leadership not being respectful; or is only meeting its legal obligations; or is not “doing the right thing” – it sends a mixed signal which everyone hears. Senior leadership behaviour has a large impact on employee engagement. It’s the responsibility of the leadership to support the values in their actions with all stakeholders. A divergence in the opinion as to what the corporate values represent, can come at a tremendous cost to the organization and to the individual.  This is particularly true at a time when skilled and disciplined procurement and supply staff are in short supply.

July 2019

Wouldn’t it be great if you could buy everything you need from just one supplier? Only one contract to manage; only one invoice to pay a month; only one relationship to manage; only one performance to monitor; – the nirvana of procurement.

As it turns out – this type of procurement is starting to take place. The technology and distribution behemoth Amazon.com Inc.™ may be gearing up for just this type of business from government agencies. The Prince William School District in Virginia, USA plus 1500 other US public sector organizations have signed up to buy (10) categories of office supplies through Amazon-based companies. Only Amazon met the criteria of being able to supply all (10) categories. This involves literally billions of dollars in commitments. And likely the start of the conversation on what else can we buy from this A-Z supplier? As a colleague stated, Amazon doesn’t want to control the market, it wants to be the market.

Is this consolidation of governmental business from a single provider a US phenomenon? It doesn’t appear to be. In the UK, a similar strategy has been initiated by the Yorkshire Purchasing Organisation. Contracts include the proverbial “A-Z” from office supplies to medical equipment in a 5-year deal by aggregating (bundling) demand to “drive the cost of goods down.” The estimated value is £600M ($976M CDN) through an Amazon-based partner. It is highly probable this buying trend will take place in Canada. This could arise through the entry of US-based group purchasing organizations.

This is really an extension of the tactic of bundling goods into larger and larger volumes in order to get the ϋber lowest cost. Canadian public procurement officials have been pursuing this model for years. Witness the many oligopolistic markets which are in place today.  Food, pharmaceuticals, airlines, transportation, toys, fuel, couriers, concrete and yes, office supplies. A handful of suppliers control the quality, price and supply, which is the definition of an oligopolistic market resulting in limited competition.

Provincial shared services agreements and cooperative buying groups follow a similar agenda. To paraphrase, they buy as much as possible, from as few as possible, for as many as possible, for as low cost as possible. Net result – initial contract savings seem to wow the Owner. Only the bigger suppliers can meet the demand side expectations. This pushes out the small, medium enterprises. When SMEs go out of business this is not the responsibility of the government buying groups – it’s not in their mandate to be concerned with the outcomes of a zero-sum game. It’s just what happens in the market. The next time the Owner (buying group) goes out to the market – only one or two suppliers may able to submit a bid for the volume of bundled goods and / or services, aimed at the lowest cost. At this point, how would the Owner assess the value for money? An oligopoly is hard enough to negotiate in – a monopoly is a futile exercise. This can result in limited levels of competition and limited bargaining power for the Owner in the long-term. Social costs are external to the sourcing strategies but are borne by the same taxpayer.

Woodwards and Eatons were the canaries in the retail market when Wal-Mart and other US Big Box companies came to Canada 25 years ago. Wal-Mart et al drove out the larger Canadian retailers and continued to steam roll over the SMEs. Some hand wringing by politicians took place and protest groups but no real push back. After all, the end seemed to justify the means – cheaper is better. The obsession with the lowest cost of goods is a trait of the consumer and perhaps the public sector. Both sides have their own rationale.

Consumers buy whatever is legally available within a market and focus on their own interests. For government buyers, there is an expectation that they will make decisions based on value for money for the public good. Given that society benefits from various health care and social services, which are paid for by the taxpayers, public sector policies need to consider more than the lowest out-of-pocket-cost. It is fairly intuitive to see that if we all buy from a non-Canadian supplier, a redistribution of revenues will favour a foreign-owned, low cost entity. We may draw the line at the working conditions or human rights violations. We could argue that this all a part of the free trade system. 

A rather innocuous appearing procurement tool is the P-card. It was intended to reduce the administrative costs for buying low value goods. Enter Amazon. Based on conversations with procurement professionals in the public sector, they are seeing staff and managers searching the Amazon site for deals. Their only measure of value is their budget. If it costs less to buy an item from Amazon, they are doing a good job. Their time isn’t included in the search. Shipping may be. Duties may be. It’s what gets charged to their P-card that matters. 

Which causes us to reflect on local sourcing opportunities and trade agreements. In discussions with procurement colleagues in the Lower Mainland of BC, conservatively there could be $300M per year in spending through P-card programs within this public sector. We can’t have local preference for suppliers under the trade agreements but when we think of the P-card flexibility, there are options. Referring to the Lower Mainland values, if only 10% of the P-card buying was redirected at local suppliers, this could redistribute $30M to locally owned and operated businesses. It doesn’t negate trade agreement obligations. To an SME sector, $30M is a meaningful amount of money. Public sector organizations may need to look at their P-card guidelines and ensure that local sourcing is the first option and foreign-online is not. Multiply the example dollars by the rest of the Canadian market and it becomes a significant dollar value. It does require a conscious change in spending practices.

In terms of the market, these are still early days for mass online ordering by government operations. However, the buying patterns and trends are starting to show. The potential material savings have not been measured against the long-term social costs. Government has at least two pockets to balance – the spend pocket and the revenue pocket. If these get out of balance, we lean towards deficits. The time is now to ensure our government sourcing strategies are cognizant of the A-Z supplier implications.

 

Sources:

1.https://www.governing.com/topics/mgmt/gov-amazon-government-procurement-lc.html

2.https://www.telegraph.co.uk/business/2018/07/29/amazon-start-supplying-public-sector-600m-yorkshire-deal/amp/

October 2019

Rodney didn’t get any. Aretha sang about it. Procurement doesn’t get what it feels it deserves. How does the latter group get the respect they want?

What is Supply Chain management missing?

Is Procurement an overhead cost or can it be classified as a profit centre? The accounting profession, for example, has one designation and everyone knows what that job entails — fiscal responsibility. The term Supply Chain can be vague and interpreted in different ways.

How does the Supply Chain get respect in the private sector?

The private sector has the focus on maximizing profitability. While they do embrace corporate social responsibility, they need to have the returns that affords the attention to CSR and community support.

Procurement is driven by key performance indicators such as cost of goods sold (COGS). Inventory turns, cycle times, cost of quality, and C2C metrics are common dashboard indicators. These are achieved through resilient partnerships and leading edge solutions. Results are reported on a regular basis to senior management.

The most important area is selling themselves internally. They take the time to understand operational and marketing issues now and in the future to make better decisions. Private sector does more objective benchmarking of key procurement metrics. Inventory targets are aggressive. Investment is made in ensuring skills sets are world class. Service from critical suppliers is measured and expected to be as good as possible on all fronts. Supply chain is paid for results which contribute to competitiveness.

This doesn’t mean that the private sector always does a better procurement job. Private sector companies fail; or are absorbed by more competitive players in the market; or bring in consultants to shake the tree; or at times, revise the rules to justify the end.

 

How can we advance the Supply Chain in the public sector?

The focus of public sector supply chains is on delivering services and goods in a timely fashion. Supply chains are the conduit for public policies on infrastructure, healthcare, education, defense and economic development. Budgets are set annually and are intended to be spent during that fiscal year

Procurement is often relegated to direct their focus on risk mitigation versus value add or strategic options that may be available. When procurement is successful in mitigating risks, they did their job and have avoided potential lawsuits or negative press. However, when this occurs regularly, it acts as a double-edged sword. It does not propel the organization to change or empower the procurement professionals to improve upon or increase their visibility within the organizations.

The traditional approach of procurement and its myopic focus on low costs inhibits the progress to achieve broader outcomes. To compound the situation further, savings are seen as claw-back items against operational or capital budgets acting as a disincentive to collaboration across or cooperation between departments.

Clients often want their deliverables met within politically-driven timelines. There are few options to expedite the business processes properly and procurement is seen as the problem. The client department has already “googled”, contacted, and predetermined a supplier to perform the services using an out-of-date request document. By the time the order hits the procurement desk it has already been “rubber stamped.” It is then too late to proceed with a better competitive process to meet deadline requirements.

In many public sector organizations, decentralized authority encourages a large contingent of well-intentioned departments that like to negotiate. The only intent is to buy something cheaper, ergo, it must be a good deal. Whether the deal conflicts with policies, existing contracts, or broader organizational objectives and expectations, is of little regard to the rogue buyers.

Procurement in the public sector needs an ongoing commitment to training. Not that there are not qualified educated procurement professionals working within the public sector- there definitely are! The aging population exasperates the lack of investment in training required to replace the number of experienced professionals.

 

How do we improve upon our situation? We need to rebuild our village.

• Actively participate with other business disciplines at a professional level.
• Stop with the procurement speak and speak the language of our counterparts. Our clients want to feel heard too.
• Focus on the outcome without the process being the main topic of discussion.
• Build internal client and external stakeholder relationships to encourage communications.
• Develop KPIs and expect to be measured for your professional contribution to the organization’s success.
• Argue for a total cost of ownership to drive value vis-à-vis the out-of-pocket cost.
• Host lunch-and-learn sessions on the requirements of public bidding with client departments.
• Be the go-to resource in an organization which contributes to a shared responsibility for measurable outcomes.
• Keep senior management informed on leading supply chain practices you have researched.
• Don’t accept the status quo of current process cycles. Fix it — otherwise you are condoning mediocrity.
• Measure supplier performance and report out on the objective findings. Don’t enable poor performance.
• Don’t use weak or lax policies as excuses — keep them current and leading edge.
• Exercise your supply chain professionalism to affect change.

By achieving results, we can build our brand thus forming positive relationships. We might even get some respect.

Many thanks to the following contributors:

Collin Ashton SCMP

Wende Kinch SCMP

Chris McAuley SCMP

Thanks,

Larry Berglund.

Staff turnover is a fact of life in today’s workplace, and progressive organizations recognize the importance of being pro-active to minimize this phenomenon.  While tangible staff turnover-related costs include advertising, interviewing, training, lost productivity, it is the less tangible costs that are often of greater concern.  These can include effect on staff morale, poor corporate image, customer service problems, lost customers or clientele, supplier performance problems, back-filling, and overtime costs.  Studies indicate that, on average, it takes 1-2 years for a new hire to meet the productivity of a former employee.

What are the common causes of staff turnover?

Employee-initiated turnover (Pull) is where staff voluntarily leave for better employment opportunities; involuntary turnover (Push) stemming from factors such as retirement, poor work environment, work/life conflicts, redundancies or dismissal are actions which also result in replacement.

Employers have limited options where pull factors are in play – although ensuring salaries, benefits and opportunities for advancement are competitive with market conditions is critical. With the push factors, employers need to develop strategies which address workplace bullying, intimidation or harassment; foster mentoring, coaching, training and career path programs; ensure acceptable workloads; merit-based recognition programs; and flexible hours to accommodate personal issues.

What is an acceptable turnover rate?

Excluding an analysis of part-time and seasonal workers, the basic formula for calculating the turnover rates is:

# of employees departed in a period / Average number of employees on payroll X 100

i.e. 75 / 600 X 100 = 12.5% turnover rate

The Canadian-based Society for Human Resources Management estimates that the annual turnover rate of a business is approximately 15% per year.

The best organizations experience only a 4% turnover rate, but the analysis must be context-specific. Canadian retailing can run at 20% turnover, the costs of which must be borne by increasing the price of goods and services. In an article by Nicola Middlemiss, the fast food industry turnover rate can be 100% or more, which explains why McDonald’s Canada is justly proud of their 45% turnover rate.

Let’s focus on the broader public sector for a moment.  The turnover rate at St. Joseph’s Hospital, Hamilton, has reportedly been running at 8.34%, and neighbouring London Health Sciences was stated at 7% by some sources. These are exceptionally low but will still result in hundreds of people a year onboarding to fill openings. If we consider that US hospitals are running at closer to 19% turnover rates, the Ontario healthcare rates looks quite good.

What does staff turnover cost? 

The cost of replacing entry level staff is generally 20-50% of an employee’s annual salary; for mid-level professionals, the cost is roughly 150%.  When it comes to replacing senior management and executives, the cost can escalate to 4 times the annual salary.  A 2015 report by Samantha McDuffee indicated that an entry-level employee making $10.00 per hour costs, on average, $5500 to replace. 

Not all staff turnover, however, indicates there is a problem with the operation, and in some cases it can save money at least in the short term. A poor performing entry level individual who voluntarily leaves their position at least curtails further costs and disruption, and allows the employer to move swiftly to fill the position with someone more suitable. Social enterprises see a higher turnover rate as a good sign, as normally part of their mission is to assist people facing employment barriers to be successful. Conversely, a high-performing long-term employee who generates strong sales revenues or is an effective manager, and finds greener pastures, can represent a considerable loss for an extended period.

What can we do to reduce turnover?

The focus should be on the retention strategy. Employers have more options to affect the push factors. These can be summarized into the following areas:

• New hire orientation
• Creating a positive corporate culture
• Effective communications to and from staff
• Valuing diversity

If we concede that the lowest cost to replace an employee is $5500 and we have 80 people per month to replace in some of the best run organizations, the tab is in excess of $5M per year! We can’t afford not to invest in and develop our social capital; the return on investment is there. Even a reduction in a turn over rate of 10% has a tremendous payback.

Soliciting feedback on a regular basis is a way of gauging employee satisfaction, and benchmarking the retention rate provides transparency and accountability. To attract and retain new employees have them work with the best you have, instill confidence in the integrity of the organization and its leaders, provide adequate opportunities for skills development and career advancement, and truly engage with their creative capacity.  Work to uncover their strengths and passion, and then surround them with opportunities to leverage those talents to benefit the organization as a whole.

By the way, what is the turn over rate with your main suppliers? After all, you are paying a portion of these costs. 

Food for thought:

Q: What if we train our staff and they leave?

A: What if we don’t train our staff and they stay?

Thanks, Larry

Will You Have a Supply Chain Job in 20 Years?

Bad news – most won’t. Best news – some might.

Peak Oil is M. King Hubbert’s theory that the maximum volume of oil extraction has already been reached. In response, demand for oil may be curbed by innovative energy alternatives coming into the market to mitigate rising oil prices.

Image by https://unsplash.com/@sammcallister

This author posits that peak employment in western countries may now be at its apex. With the emergence and convergence of AI, AGVs, analytical algorithms, autonomous vehicles, bespoke systems, blockchain, CAD, CNC, computational statistics, data mining, drones, digitalization, machine learning and vision, MOOC, Moodle,  robotics,  smart machines, 3D manufacturing, plus new and unforeseen transformational technologies, employment rates will continue to fall. We no longer require as many people to produce and deliver the goods and services we need, and this trend will likely increase exponentially into the future.

Disruptive technologies come in many forms. Photography and music have become digital. Typewriters are now word processors. Walkmans are streaming services on your smartphone. Toner comes in solid ink. Do you still have a fax machine? What about a carburetor, an encyclopedia or a newspaper subscription? Do you have an electric car? Disruptive technologies have a big impact on both costs and cultures.

The probability of jobs being replaced by a form of technology increases for those jobs characterized by performing routine tasks or well-defined repetitive procedures. Clerical jobs will become redundant. So will medical diagnostic technicians. The site www.replacedbyrobot.info ranks library technicians and cargo and freight agents as the positions most vulnerable to automation; recreational therapists were ranked as the least likely to be affected. This site allows you to enter over 700 different jobs to see their chances of being replaced by automation. Some jobs, which won’t be completely replaced – such as teachers, lawyers, consultants, stock brokers and marketers – will nevertheless be directly affected. These positions will need to adapt by leveraging this increasing automation in order to remain relevant.

As supply chain professionals, we need to re-assess our skill sets so that we remain employed and employable. Purchasing managers, for example, will need to focus on skills relating to: emotional intelligence, interpersonal communications, negotiation, conflict resolution, leadership and persuasion. These ‘soft skills’ that have received lesser attention in traditional training models will become increasingly relevant.

A purchasing professional will still need to make judgements on data analysis, but will no longer gather, distill, validate or perform other analytics on the data: machines do it better and for cheaper. The worth of people will be found in their abilities to apply the information, adding strategic value to their organization. Machines don’t (yet) understand the political milieu as well as people do, and machines don’t possess the market intelligence to know that a new product launch requires a contractual commitment and a strong working relationship, based on common values, between the parties.

Adidas’ speed factories are a paradox, since they require employees to complement their robots on the shop floor. Speed factories both create and repatriate jobs that were formerly offshored to lower-cost facilities, which use mass production to achieve economies of scale. Adidas’ speed factory feasibility operations in Germany, for example, proved viable. The company is currently working to bring a new factory up to production in Atlanta, Georgia in order to make 500,000 pairs of athletic shoes per year. This will create 160 jobs, and Adidas will provide mass customization through its domestic production requirements. This could become a trend in manufacturing: Asian factories are adapting because low-cost labour is no longer providing an economic advantage.

As the buggy-makers years ago saw the coming of the horseless carriage, so too are we seeing the accelerated insertions of technology into domains previously held only by workers. People will always adapt to advanced ways of performing work, although historically it has not been without some hardship.

The outsourcing of North American manufacturing led to chronic unemployment issues in the 1980s and 1990s. US–steel mills likely won’t come back or require the levels of employment to meet the production capacity they held decades ago. The Canadian lumber industry also shifted from labour-intensive to capital-intensive decades ago. Print newspaper readership is dropping. Every industry has the potential to be affected.

A 2013 study by Frey and Osborne at Oxford University discusses the considerable susceptibility of everyday jobs to being computerized. According to the study, there is a 50% chance that the majority of jobs will be replaced by robots. The report references the findings of a McKinsey Global Institute survey indicating that 44% of companies that reduced their workforce since the financial crisis of 2008 did so through automation. MSN reported that the Apple and Samsung supplier Foxconn replaced 60,000 workers through robots. The Japanese company Spread plans to produce 30,000 heads of lettuce per day using robots in an indoor farm requiring 50% less labour (seed planting) and 1/3 less energy.

The social and economic development impacts of these increasing technological developments are subject to conjecture. While some people will adapt and find employment, studies indicate that the majority won’t. The possibility of governments creating basic income guarantees and universal social benefits is not that far-fetched: such a program is currently being piloted in Finland.

Business schools, quality standards, manufacturing techniques, engineering disciplines and other forms of western education and advancement are aimed at efficiencies driving financial benefits. We haven’t kept pace in dealing with the subsequent social problems we are experiencing today. Procurement is driven to find value for money. Without considering the broader issues related to more efficient supply chains, value will continue to be debatable.

At some point in the future, sellers will recognize that there needs to be a large enough customer base to buy machine-built products. Without customers to buy the products – since employment will have decreased – suppliers will have to downsize the robots, defeating the original efficiency drive. Ironically, procurement will be involved in ordering the robots.

Thanks for reading, Larry Berglund

“The Supply Chain Management Association (SCMA) recognizes individuals and organizations who have made significant contributions to the field of supply chain management through innovation, dedication, and leadership. This year, the SCMA Awards of Distinction, presented on June 16 at SCMA’s National Conference in Niagara Falls, Ontario, highlight real leadership in a profession that drives Canada’s competitiveness.”

Thank you so much to the Supply Chain Management Association (SCMA) for recognizing me as a Fellow this year (2016), along with Telus.  I was incredibly honoured to receive this fellowship at the SCMA National Conference in Niagara Falls, Ontario. – Larry

At the SCMP Conference in June 2016

SCMA Fellow: Larry Berglund, SCMP, MBA (Presentations Plus Training & Consulting Inc.)
An accomplished leader in ethical supply chain management with experience in a wide range of industries including forestry, public health care, government, and academia, Larry Berglund is the 2016 SCMA Fellow. This is the highest honour that the association can bestow upon its members, and fellows are recognized for demonstrating the highest excellence in supply chain management and dedication to promoting the profession.

Throughout his career as a supply chain professional, Larry has worked as an educator and mentor, provided pro bono advice and advocacy for local not-for-profit groups, and published numerous articles and books on supply chain-related subjects. He was directly involved in drafting and implementing the first sustainable procurement policy for a municipality in Canada and has been at the forefront of promoting ethics within supply chain management across Canada, including a leadership role in the recent update of SCMA’s Code of Ethics. With Presentations Plus Training & Consulting Inc., Larry provides strategic management training and expertise in negotiations skills and corporate social responsibility.

“Larry has worked across the supply chain profession in a variety of roles and has demonstrated selfless dedication to mentoring non-profit organizations and individuals in supply chain management. Larry has been a great champion for the supply chain profession and has been one of the country’s leaders in underlining the important role the profession plays in driving ethics and corporate social responsibility within all kinds of organizations.” Cheryl Farrow, SCMA.

 

The Circular Economy: An Essay on Hope in the Supply Chain” has been posted on my Medium account. Please read it here. 

 

A sea change is occurring in Europe and the ripples are crossing the Atlantic. The Circular Economy (CE) is affecting environmental, social and governance values. Why? It makes good business sense to adapt to a world with resource scarcity.

Contributing to profitability while exercising more responsible use of natural resources is tough to argue against. Creating employment to ensure an extended life for resources builds social capital. The 200-year old tactics of cheap, cheaper or cheapest materials and labour is running dry.

The CE provides a viable business model alternative and is restorative in nature. With international business icons such as Apple, Coca Cola, H&M, Philips, Renault, and Unilever getting on board, the CE strategy, albeit in its early days, is gaining traction.

For supply managers, if you could not buy raw materials, how could you sustain your operations? The answer cannot be found entirely within the procurement mandate; it starts at the design stage. Rather than design for disposal, we adopt a design for the environment model. Any product being brought to market is designed to be deconstructed, repurposed or harvested for its critical materials to contribute to future production.

Waste is not acceptable – is a part of the CE mantra. Landfill sites are not to be used as a repository for poor designs and low cost disposable goods. Every industry and market sector has a role to play as well as their customers and consumers. The fast moving consumer goods (FMCG) sector generates mega-tonnes of packaging which is largely treated as an externality cost. It’s estimated that we can only recycle about 20% of the volume we are generating and we are generating more each year.

Recycling has been around for a long time; however, it has failed to meet our needs. Recycling actually encouraged customers to buy more disposable products under the guise that they could be recycled after use. We simply exceeded the capacity to recycle the mass production of goods. The unit costs of the mass-produced goods were reduced making cheaper goods available to a wider range of consumer incomes. The end result is an economy that requires a certain segment to continue to buy and support this disposable cycle. The CE will be challenged to transition to more sustainable economic models focused on conservation rather than consumption.

Converting a company’s waste or by-products into useful materials is also not new. Wood waste from sawmills goes into pulp and paper or fuel pellets. Fertilizers are made from oil refining. Old cardboard is made into new cardboard. Scrap metal is a source for many types of alloys and can be reformed into new products. Glass can be converted to other glass products. The sheer volume of these types of common waste led to finding more useful and commercial purposes. The Circular Economy proposes to manage waste by design rather than default.

Critical materials, once more accessible, are now subject to two forms of risk: Supply due to geopolitical conditions; and environmental stress where water and soil degradation may exceed the benefits of extraction. Many precious metals are found in politically sensitive areas such as China, Russia, and the Democratic Republic of the Congo.

By 2030 there is an estimated 3 Billion more consumers coming into the market mainly from emerging economies. The CE will assist industry and business with preparing for market growth. Economic decoupling refers to the ability to grow markets without a corresponding increase in energy and resource usage or environmental stress. Sustainable growth takes into consideration the impact on air, water, soil fertility and biodiversity. Technology and science are big contributors to the advancement of CE success through biomimicry – emulating nature to sustain business.

Innovations such as Velcro, in 1952, from the ability of the burdock seed which uses its hooks to attach itself to the coats of animals as a means of dispersion; by watching how the Kingfisher dives into water with nary a splash led to the Japan’s bullet train design with a 50-foot beak to reduce sound waves, increase speed, and use less energy; studies of shark skins led to developing a film to repel bacteria in hospital surface materials; the desert dwelling Namibian beetle collects water on its back from fog and innovators copied this natural process and designed dew bank bottles to convey moisture into a drinking container; microscopic tardigrades can dry out for ~120 years and be returned to life by water. This realization encouraged research leading to the development of vaccines which don’t require refrigeration and can be reanimated with water after 6-months which is extremely useful for treating disease in tropical climates; LED illumination has been increased by 55% after redesigning LED products to mimic the workings of the firefly. You get the picture – biomimicry is creating breakthroughs using less toxic solutions in a sustainable manner for thousands of applications.

CE has automobile manufacturers designing vehicles to be deconstructed after their useful life with parts and materials going into new production. Lighting companies are turning to leasing customers their products and taking them back after use. Tire companies won’t sell you tires, they will let you use them and pay for the wear and tear upon return. I:CO (I Collect) participates in a closed-loop process collecting and sorting clothing, furs, socks, belts and other garments in more than 90 countries. Collecting used clothing to produce new products can reduce the amount of fresh water by 90-95%.

The CE will require a much more efficient infrastructure to collect and segregate industrial waste. The CE will require changes in consumer behaviours and commitments to collection efforts as well. For industry, reverse logistics will play a much more strategic role in supply chain management. CE is more than recycling. Reverse logistics ensures responsible management of all related materials to support the ability to redirect these for further valuable uses as opposed to scrap. The collection link in the supply chain in turn will create employment for thousands of low-skilled workers.

We can reduce energy needs and natural resource depletion through increased labour in a sustainable manner. Sweden estimates that an improvement of 3% of its GDP will be achievable through the CE when using renewable energy, energy efficiency and material efficiencies along with increased employment.

Unilever’s Sustainable Living Plan provides supply chain leaders with a good framework to adopt. At the core of Unilever’s initiative is the recognition that while consumption of products is inevitable, innovative designs and resource conservation are fundamental in enabling sustainable business models. Steelcase, a long-time market leader in office furnishings, see zero landfill waste a critical component when designing their products. Reclaiming materials is a component in their holistic vision for sustainable and ergonomic products. Reducing waste contributes to profitability. The Circular Economy views waste as a target to be eliminated.

Designing products to be repurposed is not new as Xerox was successful with this strategy in the late 90s with its copier fleets. Older models were taken apart and many usable mechanical parts were recovered and installed in next generation copiers by design. The CE requires the majority of the players in a sector to adopt more progressive design strategies as the norm and not the exception. 3D manufacturing, for example, will contribute when it achieves scalable solutions for large industrial applications.

The Ellen MacArthur Foundation began this Circular Economy strategy in 2012 to affect social and economic development. CE has quietly grown and permeated the boardrooms of global players. All supply chains will be affected either directly or indirectly as innovations in design come to fruition. While there will still be a need for the conventional competitive bids and negotiations for goods and services, supply chain managers may need to start thinking more about critical supplies rather than tactical processes.

With an estimated consumption of 800 kgs of food/beverages requiring 120 kgs of packaging and 20 kgs of apparel/shoes per person, per year in the western world – something has got to give. The Circular Economy is giving ideas that work.

Public sector procurement objectives are quite predictable and intuitive – find savings for other departments to be able to meet their budgets. As procurement professionals know, the need for public sector to deliver value for money as it relates to infrastructure investment and operations requires a team approach. Engineers and operational staff design and develop requirements and procurement collaborates by putting their specifications into commercial documents for the private sector to respond to with competitive tension. We measure the performance of procurement by and large on the difference between the budgeted amount and the final out-of-pocket cost. If favourable, the recognition goes to procurement.

While the public sector means of doing business is based on the consumption of resources to provide maximum expected value for goods and services delivered to the taxpaying stakeholders, a concurrent opportunity is also present – particularly for municipalities. That is, the ability to create additional value for taxpayers through procurement by engaging with social enterprises in their community.

Why should procurement take this step outside of its usual mandate and engage in social development? If a municipality is able to create meaningful employment for individuals through contracting with social enterprises, the municipality reduces its financial burden by reducing the need for conventional social services. By creating employment opportunities, procurement can contract for its requisite goods and/or services through social enterprises at very competitive rates meeting two important functions: providing value for money and building social capital.

What is social procurement?

Social procurement is utilizing procurement policies and practices to affect social impact.

Social impact results in measureable improvements in the living standards of individuals, groups and communities. This is the noteworthy aspect of social procurement – building the social capital within the community. Society acknowledges that there will always be a requirement to provide food, shelter, clothing, and health services to those who are unable to care adequately for themselves. By removing the stigma attached to charity or conventional social services, and by providing meaningful work to many individuals who are typically under-employed, procurement can contribute in an important way.

What is a social enterprise?

Social enterprises operate as non-profit organizations, and act as the bridge between the under-employed and the public workplace. The under-employed usually have one or more barriers to employment, but also have the desire and often valuable capabilities to bring to the workplace. They simply need the opportunity. In addition to municipalities, many other arms of government, as well as private sector companies, are engaging with social enterprises and realizing the many benefits.

It is not a zero sum game of taking away business from the private sector and arbitrarily giving the work to a social enterprise. Social enterprises complement the private sector, and can play a vital role in economic as well as social development. Social enterprises usually have a targeted employee focus such as new immigrants who learn sewing and production skills to make banners or tote bags; or people with mental illness who learn how to assemble and package safety kits or oil sampling kits. While some social enterprises are started with grants, few rely on those grants to continue operating. Social enterprises must be financially sustainable, and this is where public sector procurement can help.

What types of goods or services can they provide?

To name a few real examples – assembly, banners, couriers, cartage, carpentry, catering, custodial, construction, demolition, distribution, drywall, electrical, fencing, graffiti removal, landscaping, packaging, pressure washing, roofing, sewing, snow removal, tile, upholstery, window cleaning, etc.

All of these types of goods and services are required on a daily basis, or a seasonal basis, in all municipalities. These contracts may be awarded through competitive bids, direct awards, or pilot programs as part of a larger economic development strategy.

Can the benefits of social procurement be quantified?

The 2013 study by Ernst & Young for Vancouver-based Altira Property Management provides very good insight into the business case for social procurement. This report indicates that for every dollar spent with a target employee group, the social return on investment is ~$3.50! This study was based on a target group of 105 employees which had the economic multiplier effect of generating over $600,000 in the local economy.

This study also reveals that social procurement initiatives can result in a reduction in crime-related costs, reduced housing and shelter costs, less dependence on food banks and social assistance, and an improvement in health, quality of life, and employability. Because most of the employees’ wages are spent locally in the form of taxes and local purchases, there is a redistribution of the wealth to the community.

Another quantitative example in the lower mainland is Starworks Packaging & Assembly. A recent report shows that, starting with 7 employees 15-years ago, it has paid $1.8M in wages and now employs ~45 employees through a payroll of $250K per year. Using the multiplier effect, this could be extrapolated to represent a social impact of $750K per year!

Starworks’ offers high quality services to both public and private sector organizations, at very competitive rates. Their employees, most of whom face employment barriers, are paid minimum wage rates within a safe working environment, and pay taxes and support the local economy through their living expenses. Perhaps most importantly, they are given the chance to show their worth, and make a meaningful contribution to their community. Their self-esteem improves and this in turn provides them with a healthier and more independent lifestyle. The attention is on the prevention rather than the cure.

Based on such reported outcomes, it is clear that public procurement should at least consider working with social enterprises to expand the opportunities to continue this type of success. While there are many examples of successful social procurement initiatives by public sector, there is so much room for expanding the role of supply chain professionals in this area. This implies that how we measure the performance of procurement may need to include social engagement as a factor.

How do I begin to engage with social enterprises?

Social enterprises operate the same as any small business – they have a need for sales and revenues, and welcome the business opportunities afforded by the various levels of government. Holding forums and reverse trade shows which include social enterprises are great ways to find out who they are and what they can do. Meeting face to face and looking for the mutual benefits is a start.

Buy Social Canada is an organization with a focus on building social and economic development through social enterprises. They have the expertise and contacts to facilitate business partnerships. Buy Social sees the important role which can be played by procurement professionals.

Public procurement should seek input from social service specialists and economists when engaging with social enterprises, particularly when evaluating the competitiveness of their proposals. Social enterprises are helping to reduce operating costs for several branches or levels of government and should be viewed as an asset and not just an expense in terms of fiscal management.

Who are some of these social enterprises?

The Vancouver lower mainland has many including: CleanStart, The Cleaning Solution, Common Thread, Embers, H.A.V.E., Mission-Possible and Starworks Packaging. They offer a wide range of goods and services. If you look, you will find similar social enterprises in your own community.

Does this mean more work for procurement?

We suggest that it is not more work – it is just different work. Social procurement is less focused on cost savings and more on enabling social value. As procurement is the conduit between governmental needs for goods and services and the market, it is a natural move for procurement to adopt a more assertive role. The buyer becomes a broker in these situations. Brokering implies finding the right social enterprise to provide the services at competitive rates and capacity, and matching them to the specific organizational needs. Brokering needn’t be all or nothing – it can also mean having only a portion of the overall contracted goods or services supplied through social enterprises in local community partnerships.

Does this mean higher cost for taxpayers?

Social enterprises that have been in business for a while can be treated and evaluated the same as other established businesses. They can be measured on price, quality, delivery and service performance. The distinguishing characteristics of the social enterprise are its non-profit business model and its purpose-based mission statement. Social enterprises are not impeded by the need to generate profits and therefore can usually offer competitive rates. In summary, social enterprises can be judged on their own merit.

As public procurement is funded directly by taxpayers, for the good of the taxpayers, it makes sense to look at the ways to provide services through social enterprises to optimize the benefits to the taxpayers. That is buying into the future.