SUPPLY CHAIN MANAGEMENT

& REGULATIONS ISSUED IN

TERMS OF THE FINANCIAL

MANAGEMENT OF

PARLIAMENT ACT

MODULE COMPILED FOR SUPPLY CHAIN MANAGERS & PERSONNEL IN

LEGISLATURE & PARLIAMENT.

PREFACE

Finding yourself here means that you are an interested stakeholder in Supply Chain

Management in general or in certain specific areas of Supply Chain Management. In this

module, l endeavour not to assume anything nor yet claim to cover everything there is to supply

chain management.

This module while it addresses the basics of Supply Chain Management, it leans more on the

Supply Chain Management in light of the recently promulgated regulations issued in terms of

the financial management of Parliament act.

I do hope you will have an enriching experience and mind provoking one as you explore further

other contemporary issues in supply chain management such as “sustainable SCM”, role of the

cyberspace social networks in sculpting SCM.

What is supply chain management (SCM)?

Look at any product in your home or office; you can thank a supply chain manager for getting

it there.

What is supply chain management (SCM)?

It's the system that connects and integrates the links of sourcing, procurement, conversion, and

logistics management.

In this course, a detailed overview of all of the links in the typical supply chain are explored.

An explanation of what is involved in purchasing inventory and setting up supplier

relationships, what you need to consider when deciding how to manufacture and design your

product, and, lastly, how to address the logistics of distribution and delivery. Plus, a detailed

treatment of Supply Chain Management in light of the recently promulgated regulations issued

in terms of the financial management of Parliament act. As a bonus, get a glimpse into the

world of the supply chain manager by discussing some of the hottest issues in SCM today: how

to go global, the role of ethics and sustainability, and how SCM can help with disaster relief.

Understanding parts of a sc

So, what is supply chain management? Well, supply chains make and delivery things. You

might not know it, but most of us make something every day. To help visualize this, let's take

a simple thing many of us have made before, a sandwich. You can have it later today when you

get to the office. So, what do you need to make that sandwich? Well, I guess it depends, but

let's make a really good turkey, bacon, Swiss sandwich. We'll need fresh bread, some high

quality sliced turkey, a nice slice of Swiss cheese, and some delicious bacon.

All right, let's add some lettuce, tomato, and mayo. So, how do we begin? In supply chain

management, we start with purchasing. Some people call it procurement. So, what's your

favorite grocery store? Why do you like them? Even if you like them, they may not have all

the ingredients you want for your sandwich. Maybe you want the bread from your favorite

bakery. Perhaps the best veggies come from the farmer's market. In any case, you had your

preferences, you had a budget, and for some of you, you just needed to buy your stuff from the

most convenient grocer.

In any case, procurement of your materials is now complete. Let's move on to stage two of

supply chain management. Manufacturing and operations. This is the part where you've moved

from gathering your materials to actually making something. Time to put the sandwich

together, but it's getting late. You have to hurry to get to work on time. Still, you want to toast

that bread. The bacon needs to be cooked, plus you need to slice the veggies. Don't forget to

put away the leftovers and clean up that mess. Doing these things the right way, doing them

quickly, and being able to do this on a day-to-day basis, that's what the folks in operations are

doing every day.

Without them, there is no sandwich. Not quite done yet, though. The third stage of supply chain

management is logistics and transportation. You can't take the sandwich to work like that. How

will you protect it from the outside world? How can you ensure it will be fresh and yummy

three or four hours from now? Where will you store it at the office, and how will you actually

get to the office? Okay. So, it's going with you. So, transportation is taken care of, but

packaging and containerization need to be considered. Do you have those things available? Is

that a brown bag or a plastic bag? How do you plan to transport this? Thinking through the

transportation and containerization is something you'll want to think about for the future, when

you repeat this process.

Congratulations. The supplies have been turned into a wonderful sandwich that is where you

want it, when you need it. That's what supply chains do. They buy things, make things, and

move things. But that was one sandwich. How about if you had a restaurant that made hundreds

of sandwiches a day? How about if your restaurant wanted to offer all sorts of sandwiches and

sides? What if someone wants to place a special order? What if customers want organic

ingredients from a socially responsible supplier that is local? What if the health inspector

requires certain ways to clean and store food? What happens if you plan on delivering food to

customers? Is your company prepared to deal with all of those issues? Supply chain managers

are ready for all of that.

That's what they think about. That's what they do. Procurement, operations, and logistics. These

are the primary parts of a modern supply chain. Every product has a story. It's the supply chain

manager's job to write that story and give it a happy ending. So, let's turn you into a storyteller.

Consider one of your favorite purchases, your car, your phone, a shirt, a meal, or maybe a stay

at a nice resort. Who were all the important characters in giving that story a happy ending?

Who purchased the raw materials, parts, or ingredients? Why was that important in ultimately

making you happy? Which characters took those materials and made them into what you

wanted? What were the important elements in actually getting the item or service right to you?

The happy ending to your purchase was what you expected when you made the purchase, but

now, as a supply chain manager, you begin to understand the skill, dedication, and

collaboration that was required to make you and all of those customers happy.

The changing nature of scm

Getting the right thing to the right place at the right time. That's what supply chains are all

about. Perhaps you're saying to yourself, hey, I'm in the supply chain. Or maybe you thought,

we have that in our company. I work with those guys. Wait, that's supply chain? What's the big

deal? Hasn't that been around forever? Well, yes and no. Yes, humans have always done some

sort of procurement, operations, and logistics, but over time, as communities developed and

populations grew, transportation and storage options improved, and along the way, the business

community developed and then it expanded around the globe.

Look, the basics are still true. Right item, right place, right time. But in today's global

marketplace, where materials come from all over the world, and billions of customers are on

every continent, supply chains have become extremely complex. In the old days, companies

had procurement, operations, and logistics departments, but most of the time, those folks were

barely talking to each other. Perhaps they yelled at each other. Collaboration probably wasn't

even in their vocabulary. That's where supply chain management comes in.

It's not really supply chain management without integration. I mean, how can you really

manage a global chain of supplies being passed from purchasing to operations to logistics,

unless they are collectively looking at data and developing integrated plans. Those integrated

plans help companies buy the right amount of materials, hire the right number of workers. It

also helps them develop production plans. It even helps them develop delivery itineraries.

Meaning, it helps them build a schedule for when and where items will be picked up and

delivered.

So, is that modern supply chain management? Not quite. Modern supply chain management

extends beyond purchasing, operations, and logistics. Who else is involved? Well, without

marketing and IT, we can't get the data needed to develop those integrated plans. Engineers

and designers, they tell supply chains how to make the products customers want. Accounting.

Accounting can help us discover opportunities to cut costs. Finance, well we need the money

to buy materials, build plants, hire workers.

Everything in the supply chain costs money. Finance and supply chain must work together to

create a budget that will maximize our return on investment, and as the global marketplace

continues to evolve, supply chain managers will be responsible for dealing with increased

demand as populations grow, the shrinking amount of global resources, the rapid pace of

technology, and supply chain partners that may not share our customer's values. So, which

problems could supply chain integration help you solve? That's up to you.

But, let's think of it this way. Most of us are asked to hit our number at work every day. The

focus is on you or your department. That's not an integrated mindset. You're part of a chain, a

supply chain. So, while making your link strong is important, the whole chain needs to be

strong. Instead of thinking only about your numbers, think about how you can improve the

numbers of your customers. Think about how you can help your supplier improve their

numbers. Think about how you can help marketing improve their numbers.

Not only will your office start to become a brighter place, you'll be taking the first steps in

making your supply chain a modern integrated supply chain, and very likely soon you'll find

that innovation and problem solving are just part of your supply chain routine.

Establishing scm goals

So, what are the goals of supply chain? Well, that's like asking, what are your goals today?

What are the things you must get done? Work, eat, drink, exercise, have fun. Get that report

done by 5pm. A healthy and productive lifestyle probably requires that you do all of these

things and so many more. Supply chains also have many things they try to accomplish.

Contribute to profit? Yes. Cut costs? Perhaps. Make great products? Sure. But let's try and

organize the long list of possible goals.

How do we do this? Well, first let's remember a supply chain is only part of an organization,

and typically the primary goal of these organizations is to produce a profit. Profit. So, profit

equals revenue minus costs. Now, most folks will say supply chains are all about cutting cost,

but that doesn't really make sense. If you don't buy any inventory, if you don't make anything,

if you don't deliver anything, your costs are zero. Do you think you made the company

profitable though? Of course not. Supply chains that are tasked with only cutting costs will hurt

your company.

Modern companies understand that the best supply chains help drive up revenues by making

great products. Let's review this first goal. Modern supply chains must be dual contributors to

profit. Drive revenue by making great products or services that get to the right place at the right

time, but all the while, control costs by eliminating waste. Let's get just a bit more specific. In

order to make great products and services, we need to define what the customer wants, and also

define how we will differentiate ourselves from our competitor.

We can do this by using four categories: cost, quality, speed, flexibility. Take any two

competing companies, such as, Walmart and Target, Toyota and Mercedes, Domino's Pizza

and your favorite pizza restaurant. In each case, they have different goals in these four

categories. Let's try it. Pick any two competing companies. Go ahead, write them down. From

the perspective of the customer, which of these two companies has lower costs? Which has

higher quality? Which provides faster service? Which provides you more options and greater

flexibility? This isn't an accident.

The best companies understand how important this is. When a supply chain understands its

goals in the areas of cost, quality, speed, and flexibility, the supply chain is better able to make

the customer happy, and thus contribute to revenue. And, by understanding what is not

required, the supply chain can eliminate waste and control cost. So, let's review the second

goal. Modern supply chains must be able to define what the customer desires in terms of cost,

quality, speed, and flexibility. This helps supply chains understand what the consumer finds

valuable and what might be deemed wasteful.

As supply chain managers, we have two sets of bosses. The boss and the customer. What do

they expect from the supply chain? Well, customers want value. Lots of great stuff at the best

price possible. On the other hand, bosses expect productivity. Create lots of great stuff at the

lowest possible cost. That's the third set of goals. Create value for the customer, but eliminate

waste so you can simultaneously drive up productivity.

Those three sets of goals help us connect the organization's strategies and desires to what

happens in the supply chain every day. What if we just wanted to focus on the supply chain?

What should a supply chain manager think about every day? They need to have three goals. Be

effective. This means, they need to give the customer the cost, quality, speed, and flexibility

package that they desire. Be efficient. Meaning, make the boss happy by doing things without

waste.

Eliminate defects, wasted time, and confusion. Be adaptable. The best supply chain managers

anticipate and plan the change before their competitors. The needs of customers change.

Technology changes. New employees and suppliers will be added to your supply chain. Supply

chains are tested under stress, so as an exercise let's think about something we hate waiting for.

Coffee. The grocery checkout. The cable guy.

As the customer, what do you expect from them in terms of cost, quality, speed, and flexibility?

You're the customer. You should know that one. Surprisingly, most companies don't know

what you want though. Second, why do you think that sometimes things go wrong for a

company? Is it the other customers in front of you? The worker and how they were trained?

Low quality materials? Perhaps, it's just a bad plan. In other words, what's causing the problem?

Finally, which changes does a company need to incorporate? Will you want more from them

in the future? Are there new technologies they should consider implementing? Next time you

get poor service, don't get frustrated. Think like a supply chain manager.

Understanding scm across different industries

You are a supply chain manager. No, really you are if you make something you are managing

a supply chain, whether you're making a car or a plane, a meal or a bed, a delivery or a cross

country trip, a business report, a computer program, or maybe you're making a movie. We all

make something, and if you do it right you'll make some people happy, your boss, your kids,

some friends, a customer, an audience, or maybe the beneficiary of your hard work might just

be you, but no matter what we make and how we make it we'd love to find ways to make it

better, make it faster, with less effort, with fewer materials and less money.

This is what supply chain managers do. Companies in all sorts of industries have taken notice,

at first it was the most obvious industries. The ones that actually manufacture tangible stuff,

automotive, aerospace, electronics, clothing and textiles, they started taking supply chain

management seriously a long time ago, long before anyone decided to call it supply chain

management. From there it took over retail sales, ever heard of Walmart, Amazon and Home

Depot? Whether or not you like those companies their development and expansion is an

outgrowth of buying, storing and moving products in the most efficient ways possible.

The success of these companies is largely due to modern supply chain management, but these

companies not only brought all sorts of products to people all over the world, they also

introduced us to the power of supply chain management. Now executives in nearly every

industry have taken notice, hypercompetitive industries such as energy or banking. Industry's

under pressure to serve more and more people, and still provide them great service such as

health care, education, and food management.

They are all interested in having employees with supply chain savvy. It doesn't end there

though, humanitarian organizations have realized that acquiring vital life giving materials, and

getting them to the victims in need it's a supply chain problem, and let's not forget that a supply

chain without information can't make informed decisions, without money can't buy or make

anything, without a well-designed product and good marketing may not have customers.

We are all supply chain managers, and the world needs us now more than ever. Let's bring this

back to you, how can supply chain positively impact your life? We all have busy lives cluttered

with important and not so important things. Well, perhaps thinking like a supply chain manager

can help provide some clarity. Consider your job or maybe just life at home, what is something

important that you do quite often? Now, how would you define success? What is the desired

output? Answering these questions gives a supply chain manager focus.

Second, how much time, effort and materials are typically required to reach success in other

words what are your inputs? This helps supply chain managers look for opportunities to be

more efficient. Finally, a supply chain manager prepares for change and stress. Now you must

ask yourself what is likely to happen in the future, my boss or customer may want more faster,

my life and job will become busier. Now ask yourself, am I prepared for those changes? Supply

chain management gives us the opportunity to make our lives better.

Ask yourself these questions to help discover ways to make things better with less effort today

and into the future.

Purchasing and Understanding supplier relationships

Understanding inventory

When you turn on the faucet at home, what are your expectations? Water, not later, right now.

In order to do that, the faucet, the pipes, and the city's water source need an inventory of water.

So often we think of inventory as stuff on a shelf at the store, or perhaps, in a warehouse. Let's

think of inventory as water in a plumbing system. Let's say you want a gallon of water out of

your faucet. We all understand that there needs to be a gallon of water in the plumbing system.

But the water can't be back at the source, or a mile from your home, it has to be right there.

Ready to flow out of the faucet the moment you turn the handle. How about if you want two

gallons, twenty gallons, a hundred gallons? Or what if you want to fill your pool? Those pipes

need to be ready to satisfy the customer's need for water, no matter how big or small. Some of

that water is ready to flow right now, let's call that finished goods. Some will be a mile from

your house, let's call that work in process. Some of that water is still at the treatment plant, let's

call that raw materials inventory.

Just like a city must be ready to satisfy the water needs of its population, so too, must a supply

chain be ready to satisfy the demand of its customers. Does your supply chain have enough

inventory to satisfy demand today, tomorrow, next week? How long does it take from the time

your company's raw materials enter the inventory pipeline, until they come out the other end,

ready for the customer to purchase? That is what supply chain managers think about, why?

Because the supply chain manager that's responsible for inventory, needs to make the customer

and the marketing department happy, by always having products in stock.

Marketing folks always wonder, well, why don't they just have tons of inventory? Well, don't

forget, a supply chain manager also needs to satisfy the boss, by keeping costs low. Inventory

comes with lots of costs. Of course, you have to buy the inventory, but, you also have to

negotiate the purchase. You have to pay for delivery and store it, plus, it could get lost, broken,

or stolen at any time. Inventory is an expensive investment. And as with any other investment,

making a mistake can be costly.

Is your company prepared for change and variability? What happens if a snowstorm hits? Does

your hardware store have enough snow shovels to meet demand? What happens if a designer's

top dress suddently goes out of style? They're stuck with a bunch of inventory nobody wants.

What happens if a grocery store bought too many tomatoes this week? Perishable inventory is

a big risk. How about if there's a fire at your warehouse? Where will you get the inventory

needed to meet next month's demand? How about if a stock of medicine spoils? How will your

hospital treat sick patients? Managing inventory is a big responsibility, I mean, very often,

having the inventory available is what sets you apart from your competitor.

So let's think about inventory plumbing in your company. How much of your company's

inventory needs to come out of that faucet each day? Let's say it's only 200 units. How long

does it take from the time you buy the raw materials, until they are ready to sell to the

customers? Again, let's just say it takes 10 days. Does your company have 2,000 units in the

pipeline? If not, you'll probably run out of stock in the next 10 days. What happens if there's a

leak in the inventory pipeline? Are items getting stolen or lost? How will you deal with those

lost units? Do you have to deal with seasonal inventory, perishability, product innovation?

These are all questions to consider as you're designing your supply chain.

So, the next time you go to the store, and they're out of whatever you wanted to buy, remember,

managing an inventory pipeline is not easy. That's why the world needs more supply chain

managers.

Choosing a supplier

Let's say you work for one of the finest restaurants in the city. Customers love your restaurant

because of the fresh, locally-sourced, organic ingredients. They come to you not because the

prices are low, but because they want something that tastes great and fits their values. As a

procurement executive for the restaurant, your job is to find suppliers. What are you looking

for in your supplier? The typical knee-jerk reaction is to say "low cost." But if you just went

with the lowest cost, would you be working to make the customer happy? Probably not.

When you go out and find suppliers, you need to remember those ingredients aren't being

bought for the owner or even the chef. They're being purchased to make the customer happy.

When they come to your restaurant, the customer wants consistent-tasting meals made with

high-quality ingredients. They want meals that are available whenever they come to your

restaurant. Customers don't want to hear that certain menu items are not available today. And

while we may advertise fresh, local, organic ingredients as a way to entice high-end customers,

perhaps local suppliers with excellent ingredients not only make customers happy, perhaps they

make our company happy.

If they are really that good, they may actually make our supply chains better and more

predictable. Food's one thing, but how about electronics? Suppose it's your job to find a battery

supplier for your company's next-generation cell phones? Cost, supplier location, and ethical

business practices may or may not be on your radar for these batteries, but you are definitely

interested in issues like battery technology, longevity, and reliability.

High-quality phones need high-quality batteries. You're also interested in the shape and design

of the battery. Can batteries be made that will fit our phone design? Another thing to consider

is production capability. If we plan on selling one million of these phones, can they produce

one million of the batteries, all on time, all at the highest quality? Can we trust them not to

share information about our new secret phone? Are they committed to improving that battery

so that two years from now, we can make an even better phone? What would happen if your

company decided to just go with the lowest-cost supplier? Would you feel confident putting

the fate of your innovative phone in the hands of a cheap, low-quality supplier that delivers late

and gives away your intellectual property? Choosing a supplier is a huge responsibility.

Is their link in your supply chain a strong one or a weak one? That brings us to one more issue.

Just like we count on our suppliers to keep us reliable, our suppliers are counting on their

suppliers. So more and more, we are finding that supply chain managers who are responsible

for partnering with great suppliers, are asking prospective suppliers about the reliability of their

suppliers. It really does begin to demonstrate that in the world of supply chain, we really are

all in this together.

So here's what I want you to do: Think about a big, brand-name company that's sold you

something rotten or cheap, something that didn't work, something you either returned or just

threw out. Were the materials in that item what caused that item to fail? If so, think about how

that company put their brand's name in the hands of a poor supplier. They lost you as a

customer, probably lots of other folks too. Why? Because they chose a poor supplier. The next

time you choose a supplier, ask yourself, "Will this supplier help us be a better company? "Will

they help me make my customer happy?" If not, maybe it's time to look for another supplier.

Developing good buyer and supplier relationships

How does somebody pick out a great gift? I'd say the best gifts are the ones that are very

personal, the ones that fill a very particular need in our lives. Sometimes they are things we've

desired for a long time, but sometimes even better gifts are the ones we never dreamed of. The

best gifts typically come from someone very special. We understand the time and effort they

put into it, and while their sacrifice in getting you this gift is appreciated, we hope that they did

not give more than they could. A great gift will very often be the long lasting symbol of a

friendship.

It can become a reminder that you are deemed special by someone you love, and that they

deserve the same treatment in return. Someone else could have given you the same gift but it

would not have meant as much. The relationship drove them to get you the gift, the gift drove

the relationship to another level. The best relationships between suppliers and buyers have

similar characteristics. The stereotypical relationship between a buyer and supplier might be

buyer, “"Send me stuff now,”" suppliers, “"Here you go,”" buyer, "“Thanks.

"“I hope you're ready for my next order.”" Not a lot of love there, not a lot of collaboration,

absolutely no understanding of their partner's needs. In modern supply chains the best

companies understand that their relationship with their supplier is actually a relationship, and

just like a great relationship buyers and suppliers share needs. One partner needs great parts at

a certain time, the other needs directions and a reasonable timeline to complete the order.

Reasonable expectations allow each party to plan and to establish reasonable timelines. Buyers

and suppliers also observe each other. The most innovative suppliers want to see how you use

their product. The most organized buyers want to know what it takes to make those parts. By

understanding each other partners know what they can ask for, and they also understand what

they can change to make life easier on you, this is great for planning and innovation.

We also see that buyers and suppliers discuss their level of happiness. Buyers use scorecards

to communicate how they will judge their supplier, and then they discuss the scores to see

where things are going well, and how they can get better. This probably wouldn't work with

your spouse or friend, but for two companies each with hundreds or thousands of employees,

scorecards communicate expectations, communicate perceptions, and they can start

discussions about future needs.

That brings us to the next item, buyers and suppliers work together to innovate. In our world

of complex devices the next generation of products requires designers, marketers, and supply

chain managers to work together, and while it may seem odd buyers and suppliers are not

exclusive, having other buyers or suppliers makes your company feel more stable. It also gives

you a wider view of the industry. Plus, buyers that collaborate with multiple suppliers they can

motivate those suppliers through competition.

That makes each of those suppliers better. It also exposes the buyer to the different options for

improving their end products. As a buyer when you work closely with your supplier, everything

they do for you is seen as a gift. You understand the work they put into their supplies. You

understand their struggles to manufacture, deliver and improve products. You also understand

how they sacrifice every time they change to fit your needs. You also hope that their business

is thriving, the stronger they become the stronger that link in your supply change becomes.

Let's make this a lesson that we can think about throughout our lives. Every time you get a

wonderful gift I want you to think about how the relationship with that person, their

understanding of your needs and desires, and their individual strength and character makes

their friendship and their gift such an important part of your life, and like a good buyer that just

got a great shipment from their supplier let them know just how much you appreciate them and

their gift.

Manufacturing and Operations

Understanding Manufacturing and Operations

Even when you think you know what the customer wants, developing new products can be

very difficult for any company. When I try to help executives focus on the key issues of new

product development, I'll often play this game with them. First, I'll divide them up into small

teams. I'll give them some computer paper and say, your task is to develop a paper airplane that

will impress me. It must fly well and look good, based on what I think. I will give your plane

what I deem a fair selling price. They then get about 10 to 15 minutes to develop their team's

prototype, the paper airplane that will define their team.

Watching them develop the planes is very interesting. Not only is it fun to see adults make and

throw paper airplanes all over the place, it's interesting to watch the different development

methods the teams use. Teams typically fall into a few categories. Some try lots of designs until

they find one they like. Some teams will have a master paper airplane builder that knows

exactly which exotic plane should represent their team. Some will try a bunch of designs, look

around the room, and try to copy some of the cool things they observe, and some just make the

easiest plane possible and hope the session ends soon.

No matter what the process, planes then typically fall into three categories. First, some variation

on the really simple plane that most of us have made since we were probably six or seven years

old. Second, the amazing paper airplane that most of us will never learn to make. Third, let's

call it an adult paper airplane. Nothing that requires an origami degree but definitely a cooler

airplane than the ones we made as kids. So now, paper airplanes in hand, each team picks a test

pilot.

They show me what the plane looks like. They then show me how the plane flies. The kid plane

probably doesn't fly very well and looks very dull. I might give it a selling price of $5. The

amazing paper airplane looks awesome and flies well too. I'll give that one a selling price of

$15. Finally, the mid-level plane looks okay. Sometimes, these planes fly very well. Other

times, they do not. To keep things simple, let's just say I value those at $10.

Now, design and marketing are behind us, and what's interesting is that the executives who

play this game often don't realize they've even thought about design and marketing. Anyway,

it's time to start the supply chain portion of the game, dealing with suppliers, manufacturing

processes, labor, and quality. I give them all 20 pieces of paper and 10 minutes at a cost of $50.

I say go, and I start a timer. The team with the simplest design, they make a bunch of planes

that aren't worth very much.

The team with the average design, typically they make fewer planes, but their planes are worth

much more. The team with the super-exotic, super-space-age paper airplane, well, they usually

only have one person on the team that even knows how to make that plane. So, they will end

up making only three or four planes in those 10 minutes, expensive planes but not very many

of them. We add up the revenue from the good planes, subtract the $50 cost, and then we crown

a winner.

As you'd probably imagine, there's a lot more drama to the game when you play it in the

classroom, but the results I described are pretty typical. What have they learned? In the heat of

the battle of a very fast-paced game, teams very often forget the bigger goals. When designing

the plane, they forget someone will need to manufacture those planes. When they manufacture

the planes, they very often forget about consistent quality. Often, I'll reject planes if they aren't

up to the prototype standards. Another thing often happens.

Typically, someone will complain that I didn't explain the entire game at the beginning. They

say, you only told us what we needed to do next. It's only when the game is done and the teams

decompress they look back, and they realize how important communication is, how important

it is to understand goals, and finally, how important it is to understand the connection between

marketing, design, and supply chain management when developing a new product, or even

improving an existing product.

Believe me, whenever a group of students or executives play this game, there are so many

different lessons that are learned. So, perhaps you can go to the office today, get the workers

away from their desks, and try playing this game. If not, I want you to think about what your

company makes. Think about the performance and aesthetic elements of your product or

service. Think about the design of the item, the parts that go into it, the way the product or

service is created, and the required skill and training of employees.

Plus, also think about the insane pace at which they work, and then, think about how

coordination and communication between marketing, design, and supply chain is the key to a

better present and future for your company.

Marketing and designing your product

How did you or your family choose your home? Lowest cost? Of course not. The price we pay

for low-cost housing is much higher than the rent or mortgage. Low-cost housing may mean

small rooms and closets, outdated design and architecture, living in an unsafe neighbourhood,

poor schools for our kids and an endless string of expensive repairs. Our bank account suffers,

our nerves suffer and perhaps we may even pay with our time. Low-cost homes and apartments

are often located in inconvenient locations.

So getting there is not only difficult for you but also for transportation services and restaurants,

hospitals, grocery stores, schools and your work place may be far away. If your dream home is

in the middle of nowhere, you may actually wish you'd pay more for a lesser home. So it goes

with choosing a location for a manufacturing facility. Choosing the location based on cheap

land, cheap labour and low taxes, may mean bad infrastructure, more quality defects, and an

unsafe environment where employees and inventory are in danger.

Why is this place so cheap in the first place? Maybe no one else is willing to locate in that area.

That means suppliers may be very far away and transportation companies probably don't

normally service that area. It's also likely that your customers are far away too. Congratulations,

logistic costs just got way higher and every time the cost of fuel goes up you'll probably regret

your location decision. In our example of finding a new home most of us probably only imagine

moving to another part of town, another part of the state or province.

Maybe another part of the country. Not many of us consider moving out of the country.

Companies that consider relocating their own manufacturing facilities out of the country are

said to be making an offshoring decision. Imagine how difficult that decision must be. A

company could relocate almost anywhere on earth. Just like a move that big might cause you

some stress, so too will it stress the top executive. For you, you might be concerned with

making friends, staying in touch with your family at home, finding the food, drinks and

household items that make you feel comfortable, learning the language and customs so you can

connect with others.

And also understanding what it takes to advance in your new office. The executive, they

probably worry about hiring, motivating and connecting with their new employees, finding

suppliers and logistics partners that are reliable, keeping the company connected to the home

office, while also building a relationship with the government, business community and their

new customers abroad. Relocating moves you physically, but it also moves you emotionally.

It takes you away from what's comfortable and forces you to find a new way of doing things.

Moving is difficult, but most often when we move, we move because we see opportunity. When

companies choose to expand and open offices around the world, or when they choose to

offshore and move their manufacturing operations to a new country, they are taking a big risk.

Just like we don't risk our family's comfort to save a few bucks, companies shouldn't seek out

the low cost option. Just like our moves are often tied to promise for a better life, so too should

a company choose location on the overall opportunities available.

So think about your favourite company or think about where you work right now. Why did

they choose the location where you work today? What are the good things about this location?

Now let's think about the downsides of this location. Think about what would happen if you

moved this facility to another part of town. What would be better or worse? How about if we

moved to another part of the country. Would you move with the company? Why? Would it

make any sense to move this company to another country? If so, what would be the hardest

part of the move for the company? Chances are you've probably moved a few times in your

life.

Use those experiences to help your company choose the location that will help it maximize it's

opportunities.

Managing quality

I know it's silly, but I love pizza. More than just eating it, I love to make it. I have a recipe I

love using. I used to make it every Tuesday night. Problem is, I'm busy nowadays. Work. Kids.

Life gets in the way sometimes. I miss the taste of my homemade pizza. Heck, I wish I can get

someone to make that pizza for me. Imagine if the guy across the street said, "If you pay me,

I'll make it for you." Yeah, it's a bit odd, but let's play with the concept.

Before I approved the outsourcing of my homemade pizza, what would I want to know? Me,

before I let a neighbour cook for my family, I'm visiting their house, looking at their kitchen.

Are they clean? Organized? What kind of cooking equipment do they have? What kind of

oven? Gas? Electric? Wood burning stove? Is it different from what I have? Based on the

differences, is their pizza likely to be as good? Heck, it might be better. How about the

ingredients? Will I do the shopping and deliver them the ingredients? Or, will I let them do the

shopping? The recipe calls for things like cheese, flour, sauce.

Will I provide them with particular brand names, stores, prices? If they buy the ingredients,

should I ask for the receipts so I can repay them for the ingredients plus gas money? Or, will I

just include the pricing materials into the total amount I pay them? Have they ever even made

a pizza before? I might want to train them. But perhaps, they used to be a cook. Maybe they

know how to make the pizza better than I do. As for the recipe, will I give them specific step-

by-step instructions? Exact crust thickness? Exact amounts of sauce and cheese? How will they

tell if it's done? What if I like a soft crust or something a bit more crisp? I've made the pizza a

thousand times.

I don't need the recipe or the process, but they will. If I give them my private recipe, should I

be worried about them giving away my secrets? How about timing and quality? If I get home

at six-thirty, will the pizza be waiting for me? Will it have just come out of the oven? Or, will

it have to be reheated right before I get home? How will the pizza be stored and then delivered

to my home? Let's assume they make a good pizza and get it to me on time. Can I trust the

pizza and the service will be consistent over a long period of time? Should we sign a contract?

Or should I just call them up each time I want them to do this for me? Can I lock in a good

price? Or do we need to renegotiate the price every month? This is just a short list of the issues

that need to be considered.

And, it's likely you, especially if you're cooking enthusiasts, thought of dozens of other issues

that would need to be considered before outsourcing your homemade pizza. This is just

homemade pizza. Imagine what companies like Apple and Toyota consider when making a

decision about a contract manufacturer. The next time someone tells you that outsourcing is all

about finding the lowest cost supplier, you'll know better. You'll be able to ask them if they

thought about design, business processes, employee skills, employee training, reliability,

consistency, manufacturing quality, long-term quality control, facilities and equipment, raw

materials and logistics.

If you think about it, it's sort of a wonder anyone chooses to outsource anything. But in some

industries where items aren't really all that different, a special breed of manufacturing

companies exist. They're called contract manufacturers. Sometimes, like a good chef, they

know how to make the item better than you. For example, a phone, a television and a computer

nowadays. The differences between them really aren't all that great. Similar technologies,

similar parts, and in many cases, sold to the same customers.

If a contract manufacturer can make one of those things, they can probably make them all.

Their suppliers can get them all the parts. They have the machinery and the human capital to

do the job right. And, they can ship all these different items in the same trucks to the same

distributors because the customer that wants one of those items probably wants the other ones

too. Outsourcing is never an easy decision, but contract manufacturers do their best to make

outsourcing less stressful, and in some cases, more practical.

Let's bring the outsourcing decision back home. Think about those household activities you

already outsource or would love to outsource. Cleaning, yard work, laundry, pest control,

babysitting and certain home repairs. Why are those things the ones you've chosen to

outsource? Did you choose the most expensive contractor? Probably not. But did you shop

around for the very lowest cost? Or do you pay a little extra for quality and peace of mind? Are

some of those things outsourced because you know others can do them better? If your company

is weighing an outsourcing decision, be sure you ask the right questions.

Look. Low cost is a great motivator to outsource, but not considering all the other factors in

outsourcing might come with an enormous price tag.

Logistics

Understanding Logistics

Let's take a trip around the world. Sounds like fun, doesn't it? What do we do? Hop on a plane,

get to a foreign city and hope they have a hotel room for us? No, it's not that easy, is it? What

will we need to make this trip happen? A list of cities and dates. We need to find flights at

reasonable prices, hotel rooms. Do you have luggage for a trip of this magnitude? What should

we pack? Do we need special travel documentation, a passport? Who's driving us to the airport?

At the airport, we'll need to be ready for check-in, security and boarding.

We might have to catch one or more connecting flights along the way. Do we have snacks and

drinks for our flight? When we get to the first city, how will we get to our hotel? Do they take

our credit card for payment? Global travel is not just about getting on an airplane. The flight is

really the easy part. The research, planning, scheduling, and packing, that's the hard part. That's

logistics. In business, moving products around the world is even more challenging.

Each product is different. Are there special laws to consider when shipping your item? Does

the destination country require special documentation for your import? Will I put my products

on a train, plane, truck, or ship? Will I need insurance? How can I pack my items so they aren't

damaged or stolen during shipping? When my items get to the destination country, who will

be there to receive it and ship it to the final destination, and what happens if something goes

wrong? Am I responsible for the lost items, or is somebody else? Who will I call to get help?

This is why companies value logistics specialists, or as they prefer to be called, logisticians.

Look around the room. Look in your refrigerator. Look in your bag. Pick any three items. Ask

yourself, "How did that get here?" Every one of those items has its own special story. Think

about packaging, documentation, insurance, modes of transportation, customs, rules, and

regulations. Think about the companies that help plan, ship, and track those items. Now that

you're thinking about that, now, now you're thinking like a logistician.

Supply chain integration

Jazz is such a beautiful art form. There are so many types of jazz. My favorite types of jazz are

the ones that balance structure and improvisation. Charlie Parker, John Coltrane, Miles Davis.

What they and their jazz groups created was so incredible. Very often there was a song that

they would play, but for them, the song was merely a skeleton. It was their job to put flesh on

that skeleton. Whether they had three members in the group or 10, the groups they put together

were a collection of virtuosos, people that were masters of their instrument.

They could follow directions, they could take lead, they could keep a beat, or they could change

course at any point in a song if the leader desired. And in many cases, the leader trusted each

member to improvise. This can't happen unless each member knows how to communicate, and

it can't happen if they aren't listening to the music being played. Some of this requires skill.

Some of this requires an understanding that can only be built up over time. World-class supply

chains are not that different.

World-class supply chains create their own types of music. World-class supply chains are a

collection of different instruments: the purchasing instrument, the operation and manufacturing

instrument, the logistics instruments. And, like a great jazz collective, a world-class supply

chain requires that managers in each sector be masters of their instruments. These managers

must understand what the organization needs. They must be attentive, listening to the needs of

the collective.

They must also be courageous enough to take the lead when problems and opportunities arise.

Just like a great jazz leader must carefully choose their bandmates, a top supply chain executive

must find and develop supply chain managers they trust. And more than that, they must give

them the power to improvise as the economic environment changes. The same song played

over and over gets old and stale. Improvisation allows a song to evolve as it's played. So, too,

it goes with supply chains.

Very often, making the same product over and over again for years will bore a customer. The

best companies and supply chains look for ways to improve products. This means that they

need smart and skilful supply chain managers capable of taking chances. The next time you

listen to jazz or really any type of great music, isolate the different instruments. Notice how

independently the instrument is creating something wonderful. Notice how all of those

individuals create something even better.

Notice how the most exciting parts of the song are where one or more members took a chance.

And then think about how great your supply chain would be if it was like a great jazz ensemble.

Passionate people doing what they do best, empowered and entrusted to make changes and

improvements for the good of the group, and all of these people working together to create

something that will satisfy the customer. Is your supply chain creating beautiful music? If not,

what needs to change?

Mitigating the Bullwhip effect

World-class athletes, their strength and stamina, their speed and flexibility, when combined

with practice, they result in perfect form. Their throwing motion, their stride when running,

their kicking and swinging technique, they're flawless, efficient, and effective. Their technique

represents the integration of movement, the integrated movement of feet, knees, hips, spine,

arms, and even their neck and head. It's no wonder that one small injury can begin a chain

reaction that results in a series of other ailments that are more serious.

That small injury causes sometimes minor changes in the runner's stride. The imperfect stride

puts strain on the knees. The sore knees look to the hips for support. Overburden hips may

cause a severe back injury. Interestingly, the runner's persistence and strength cause greater

problems. Listening to the injured toe when it was demanding rest would have been a better

idea than running through the pain, and sometimes, those cascading injuries can hamper or end

the runner's career.

In supply chains, we see a similar type of phenomenon with inventory. It's called the Bullwhip

Effect. While stores try and predict customer buying patterns, they are rarely right. In order to

protect themselves against running out of stock, stores order more inventory than they need.

This is the pain point, uncertainty. Uncertainty of demand requires more inventory, inventory

that is expensive to buy and hold. How about distributors? They try and guess store orders.

That's two levels of uncertainty, stores and consumers. That's two levels of pain. Therefore,

even more inventory is required to mask that pain. The primary supplier, of course, wonders

how much the distributor will be ordering. Three levels of uncertainty, ouch. They're going to

need a ton of inventory. Those cascading injuries require an avalanche of inventory. That

magnification of inventory from one level of the supply chain to the next is called the Bullwhip

Effect, and just like some simple rest and therapy would have helped the toe heal before it

created a series of injuries, the key to avoiding debilitating levels of inventory in the Bullwhip

Effect is simple.

The key is communication. Communication of customer sales data and changing desires,

strategic partnerships between companies and their suppliers, sharing of supply chain

responsibilities, and just like the human body must keep its excellent form during recovery,

supply chain partners must continue to focus on what they do best. When they're dealing with

silent or unreliable supply chain partners, they start to worry about what is going wrong today

and what might go wrong tomorrow.

They lose focus, they start to slip, and then, they feel the need to order more inventory. Don't

let this happen to your company, easier said than done, of course, but there are things you can

do to keep the Bullwhip Effect in check. Have retail share sales data with the distributors.

Establish a truthful dialogue between supply chain partners. If you're going to shorten an order,

or if the order's going to arrive late, let them know today. Lying and hiding information leads

to deeper levels of uncertainty.

That equals more inventory. Keep your customer informed by having stable pricing, or what

some call everyday low pricing, customers know they are always getting the best deal from

you. Sales, sales actually confuse customers. Confused customers don't purchase freely.

Therefore, we don't get a true sense of their actual demand. More uncertainty, more inventory,

and the truth is, none of this can happen if companies don't develop great relationships with

their partners and customers.

No one is going to share sales data, deliver bad news, or buy from a company if they don't trust

you. The mechanics of cascading injuries and the Bullwhip Effect may be difficult, but the

remedies are easy. If you get a small injury, let it heal. If you want to avoid the Bullwhip Effect,

develop supply chains that are built on trust and communication.

Basic supply chain strategies

How does furniture get made? Well, I guess it depends on what type of furniture we're talking

about. Let's keep it simple. Let's say you're buying some chairs for a kitchen table. What are

your options? The easy thing would be to go to the store that sells simple and affordable

furniture. Nothing fancy, but still something that would look good in your kitchen. The price

is probably going to be reasonable, and the great thing is you'll get to take those chairs home

with you today. The downside is your only options are what they have in stock.

Even if they have the style you want, you might not like the colours they have. Customizing

those chairs is not an option because they were probably made a while ago at a facility that was

probably far away. In supply chain, this is what's called a Push Strategy, meaning we know

what the customer's likely going to want, so let's make it now before they even know they want

it. And then, when they realize they need it, it'll be waiting for them at the store. It's fast for the

customer, and since we make the same chair over and over again, we'll realize economies of

scale.

Thus, we'll be able to save some money. Juxtapose this strategy with the Pull Strategy. Here,

the company doesn't make anything. Here, the company waits for the customer to make a

specific order. Which style chair do they want? Which materials and fabric do they want to

use? In what color do they want their chair? The idea here is that the customer gets exactly

what they want. Sure, they could buy a generic chair down at the store. But here you get a chair

that was designed and manufactured just for you.

So while a push company might be said to have a supply chain, a strategy that pushes lots of

product towards the customer, thus creating a large supply of inventory, a pull system might

be referred to as a "demand chain," a system that is actually activated by consumer demand.

We don't make anything until the consumer pulls on the chain. So let's compare the two

systems. Which one can provide the consumer with inventory right away? Push.

Which one offers customization? Pull. Which one will likely have a lower price? Push. Which

one will likely have a better design and higher quality? Pull. Which one carries lots of finished

goods inventory? Push. And which one carries more raw materials inventory? Pull. Neither

strategy is better, but there is a right time and place for each strategy. You might be saying,

"Can't I have a little bit of both?" Actually, you can if you use what's called Postponement.

Postponement is a combination of push and pull. What you do here is figure out what's always

the same in my product, and what are the elements I'm going to let the customer choose? Let's

say the design and materials in the product are always the same. If that's the case, that's what

I'll push. So let's make lots of wooden chairs right now. What will we let the customer choose?

How about if we let them choose the color of those chairs? So now we'll just let those chairs,

those unpainted wooden chairs, sit there.

When the customer sees the chair in our showroom and says, "Paint it black," we'll paint it

black. If they say, "Paint it white," we'll paint it white. Therefore, we let the customer pull the

chair's color. So what does postponement give us? Some speed, some flexibility, different

elements of quality, and also some cost-saving options. These systems are actually everywhere.

The next time you go to a nice restaurant and order a meal, I want you to look at your order

and ask yourself, "Which elements of my meal were pushed? "Basically, what was probably

done long before I got here? "And which elements were pulled? "Which ones did they have to

wait to complete until I actually placed my order?" You see, supply chain is everywhere,

pushing and pulling the things we need in our lives.

Understanding lean systems

Let's take an inventory of our lives. What are the things that many of us need to do every day?

Jobs, school, family time, friends, shopping for food and other essentials, eating, exercising,

showering, traveling from one place to another, even if you are extremely organized getting

everything done is pretty impossible, and then there are the days when something unexpected

happens. You get into an accident, your kid gets sick, someone offers you a ticket to the big

game tonight, a snow storm hits your plane is delayed, how do you deal with welcomed and

unwelcomed surprises? I guess what I'm asking is, are you making the most of each day? Are

you getting the essential things done? Are you able to deal with emergencies, and are you

allowing your life to expand in positive directions? What do most of us do to cope? We develop

routines, we develop schedules, those are good things they help us build efficiencies, they help

establish priorities, but a life with too much routine and a life that is too scheduled grows

boring, and what's worse it doesn't allow us to take into account how the world around us is

changing.

That's a very sad thing for our life. We may be forgoing great opportunities, a great job offer,

we might not take an opportunity to see a game or a movie that may give us great memories

for the rest of our lives, or we may not take the opportunity to go on a date with that wonderful

person we met today. Companies struggle with the same issues. As companies grow they built

a long list of responsibilities, and they develop plans, schedules, and repetitive business

processes to keep things flowing in the right direction, but as I just said too much routine and

too much scheduling it gets boring, and it doesn't allow companies to see how the world around

them is changing.

That is death for a company. How can companies make the most of every day, and still be on

the lookout for opportunities to get better? Well, how can you do that in your life? First, develop

a set of goals and priorities that make you feel good about yourself. These will be your guides

in moments of doubt. Next, constantly educate yourself. Smart people make good decisions.

Now that you're smart, empower yourself to take risks.

With all that in mind it makes it much easier to throw out the clutter in your home, at your

office, in your schedule, and even in your personal life. You now have the tools to lean your

life, to simplify your life and get better at the same time. It's really not that much different for

companies. Does your company have well established goals that make employees proud? Does

your company value curious and educated employees? Does your company trust these smart

and courteous people to take calculated risks that seek to make the company better? Smart,

focused, and empowered employees are the key to clearing company clutter.

Excess inventory, quality defects, slow and broken processes, as you can see, lean supply

chains clear the clutter that gets in the way of organizational opportunity.

Issues in supply chain management

Going global

Supply chains don't find customers and develop products that's what marketing and design do,

thus supply chains aren't what you would call the brain of the organization. Rather, supply

chains are the muscles and bones of an organization. World class supply chains are thus like

extremely fit athletes. Perhaps, they're like an Olympic gymnast. These gymnasts are strong,

fast, flexible and agile. They can do nearly anything with their bodies. Now suppose you had

a world class gymnast perhaps only five feet tall but muscle from head to toe.

Imagine tomorrow morning they wake up from their sleep to find that they have grown to six

feet tall. Are they still a world class gymnast? Probably not, they're probably having difficulties

adjusting to this new body. They are probably in pain from the abnormal growth, and very

likely they are mentally traumatized from this freakish event. It'll take time to adapt to their

new body and develop new strengths. This is sort of similar to what happens when supply

chains are stretched globally overnight.

Employees are stressed as new employees and supply chain partners are brought onboard. The

supply chain questions its own stability. What used to be easy now becomes difficult as you

adapt to new supply chain partners in far off lands. Negotiating and managing tactics may need

to be altered. New laws, culture and languages must be learned. Trust must be developed with

new partners so that vital information sharing can continue.

With the greater distances may come greater challenges in delivering supplies and finished

goods, as well as in monitoring factory and supplier behaviours. With all of these stresses to

the system you might ask why go global in the first place? Well, global supply chains offer

many potential advantages. Material, energy and labour costs may be lower. Perhaps there's an

opportunity to take advantage of better employees and technology. In some cases supply chains

move so they can be closer to customers.

In other cases they shift to be closer to suppliers. These types of moves may bring opportunities

to avoid excess tariffs, expensive shipping fees, and in some cases they may even help control

the chances of losses due to large currency fluctuations. Therefore, global supply chain

managers need to have knowledge of global marketing, international finance, global trade

agreements, language, culture, and of course global purchasing, operations and logistics.

Look, I know my story of freakish growth of the Olympic gymnast is farfetched, but I hope the

lesson of that story is clear. Growing too quickly comes with its own consequences and learning

curve. Just like our gymnast would need physical coaching as well as mental support following

her growth spurt, so too do supply chains need extremely skilled supply chain managers to

coach and support those in the supply chain when it is time to expand globally. Think of all the

cars, electronic devices, and clothing that are imported into your country each year.

Now think of the effort required to bring that to you wherever you are, when you want, and at

a reasonable price. Imagine the number of countries, companies and people involved. Someone

had to plan and coordinate that global supply chain. Take a little time today, and think about

the very cool but very stressful job supply chain managers have in trying to keep those global

supply chains in world class shape.

Creating and Managing ethical supply chains

The 2013 Rana Plaza building collapse in Bangladesh woke up many to the reality of the

dangers associated with garment industries' global supply chain. Over 1,100 people died in that

building collapse. The event caused customers to wonder where their clothing is made, and it

caused some companies to take a deeper look at their supply chain partners and their business

practices. The fact of the matter is though, that even for the most well-intentioned companies,

developing and maintaining ethical supply chains is a challenge.

Customers and investors are endlessly demanding more. Customers want lower prices and

better products. Investors demand better returns on their investment. And there is always the

possibility that if you don't take dangerous risks perhaps your competitor will. This may drive

supply chain managers to demand too much from suppliers. Sometimes, supply chain managers

may even bully their own suppliers, thus, implicitly pushing suppliers to consider cutting

corners, creating unsafe work environments, perhaps even hiring children to work long hours

for slave wages.

How else might these suppliers try to cut corners? Well, these suppliers might buy sub-par, or

even dangerous, materials from their suppliers. Toxic ingredients and lead paint could then

result in dangerous pet food, baby formula, or toys. Still, some manufacturers may make

excellent and save products, but their missions and waste may cause great harm to the workers,

the community, and the environment as a whole.

Supply chain managers are, therefore, challenged to keep workers and customers safe, investors

satisfied, and also work with their supply chain partners to get all of these things done right

away. How do they try and get this done? By establishing internal and external codes of ethics,

by hiring auditors to monitor supply chain behavior, and even by using cell phone surveys to

ask global employees about their job satisfaction and workplace conditions.

Still, even when utilizing all of these tools and techniques some companies find that some

supply chain partners find ways around the rules. Sometimes, they get tip-offs about auditor

visits. Some know how to cheat the system and still get passing evaluations. Some even create

two or more factory floors, one clean and compliant area for the auditors to see, and a larger

more seedy factory floor hidden from public scrutiny.

Staying one step ahead of the worst supply chain partners can be tough, but let's say you find

you have a very unsavoury supply chain partner. What do you do now? Well the quick answer

may be to say, "get rid of the supplier." The ethicist might ask, "did that fix the problem?" Very

likely the poor behaviour will continue long after you've dumped them. In some cases, perhaps

the best thing a big powerful company could do is to keep their supplier. It sounds strange

doesn't it? But perhaps your company could use its leverage and power to force the supplier to

change by saying, "If this doesn't change by next week, we'll stop payment.

"If that doesn't change by next month, we'll cut orders." And finally, "if all of these things aren't

fixed "in six months, you will lose all of your business." Perhaps you can motivate big changes

in your supplier. They might even begin to understand that happy employees that work in clean

environments tend to be more productive, and thus, create better products that are bought by

happy customers. Look, I know that sticking with bad suppliers will never make good press,

but no one said developing a strong, ethical supply chain was gonna be easy.

So next time you hear about a major scandal, instead of thinking about the evils of the business

world, consider the challenges of the supply chain manager. How could you have better

communicated with that supply chain partner? Could you have created a strong and reliable

system to monitor supply chain partners' actions, and thus avoid scandals like this? How could

you have motivated the supplier to change their business tactics? In a world of cell phones,

social media, and the 24 hour news cycle, trying to hide bad business practices is impossible.

Whether companies do it for the right reasons, or just to avoid negative headlines, developing

ethical supply chains is no longer a choice. It's a requirement.

Creating sustainable supply chains

When you think about all of the horrible things associated with business, using fossil fuels and

creating harmful emissions, destroying communities via the extraction of natural resources,

using so many of the earth's natural resources that habitats are destroyed. Creating tons of

industrial waste each day, toxic waste, nuclear waste, creating products that will one day

occupy landfills for hundreds if not thousands of years. Who, in business is responsible for

most of those things? I'm unhappy to say it's the folks in the supply chain.

Yeah, that's the bad news, but here's this good news, this also means that the folks in the supply

chain are the ones with the power to make this world a better place, and here's even better news,

you don't have to be into sustainability to be on board. Why, because there really is no

difference between good supply chain management and sustainable supply chain management.

What do good supply chain managers want? They want to buy fewer materials, make only what

is needed, use the least amount of resources, and they want to deliver and distribute goods in

the most efficient ways possible.

Not one of those things is in conflict with a sustainable supply chain. When supply chain

managers find ways to lower inventory levels, recycle packaging and defective items, reuse

boxes and palettes, decrease retail packaging, use fewer trucks and containers by filling them

to capacity, reduce defective and damaged goods, and even shift toward using renewable

energies they aren't just being green, they're creating world class supply chains.

Supply chains that are creating safer products. Supply chains that are less vulnerable to shifts

in the price of fuel, materials and energy. Plus, the more green a supply chain the more likely

it is that your supply chain is legally compliant around the world. When there is no waste and

no emissions there is nothing for governments to regulate. Plus, leading sustainable supply

chains may become the model for future environmental laws. Tell me, would you rather be the

company that has to rush to comply with new laws, or would you rather be the model for the

new laws thus forcing your competitors to play catchup? Supply chain sustainability is sort of

like shifting to a healthier diet isn't it? Upfront it seems difficult, it requires change.

It requires researching and experimenting, but when you find those healthy meals you love

eating becomes so much more satisfying. You feel healthier because you are healthier, and thus

your life becomes better. You have more energy, you're more productive at work, you save on

health care costs. In the end, when done right, eating healthy may cost you less than paying for

cheap and unhealthy food today. The next time you are tasked with making your supply chain

more sustainable don't look at it as a challenge, look at it as an opportunity to make your supply

chain stronger and healthier.

Dealing with disasters

An earthquake strikes, people need food fresh water, shelter and clothing. People are injured,

they need medicine and other supplies. This is a supply chain problem. Where will you get the

needed food, water and supplies? How will they be moved? Will it be easy to get them into a

foreign country? Where are the people in need? Are the roads to get to them open and available?

No matter the answers though, the stakes in this supply chain are so much higher.

Anything that is wasted may cost people their lives'. Being wasteful and inefficient is not an

option, such are the challenges in the emerging field of humanitarian supply chain

management. Think of the different types of disasters, hurricanes and earthquakes they happen

over a short period of time, while hunger and disease may stretch over large areas for years.

There are even human made disasters, chemical spills, nuclear disasters, terrorist attacks, and

how about political disasters that cause citizens to flee and ultimately result in refugee camps?

Humanitarian organizations must struggle to build the appropriate supply chains for each

scenario, and sometimes they must do it in a matter of hours.

Think of the challenges business supply chains face, finding suppliers, developing

relationships, keeping communication open and free, understanding the available

infrastructure, getting the vehicles that are needed to ship items, understanding the complicated

importing and exporting rules in associated for each country. Now imagine doing that overnight

in areas where corruption is likely to explode under these dire circumstances.

Imagine the complications of working with foreign military agencies, and by the way

humanitarian organizations are just as competitive as companies. They need to prove to donors

that they can get the maximum benefit for every dollar that is donated. Imagine donating a

$100.00, and finding out only $25.00 worth of food, water and medical supplies made it to the

people in need. Would you give money to that organization again? Like a business supply

chain, humanitarian supply chains are looking to be both effective and efficient.

Helping the maximum number of people for the minimum cost, the challenges are great though,

and often a lack of business acumen causes massive inefficiencies that only increase the pain

and the suffering. Consider that local governments may be weary of all these foreigners

descending upon their community. Consider that military, business, religious and humanitarian

organizations are struggling to complete the same tasks, but since they are distrustful of each

other they may actually not be willing to work together and share information.

Consider that nowadays the media will be right there next to humanitarian organizations

documenting and communicating your supply chain failures to the public and your donors.

Humanitarian organizations can no longer afford to overlook the value of modern supply chain

management. They're looking for people like you to help develop modern and sophisticated

supply chains that can be mobilized when disaster strikes. Next time a global disaster strikes

and you are captivated by the media coverage, or as you contemplate giving a donation think

of what you're watching.

You are watching a humanitarian global supply chain develop nearly from scratch, a

humanitarian supply chain that cannot fail, a supply chain that is hopefully made up of

organizations willing to cooperate for the good of the victims. If asked, could you help a

humanitarian organization create a plan today? Now more than ever humanitarian

organizations need the help of supply chain management.

The 10 Trends of future SCM

1. Service chains will become more important than product chains. In many if not most

business sectors today, great product is considered to be the table stakes just to play the game.

Increasingly, discerning consumers are demanding more from pre- and post-sales service for

the goods they buy.

Accordingly, companies that effectively couple the pre- and post-sales service supply chain

activities (including product knowledge, in-store service, warranties, responsive consumer

services, and the like) will emerge as the winners over their solely product-centric competitors.

That message was underscored by Apple CEO Tim Cook in his recent apology to consumers

in China for the company’s perceived failure to listen to feedback about post-sales service.

This was a great example of a company with one of the most innovative products in the

marketplace forgetting that the consumer is still largely in charge and that service plus product

(in this case, repair and warranty practices) trumps product only.

2. Companies will need to fully report supply chain externalities. In Corporation 2020,

Sukhdev writes in depth about corporate externalities—defined as the impacts of an

organization’s manufacturing and business processes on other segments of society—and the

need to disclose those externalities.

While some work has been done around supply chain sustainability and the need to reduce

carbon footprint, companies will need to do a much better job of disclosing the end-to-end

impacts of their supply chains.

This means measuring and reporting on the effect of major supply chain transactions on jobs

created, carbon footprint reduction, sustainable procurement processes, types of labor used,

and modes of transportation among others.

The customer or consumer will begin to demand the transparency into these impacts much as

these have now on the labeling of food and beverage products.

3. Supply chains must be designed to serve the “base of the pyramid.” The late Professor C.K.

Prahlad authored a compelling book entitled The Fortune at the Bottom of the Pyramid, which

later was modified and widely referred to as the “base” of the pyramid.

The book pointed to the market potential of the five billion-plus people in the world whose

incomes are less than $2,000 a year. We contend that companies in the consumable and durable

sectors, in particular, will need to create products and associated supply chains to support the

products that will cater to this market segment.

To tap into this enormous potential, our supply chains must go through a total utilitarian design

philosophy in order to deliver sustainable bottom-line performance. Current supply chain

thinking, which is largely based on a cost plus model, will need to shift to a “not to exceed”

cost model.

4. Knowledge work and workers will become global in nature. Knowledge work in supply

chains today accounts for approximately 40 percent of the total labor hours spent. Much of this

work deals with complex analytics, planning, procurement processing, and provision of

services.

This nature of the work, the need for multi-language support, and the associated local

complexities of the different geographies being served will necessitate the seamless

globalization of supply chain knowledge work.

As an example, you could see a U.S.-centric company performing supply chain planning in the

Philippines, operating procurement centers of excellence in Singapore, and conducting global

business analytics in Brazil.

5. SCM will have a standard certification process similar to that for CPAs. Many

universities offer undergraduate and graduate degrees in supply chain management. In addition,

professional associations such as APICS, CSCMP, and ISM offer a range of certification

programs.

However, in most cases these programs either focus on the basics of SCM or on a specific

activity such as import/export or financial analysis. We believe that a fundamental shift will

occur in the normalized delivery, content served, and certifications of supply chain

professionals.

Many other professions like accounting (Certified Public Accountant) and engineering

(Professional Engineers) require national board examinations as well as continuing

professional education (measured by a specified number of hours per year).

We contend that a similar professional credentials program will be required for supply chain

professionals to normalize the knowledge base of the incoming resources.

6. Product clock speeds will determine the number and nature of the supply chains. I

recently worked with a global consumer durables company where over 70 percent of the

products had a life span of less than 18 months. Another 20 percent had a life span of three to

four years, with the remaining 10 percent exceeding five years.

This “fast clockspeed” lifecycle is becoming more the norm than the exception. The days of

the steady and static product catalog is past; thinking otherwise, in fact, is a recipe for disaster.

However, we continue to find companies using a single supply chain approach to service all

segments irrespective of the time constraints.

The winners of the future will have the same number of distinct supply chains as there are

product clockspeeds. In addition, supply chain organizations will need to be aligned by product

segments as well as functional segments in a matrix fashion to serve the distinct supply chain

needs.

7. Micro segmentation will be key to success. Do you have a detailed knowledge of your

individual consumer or customer segments—your micro segments? The honest answer for

most companies would be “no.” A micro segment is defined as that exact part of the general

buying category that triggers the purchasing decision—not the category itself.

To illustrate, in recent work with a provider of smart phone accessories, we discovered that the

company had several underserved micro segments—specifically, the design your

own/assemble your own accessory segment. However, the ability to identify and service those

segments was far beyond the reach of this company’s supply chain.

Going forward, organizations will need to know their micro segments, and their supply chains

must be able to effectively service them based on the business strategy. I always encourage

clients to think of their business in terms of the individual consumer or groups of consumers

as opposed to a broad brush view of categories. Put another way, adopt a B2C (business to

consumer) mindset even if your operation is predominantly B2B (business to business).

8. Technology to support SCM will primarily be “on tap.” SaaS (software as a service) is

gaining mainstream attention. We contend that most if not all supply chain technologies by

2020 will be delivered and consumed via this method—or “on tap.”

The user will pay for the ability to use the capability and will not have to incur the large fixed

costs of ongoing maintenance, upgrades, and infrastructure expenditures that can amount to

almost 25 to 30 percent of the cost of ownership.

The widespread adoption of SaaS constructs will likely be accelerated by the rise of cloud

computing and diminishing concerns about the security aspects of SaaS.

9. Leaders will leverage social media in a closed loop feedback process. Social media data

is everywhere today. In recent work we did with a durable goods company, we found that they

had 2,000 websites/ blogs that were discussing their products and service needs on a fairly

regular basis.

However, this company—like most—did not have a systematic method to study the data and

disseminate the information to the various supply chain constituencies (design, planning,

procurement, service, manufacturing, and so forth). This is necessary to provide closed loop

feedback processes that allow the company to proactively respond to the feedback.

The winning companies will be able to receive, process and act on the data that is being

provided to them by their constituents via social media.

10. Artificial intelligence will be embedded in mainstream supply chain activities. Humans

learn by doing and processes improve as they get “leaned out.” Yet somehow, every time we

build a supply chain system we begin the process from the ground up.

Planners go through the same calculation steps every time they start; procurement folks repeat

approximately 35 percent to 40 percent of the activities they did in the past. The same holds

true for people involved in building logistics and execution systems.

The problem is that when embarking on a supply chain program or initiative we do not have

access to algorithms that learn and retain the knowledge and experience of the past. We contend

that supply chain artificial intelligence will need to be embedded in more effectively

automating mainstream supply chain activities.

Financial Management of Parliament Act in Effect in April 2015-03-19

The Presidency

The Financial Management of Parliament Amendment Act 34 of 2014 will come into force

on 1 April 2015.

The act was assented to in September last year.

The bill was tabled in the National Assembly in February 2014.

It flows from a Constitutional Court decision in 2012 which found that provincial legislatures

were not empowered to pass their own financial management laws.

Parliament was instructed to remedy this defect.

Parliament decided to amend the principal act to correct the defect rather than granting

provincial parliaments the power to make their own financial management legislation.

The bill was tabled early in February 2014 after having being processed by the standing

committee on finance as a draft bill.

The committee had focused on identifying those areas in the act that required amendments.

The objective was to make the Act applicable to provincial legislatures.

During interaction with parliament’s senior legal advisor, Adv Jenkins, it was decided that

the bill’s preamble would contain no reference to performance management as the bill’s core

focus is financial management.

Parliament’s executive authority will also have to provide the oversight mechanism with a

copy of the draft strategic plan of parliament within ten working days after receiving it from

the accounting officer.

The draft annual performance plans as well as the draft budget will also have to be provided

within one month before the draft budget has to be submitted to national treasury.

The oversight committee will have to consider any draft revisions to the approved allocations

of parliament’s own funds.

The Financial Management of Parliament Amendment Act instructs Parliament to draw up its

own adjustments budget with respect to its own funds.

Any unauthorised expenditure of own funds will have to be recovered from the guilty party.

All unspent direct charges transferred to parliament will have to be returned to treasury at the

end of the financial year.

Annual financial statements must be prepared in accordance with the standards of generally

recognised accounting practice.

Parliament’s annual report as well as the audited financial statements, the audit report and the

annual performance report have to be submitted to the auditor-general within five months of

the end of a financial year.

The proclamation notice was published in Government Gazette 38564.

Parliament has also published the Supply Chain Management Regulations in terms of the act

in Gazette 38564.

The regulations set out, inter alia, how the supply chain management system in parliament is

to be put in place, how the demand management and acquisition management systems are to

operate, the committee system for processing of competitive bids, compulsory disclosure by

prospective suppliers, the barring of persons participating in the bidding system and fighting

abuse of the supply chain management system.

The rules also kick in on 1 April 2015.

Legislative institutions set to manage their own financial affairs

In line with the recent passing of the Financial Management of Parliament Amendment Act

(No 34 of 2014) (FMPA), the Parliament Executive Authority of Parliament have prescribed

a new set of Regulations to regulate the Supply Chain Management of Parliament and

Provincial Legislatures. The Amendment Act and the approved SCM Regulations will come

into effect from 01 April 2015 as published in the government gazette (GG No. 38564 and

GG No. 38565). In the past, Parliament and Provincial Legislatures operated under the spirit

of the PFMA.

Background

Efforts to draft a separate financial management legislation for Parliament and Provincial

Legislatures started during the 3rd Parliament term and were fully realised during the 4th

Parliament term when the Financial Management of Parliament Act was passed in 2009.

Subsequently, the provincial legislatures in Gauteng, Eastern Cape, Free State, North West

and Mpumalanga proceeded to pass their own financial management Acts to regulate their

own financial matters.

However, the Premier of the Limpopo Province referred the Financial Management of the

Limpopo Provincial Legislature Bill to the Constitutional Court, after expressing doubts

about the competence of the Provincial Legislature to pass a Bill dealing with its own

financial management.

When passing judgement, the Constitutional Court held that Provincial legislatures did not

have the authority to pass legislation with respect to their own financial management. The

Court held that this authority resides with Parliament and ordered Parliament to remedy the

defect by incorporating Provincial Legislatures under the national legislation.

This ruling set in motion a series of consultations between Parliament and Provincial

Legislatures which culminated in the passing of the FMPA Amendment Bill in July 2014,

which the President later signed into law in September 2014 into law as the Financial

Management of Parliament Amendment Act.

Implications of the new Amendment Act

The new FMPA Amendment Act of 2014 is applicable to Parliament and Provincial

Legislatures and deal with the financial management of Provincial Legislatures. Also, and

perhaps more importantly, the new Act assign treasury responsibilities to the Speaker of the

National Assembly and the Chairperson of the National Council of Provinces as the

Executive Authority of Parliament at national sphere and Speakers of Provincial Legislature

at provincial sphere. The new Act also requires establishment of the oversight mechanism of

financial management and thereby require Parliament and Provincial Legislatures to review

their Governance Models to incorporate the required oversight mechanism committee.

Issuing of applicable regulations

According to the FMPA Amendment Act, only the Executive Authority of Parliament,

namely the Speaker of the National Assembly and the Chairperson of the National Council of

Provinces, have the authority to prescribe regulations of section 65 of the principal Act and

once they are prescribed and approved, they can become applicable to both Parliament and

Provincial Legislatures.

A new regime for supply chain management

The prescribed regulations governing supply chain management system in Parliament and

Provincial Legislatures will come into effect on 01 April 2015. Previously, the Legislatures

operated under the ambit of the National Treasury regulations to guide procurement of goods

and services in the sector. However, new SCM Regulations make specific reference to

Legislative Sector-specific procurement in relation to emergencies and exceptional

circumstances such as sectoral Parliaments, State of the Nation Address, Taking Parliament

to the People and the establishment of a new Parliament.

In line with the new SCM Regulations, a number of workshops were held throughout the

country for senior officials from all Legislatures to gain a better understanding of the new

regulations so that they could be applied consistently across the South African Legislative

Sector.

Paving the way forward

Taking their cue from decisions of the Speakers’ Forum of South Africa, all Legislatures are

mandated to review the governance models to incorporate the oversight mechanism in line

with section 4 of the FMPA of 2009, which states that an oversight mechanism of Parliament

must maintain oversight of the financial management of Parliament.

Also, the prescription of regulations concerning the allocation and use of any funds provided

by Parliament to political parties or to Members of Parliament must be in line with section 34

of the FMPA of 2009. Consequently, the Executive Authority must ensure that a draft of any

proposed legislation regarding the above matter is published for public comment.

Finally, Parliament is in the process of drafting the required regulations in the areas that deal

with Parliament and Provincial Legislatures’ draft budgets, cash management and investment

policies, expenditure management and procedures to recover fruitless and wasteful and

unauthorised and irregular expenditure. All the above are expected to be finalised during the

2015/2016 financial year.

(1 April 2015 - to date)

FINANCIAL MANAGEMENT OF PARLIAMENT AND PROVINCIAL

LEGISLATURES ACT 10 OF 2009 (Previously “Financial Management of Parliament Act 10 of 2009”)

Government Notice 438 in Government Gazette 32152, dated 21 April 2009. Commencement

date: 19 April 2009, unless otherwise indicated as per Schedule 4.

SUPPLY CHAIN MANAGEMENT REGULATIONS ISSUED IN TERMS OF THE

FINANCIAL MANAGEMENT OF PARLIAMENT ACT, 2009 (ACT NO. 10 OF 2009)

Government Notice R210 in Government Gazette 38565 dated 17 March 2015.

Commencement date:

1 April 2015.

In terms of section 40, read with section 65 of the Financial Management of Parliament Act,

2009 (Act No. 10 of 2009) and read with section 5 of the Financial Management of

Parliament Amendment Act (Act No. 34 of 2014), the Speaker of the National Assembly and

the Chairperson of the National Council of Provinces, acting jointly as the Executive

Authority of the Parliament of the Republic of South Africa issued the regulations as set out

below. The National Assembly and the National Council of Provinces approved the

Regulations on 05 and 21 November 2013, respectively. In terms of regulation 16 of the

underlying Regulations, the Executive Authority hereby determine 01 April 2015 as the date

on which the underlying Regulations shall come into operation.

CONTENTS

ABBREVIATIONS

DEFINITIONS

DELEGATION OF SUPPLY CHAIN MANAGEMENT POWERS AND DUTIES

IMPLEMENTATION OF THE SUPPLY CHAIN MANAGEMENT SYSTEM

DEMAND MANAGEMENT

ACQUISITION MANAGEMENT

COMMITTEE SYSTEM FOR PROCESSING OF COMPETITIVE BIDS

COMPULSORY DISCLOSURE BY PROSPECTIVE SUPPLIERS

BARRING OF PERSONS PARTICIPATING IN THE BIDDING PROCESS

COMBATING ABUSE OF THE SUPPLY CHAIN MANAGEMENT SYSTEM

CONTRACT MANAGEMENT AND DISPUTE SETTLING

LOGISTICS MANAGEMENT

DISPOSAL MANAGEMENT

RISK MANAGEMENT

SUPPLY CHAIN MANAGEMENT SYSTEM PERFORMANCE

COMMENCEMENT

1. ABBREVIATIONS

FMPA The Financial Management of Parliament Act, 2009 (Act No. 10 of 2009)

SCM Supply Chain Management

2. DEFINITIONS

In these Regulations, unless the context indicates otherwise, a word or expression to which a

meaning has been assigned in the Act has the same meaning; and-

"applicable legislation" means the legislation referred to in section 40(e) of the Act, which

includes the Preferential Procurement Policy Framework Act and

the Broad-Based Black Economic Empowerment Act, 2003 (Act

No. 53 of 2003);

"bid" means a written offer submitted by a prospective supplier to the

Accounting Officer in response to an invitation to provide goods

or services;

"bidder" means a prospective supplier who has submitted a bid or is

considering or preparing a bid for submission;

"competitive bids" means a bid in terms of a bidding process which provides for

appropriate levels of competition to ensure cost effective and best

value outcomes

"conflict of interest" means a situation in which an employee's perceived or real

interest and involvement in any matter, including but not limited

to:

(a) shares and other financial interests;

(b) remunerated work outside Parliament;

(c) consultancies;

(d) retainerships;

(e) sponsorships;

(f) hospitality industry ownership;

(g) other interests in land and property; and

(h) receiving of gifts,

would affect his or her objective judgement in the workplace or

unfairly consume the time and effort he or she is expected to

dedicate to his or her existing work or role in Parliament;

"contract" means an agreement entered into by Parliament and a preferred

supplier as a result of accepting a bid;

"days" means calendar days;

"Delegation

of Authority"

means the framework document setting out the system of

delegation contemplated in section 10 of the Act;

"demand

management"

means a process of ensuring that the resources required to fulfil

the needs identified in the Parliamentary Plan are delivered at the

correct time, price and place and that the quantity and quality will

satisfy those needs

"enabling contract" means a contract with a preferred supplier for a specific range of

goods or services at a fixed or predetermined price, rate or fee that

may be utilised by all relevant officials of Parliament;

"formal written

quotation”

means a written offer submitted by a prospective supplier to the

Accounting Officer in response to an invitation to provide goods

or services above a certain threshold as defined in the Delegation

of Authority;

"list of prospective

suppliers or Suppliers'

Database"

means the list of prospective suppliers who have been vetted by

Parliament in accordance with the listing criteria and approved to

be placed on the list or Database as suppliers from whom quotes

or bids may be requested;

"list of prospective

suppliers or Suppliers'

Database”

means the list of prospective suppliers who have been vetted by

Parliament in accordance with the listing criteria and approved to

be placed on the list or Database as suppliers from whom quotes

or bids may be requested;

"listing criteria" means the minimum criteria required by Parliament for suppliers

to be listed on the Suppliers' Database;

"local" means the area where an activity of Parliament is performed;

"National Treasury" means the National Treasury established by section 5 of the Public

Finance Management Act ('PFMA');

"non employee" means a person other than an official who-

(a) performs functions within the precincts of Parliament;

(b) occupies an office within the precincts of Parliament;

(c) is a Member of Parliament; or

(d) is a political party support employee;

"obtain" means must receive and be in possession of;

"petty cash" means a cash float to be used for incidental expenses;

"Preferential

Procurement Policy

Framework Act"

means the Preferential Procurement Policy Framework Act, 2000

(Act No. 5 of 2000);

"preferred supplier" means a supplier, vetted and approved by Parliament in

accordance with the listing criteria, and who is included on the

Suppliers' Database;

"prospective supplier" means one or more natural or legal persons intending to offer

goods or services to Parliament, or from whom or which quotes or

bids may be requested, and who or which is listed on the

Suppliers' Database or intends to so list;

"PP Regulations" means the Preferential Procurement Regulations issued under the

Preferential Procurement Policy Framework Act;

"risk" means factors that may negatively contribute to financial or

reputational costs to Parliament, its administration, preferred

suppliers or prospective suppliers during the implementation of

the Supply Chain Management system;

"Supply Chain

Management System"

means the processes, procedures and matters contemplated in

section 40(d) of the Act;

"unsolicited offer" means proposals received from interested parties outside the

procurement process;

"written quotation" means a written offer submitted by a prospective supplier to the

Accounting Officer in response to an invitation to provide goods

or services below a certain threshold as defined in the Delegation

of Authority; and

"the Act" means the Financial Management of Parliament Act, 2009 (Act

No. 10 of 2009)

3. DELEGATION OF SUPPLY CHAIN MANAGEMENT POWERS AND

DUTIES

(1) The Accounting Officer may delegate Supply Chain Management powers and duties,

including the authority to alienate, let or otherwise dispose of assets, conferred by the Act on

him or her to an official in accordance with the system of delegation contemplated in section

10 of the FMPA.

(2) Officials acting on delegated authority must exercise such authority in accordance with

the FMPA and the Parliamentary Delegation of Authority and are accountable to the

Accounting Officer for actions so performed and decisions so taken.

4. IMPLEMENTATION OF THE SUPPLY CHAIN MANAGEMENT

SYSTEM

(1) The Accounting Officer must establish a supply chain management function in the

parliamentary service that must implement the supply chain management system, comprising

the following management processes and procedures, including:

(a) demand management;

(b) acquisition management;

(c) logistics management;

(d) disposal management;

(e) risk management; and

(f) regular assessment of SCM performance.

(2) The Accounting Officer must establish different committees that will, in the case of

procurement through a bidding process, consider the following:

(a) Bid specification;

(b) bid evaluation; and

(c) bid adjudication.

(3) The Accounting Officer must ensure that-

(a) a member of the Evaluation Committee is not also a member of the Bid Adjudication

Committee;

(b) members of Parliament are not appointed as members of any of these committees or any

other committee that may be established and that deals with approving bids, quotations,

contracts or other bids for Parliament as required by section 44 of the FMPA; and

(c) members of Parliament are barred from attending any meeting of a committee referred to

in paragraph (b) as an observer, as well as being barred from participating in any manner in

the evaluation or approval of bids, quotations, contracts or other bids for Parliament as

required by section 44 of the FMPA.

(4) The Accounting Officer may establish other committees deemed necessary for the

effective processing of bids, quotations and other SCM processes.

5. DEMAND MANAGEMENT

(1) The Accounting Officer must ensure that the demand management system-

(a) includes timely planning and management processes to ensure that goods and services

required by Parliament are quantified, budgeted for and delivered at the right locations and on

the agreed delivery dates, and are of the appropriate quality and quantity at a fair cost;

(b) takes into account any benefits of economies of scale that may be derived in the case of

acquisitions of a repetitive nature; and

(c) allows for reviewing spend analysis and costing of future procurement needs.

(2) The Accounting Officer must ensure that demands for goods and services are informed by

the existing Parliamentary plans.

(3) The Accounting Officer must determine the sources of supply and methods of

procurement which are in line with relevant legislation in managing demand.

(4) The Accounting Officer must maintain a Suppliers' Database with a list of prospective

suppliers from which quotations for goods or services may be sourced.

(5) The Accounting Officer must-

(a) specify the listing criteria, which must include proof that a prospective supplier's tax

matters are cleared by the South African Revenue Services; and

(b) disallow the listing or accreditation of any prospective supplier who is already listed by

the National Treasury as a company or person prohibited from doing business with the public

sector, for example listed in the List of Restricted Suppliers, or listed in the Register for

Tender Defaulters in terms of section 29 of the Prevention and Combating of Corrupt

Activities Act, 2004 (Act No. 12 of 2004).

(6) The Accounting Officer must ensure that-

(a) the list of prospective suppliers is regularly updated to include any additional prospective

suppliers and new commodities or types of services. The prospective suppliers must be

allowed to submit an application for listing at any time; and

(b) prospective suppliers are invited to register on the Suppliers' Database as prospective

suppliers through public advertisements at least annually.

(7) The Demand Management system must provide for the compilation of the required

specifications to ensure that the needs of Parliament are met.

6. ACQUISITION MANAGEMENT

(1) The Accounting Officer must implement a system of acquisition management whereby-

(a) goods and services are procured by Parliament in accordance with authorised processes

only;

(b) expenditure on goods and services is incurred in terms of an approved budget;

(c) the threshold values for the different procurement processes are complied with;

(d) bid documentation, evaluation and adjudication criteria, and general conditions of a

contract, are in accordance with applicable legislation;

(e) provision is made to allow enabling contracts to be concluded for the supply of regularly

required goods or services for a period as approved by the Secretary to Parliament in the bid;

and

(f) provision is made to allow contracts to be concluded for the supply of ad hoc goods and

services for such period as may be prescribed in the Delegation of Authority in accordance

with the nature of the goods and services procured.

(2) Goods or services may not deliberately be split into parts or items of a lesser value merely

to avoid complying with the SCM requirements and when determining transaction values, a

requirement for goods or services consisting of different parts or items must, as far as

possible, be treated and dealt with as a single transaction.

Supply chain management processes

(3) The Accounting Officer must procure goods and services in accordance with the

following criteria:

(a) petty cash purchases up to the transaction value specified in the Delegation of Authority;

(b) verbal quotations for the procurement of goods and services up to the transaction value

specified in the Delegation of Authority;

(c) written quotations for the procurement of goods and services up to the transaction value

specified in the Delegation of Authority;

(d) formal written price quotations for the procurement of goods and services up to the

transaction value specified in the Delegation of Authority; and

(e) a competitive bidding process for the procurement of goods and services above the

transaction value specified in the Delegation of Authority.

Petty cash purchases

(4)

(a) Procurement of goods by means of petty cash must meet the following criteria:

(i) It must include conditions limiting the number of petty cash purchases or the maximum

amounts per month for delegated officials as outlined in the Delegation of Authority; and

(ii) officials responsible for petty cash purchases must provide detailed monthly

reconciliation reports to the Chief Financial Officer, setting out at least:

(aa) the total amount of petty cash purchases for that month where applicable;

(bb) receipts and other appropriate documents for each purchase; and

(cc) opening and dosing balances that are appropriately signed off.

(b) No quotations are required for petty cash transactions.

Verbal quotation

(5)

(a) When procuring goods and services by way of verbal quotation, the Accounting Officer

must-

(i) obtain three verbal quotations from prospective suppliers; and

(ii) ensure that where verbal quotations are obtained from prospective suppliers an order

should be raised against any form of written quotation.

Written quotation

(6)

(a) When procuring goods and services by way of written quotation, the Accounting Officer

must-

(i) obtain quotations from at least three different prospective suppliers, unless it is not

reasonably practical to do so;

(ii) ensure that where quotations are obtained from prospective suppliers who are not listed

on the Suppliers' Database, such prospective suppliers must comply with the listing criteria

and must request to be listed;

(iii) request prospective suppliers to submit quotations in writing;

(iv) ensure that requests for quotations are in writing; and

(v) ensure that the responsible official reports in writing if it was not reasonably practical to

obtain at least three quotations; in those cases the reasons must be furnished for the approval

of the Accounting Officer or the delegated official in accordance with the Delegation of

Authority.

(b) The procurement of all goods and services falling within a price bracket determined by

the Accounting Officer must be approved by an official who is lawfully delegated to do so.

Formal written price quotation

(7)

(a) When procuring goods and services through formal written price quotations –

(i) quotations must be obtained from at least three different prospective suppliers, unless it is

not reasonably practical to do so;

(ii) if it was not reasonably practical to obtain at least three quotations, the reasons must be

recorded in writing by an official who is lawfully delegated to do so; and

(iii) in cases where quotations are obtained from suppliers who are not listed on the Suppliers'

Database, such suppliers must comply with the listing criteria and must request to be listed.

(b) Requests for quotations must be in writing and should include:

(i) the closing date for submission of quotations;

(ii) the preference point systems to be utilised;

(iii) the evaluation criteria to be utilised; and

(iv) a clear statement of all specifications for the required goods or services.

(c) Formal written price quotations may not be considered unless the prospective supplier

has-

(i) duly completed the Request for Quotation form;

(ii) complied with the specifications or requirements;

(iii) provided the full registered name of the prospective supplier;

(iv) provided a copy of an identity document, or a company or other registration number, as

the case may require;

(v) been cleared by the South African Revenue Service in respect of their tax matters; and

(vi) signed a declaration of interest.

(d) The Accounting Officer must ensure that the SCM system allows an appropriate

timeframe for suppliers to respond to invitations for formal written quotations.

(e) The allocation of preference points should be in accordance with the Preferential

Procurement Policy Framework Act.

Competitive bidding process

(8)

(a) When procuring goods and services through a competitive bidding process, the

Accounting Officer must-

(i) invite bids from prospective suppliers in an open and transparent manner by using the

most appropriate means in order to maximise participation, including but not limited to,

advertising on the official website of Parliament;

(ii) allow at least 21 days from the date of advertisement for bids before closing the invitation

for submission of bids, and where no bids were received during the period provided, extend

the period in the manner contemplated in item (iii), for a further period of at least 21 days;

(iii) determine the date and time of the briefing sessions (where applicable) in respect of the

invitation;

(iv) if there is a change in the scope of the competitive bid, retract the current invitation to

bid; re-advertise the amended invitation in terms of items (ii) and (iii) and send the revised

bid specification to all bidders who have already submitted bids;

(v) require that all bids include details of the prospective supplier and bid number;

(vi) require that all bids provided in electronic format must be supplemented with hard

copies;

(vii) stipulate that suppliers may be vetted before the award;

(viii) invite all bidders to be present at the opening, registering and recording of the bids;

(ix) open the submitted bids immediately after the submission period has expired ,and record

in the register, where applicable, in the presence of interested persons all bids received in

time;

(x) make the register available for public inspection; and

(xi) give effect to the Act and section 217 of the Constitution of the Republic of South Africa,

1996 and in doing so may, amongst other things, request further information or satisfactory

documentary proof on any information provided by the bidder, at any stage of the bid

process, but prior to a decision being made, including:

(aa) explanation of an ambiguity in its bid documents;

(bb) correcting an obvious mistake; and

(cc) clarification or better detail required for proper evaluation.

(b) Bid specifications should include:

(i) The closing date for submission of a bid;

(ii) the preference points system to be utilised;

(iii) the evaluation criteria to be utilised;

(iv) clear specifications and additional requirements if any;

(v) that the General Conditions of Contract will apply; and

(vi) whether a contract would be entered into.

(c) Bid specifications should be compiled by the Bid Specification Committee in terms of

regulation 7(7).

(d) When procuring goods and services through a competitive bidding process, the

Accounting Officer may cancel the bid if-

(i) there is no longer a need for the goods, works or services offered;

(ii) funds are no longer available to cover the total envisaged expenditure;

(iii) there is a material discrepancy in the process;

(iv) no bids were received that represent value for money;

(v) there is change in the scope of goods and services; or

(vi) there are other reasonable reasons to do so.

(e) The reasons for cancellation of a bid must be recorded by the Accounting Officer and

published on the official website of Parliament.

(f) A Bid may not be considered unless the prospective supplier has-

(i) duly completed the Bidding Document and complied with the specifications or

requirements;

(ii) provided the registered name of the bidder;

(iii) provided a copy of an identity document, or a company or other registration number, as

the case may require;

(iv) been cleared by the South African Revenue Service in respect of their tax matters;

(v) provided business registration documents; and

(vi) not been listed in the list of restricted suppliers.

(g) The evaluation of a bid must be in terms of the criteria as published.

(h) A Bid must be evaluated by the Bid Evaluation Committee and adjudicated by the Bid

Adjudication Committee in terms of sub-regulations (8) and (9) of regulation 7, respectively.

(i) The allocation of preference points and the award must be in terms of the Preferential

Procurement Policy Framework Act.

(j) The Accounting Officer may negotiate the final terms of a contract with a prospective

supplier who submitted a bid and who was identified through a competitive bidding process

as a preferred supplier: Provided that such negotiation –

(i) does not allow any preferred supplier a second or unfair opportunity;

(ii) is not to the detriment of any other prospective supplier;

(iii) does not alter the competitive position of any bidder;

(iv) is recorded in an appropriate form for reference purposes;

(v) does not alter the scope of the bid; and

(vi) that the contract is signed off in terms of the Delegation of Authority.

Participation in transversal contracts secured by other organs of state

(9)

(a) The Accounting Officer may procure goods or services under a contract secured by other

organs of state, only if-

(i) the contract has been secured by means of a competitive bidding process applicable to that

organ of state;

(ii) there is no reason to believe that such a contract was not validly procured;

(iii) there are demonstrable discounts or benefits to do so; and

(iv) the other organ of state and the supplier have consented to such procurement in writing.

Unsolicited offers

(10)

(a) The Accounting Officer may decide to consider an unsolicited offer, only if-

(i) the goods or service offered in terms of the offer is a demonstrably or proven unique

innovative concept;

(ii) the goods or service will be exceptionally beneficial, or have exceptional cost advantages;

(iii) the person who made the offer is the sole provider of the goods or service; and

(iv) regulations 8 and 9 have been complied with.

(b) If the Accounting Officer decides to consider an unsolicited offer, the decision must be

published on the official website of Parliament and must-

(i) provide reasons as to why the offer should not be open to other competitors;

(ii) provide an explanation of the potential benefits if the unsolicited offer were accepted; and

(iii) extend an invitation to the public or other potential suppliers to submit their comments

within 30 days of the notice.

(c) The Bid Adjudication Committee must consider the unsolicited offer and make a

recommendation to accept or reject the offer to the Accounting Officer.

Procurement processes relating to emergencies and exceptional circumstances

(11)

(a) The Accounting Officer may procure any required goods or services through any other

means, which may include direct negotiations, but only-

(i) in an emergency as defined in paragraph (d);

(ii) if such goods or services are produced or available from a limited supplier or sole

provider only, as is defined in paragraph (e);

(iii) for the acquisition of special works of art or historical objects where specifications are

more complex in nature;

(iv) in any other exceptional case as defined in paragraph(f) , where it is impractical or

impossible to follow the official procurement processes; or

(v) in terms of default contracts under licence where no other supplier can repair the goods of

another.

(b) The Accounting Officer must record the reasons for a decision to procure goods or

services in terms of paragraph (a) and must ensure compliance with regulations 8 and 9.

(c) Where reasonably possible, in an emergency situation, three quotes should be obtained

and a report submitted to the Accounting Officer for approval.

(d) The conditions warranting an emergency situation must include the existence of one or

more of the following:

(i) The possibility of human injury or death;

(ii) the prevalence of human suffering or deprivation of rights;

(iii) the possibility of damage to property;

(iv) the possibility of serious damage occurring to the natural environment;

(v) the interruption of essential services critical to the effective functioning of Parliament as a

whole;

(vi) the possibility of reputational damage to Parliament; or

(vii) a prevailing situation or imminent danger of such a scale and nature that it could not

readily be alleviated by interim measures in order to allow time for the formal procurement

process.

(e) The following circumstances will serve as a guideline to assist in determining whether a

supplier is a limited supplier or sole provider:

(i) The supplier is a manufacturer of the goods and has not given any distribution rights to

anyone, and further to that, no other supplier provides the same or similar goods;

(ii) the supplier has exclusive distribution rights of the goods in the Republic of South Africa;

or

(iii) the supplier is a preferred supplier due to the nature of the goods and services they

provide and has met the criteria for exceptional circumstances as stated in paragraph (f).

(f) The following circumstances will serve as a guideline to assist in determining whether

exceptional circumstances exist and the Accounting Officer must determine whether any of

the following circumstances are present and exceptional in that specific instance and if so,

approve the procurement in terms of paragraph (a):

(i) Any purchase on behalf of Parliament at a public auction sale; or

(ii) procurement of the following services:

(aa) non routine legal services;

(bb) masters of ceremonies and motivational speakers;

(cc) gifts for foreign dignitaries, guests of Presiding Officers at official Parliamentary events,

and matters relating to State protocol; or

(dd) where there are limited suppliers for goods and services within a specific location, and

where the intention is to invest in that local community in addition to the allocation of points

for locality in terms of the Preferential Procurement Policy Framework Act;

(ee) praise singers;

(ff) venues for official events hosted by Parliament which are-

(A) international and reflect on the reputation of Parliament within the international

community, or

(B) institutional public participation Parliamentary events, limited to-

(i) People's Assembly;

(ii) Youth Parliament;

(iii) Women's Parliament;

(iv) State of the Nation Address;

(v) Taking Parliament to the People; or

(vi) The establishment of a new Parliament;

(gg) conferences and specialised training;

(hh) bursaries;

(ii) subscriptions for the following:

(A) Where Parliament is a member of associations relating to the business of Parliament; or

(B) Professional bodies where staff are required to maintain their professional qualifications;

or

(jj) Specialist medical practitioners for the purposes of boarding staff.

(g) A written quotation must be obtained for services listed in sub-regulation (f)(ii).

7. COMMITTEE SYSTEM FOR PROCESSING OF COMPETITIVE

BIDS

(1) A committee referred to in this regulation has the functions referred to in subregulations

(7), (8) and (9) in order to process competitive bids.

(2) The functions of a committee referred to in this regulation are not restricted to those

referred to in sub-regulations (7), (8) and (9) and the Accounting Officer may add other

functions deemed necessary for the effective processing of a bid, but may not remove or cross

allocate any of the functions.

(3) A member of a committee is appointed by the Accounting Officer for a period of up to

two years.

(4) The Accounting Officer may renew a member's period of appointment for a further period

of up to two years.

(5) A member of a committee must sign a declaration of confidentiality.

(6) A member of a committee referred to in this regulation must be familiar with the powers

and limitations of the committee, as well as the provisions of the Act.

Bid Specification Committee

(7)

(a) The Bid Specification Committee must –

(i) compile specifications for each bid;

(ii) draft specifications in an unbiased manner to allow all prospective suppliers to offer their

goods or services;

(iii) take account of accepted industry-related standards;

(iv) confirm that the estimated costs of the services, works or goods for which an invitation

for bid is to be made are planned for by the division concerned;

(v) determine and stipulate the appropriate preference point system to be utilised in the

evaluation and adjudication of the bid;

(vi) determine whether the services, works or goods for which the invitation for bid is to be

made have been designated for local production and content in terms of the PP Regulations

and if so, draft the bid as stipulated in the PP Regulations;

(vii) clearly indicate if the bid will be evaluated on functionality and if so, clearly stipulate

the criteria, as is required by the PP Regulations;

(viii) list the documents and information that must be submitted to constitute an acceptable

bid; and

(ix) submit the draft specifications to the Accounting Officer for comment prior to

publication of the invitation for bids.

(b) The standards and specifications in the bidding documents must promote the broadest

possible competition, while assuring that critical elements of performance or other

requirements for goods or services being procured are achieved.

(c) Specifications must be based on relevant characteristics or performance requirements and

any reference to brand name or similar classifications must be followed by the words "or

equivalent".

(d) The Bid Specification Committee consists of:

(i) Permanent members, appointed in terms of sub-regulation (3); and

(ii) as an ad hoc member, the manager of the unit who is proposing the bid.

(e) The Accounting Officer may appoint additional members on an ad hoc basis who are

experts in the field in which a bid is prepared.

Bid Evaluation Committee

(8) The Bid Evaluation Committee must-

(a) evaluate a bid in accordance with the specifications and in accordance with the points

system in the bid document: Provided that:

(i) the committee may condone any non-compliance with peremptory requirements in cases

where condonation is not incompatible with the public interest, with approval from the

Accounting Officer or delegated authority;

(ii) the committee may condone any non-compliance with conditions that are immaterial,

unreasonable or unconstitutional, with approval from the Accounting Officer or delegated

authority;

(iii) the points for price must be calculated and dealt with as is set out in the PP Regulations;

and

(iv) the committee must consider the factors, conditions and procedures stipulated by the PP

Regulations as part of its evaluation;

(c) consider the vetting reports on shortlisted prospective suppliers as supplied by the supply

chain management unit; and

(d) submit to the Bid Adjudication Committee a report regarding the evaluation, setting out-

(i) the bidders that have been disqualified, with the reasons for such disqualification;

(ii) a recommendation as to the preferred supplier, and should that supplier for any reason not

accept the award, the second preferred supplier; and

(iii) any other information that the committee deems relevant.

Bid Adjudication Committee

(9)

(a) The Bid Adjudication Committee must-

(i) consider the report of the Bid Evaluation Committee;

(ii) assess the conclusions made by the Bid Evaluation Committee;

(iii) satisfy itself that all reasonable control measures have been taken into account to ensure

that goods and services are procured in the most economical, effective and efficient manner;

(iv) ensure and declare in the report to the Accounting Officer whether the procurement

process was competitive, fair, transparent, open, and whether it promoted responsible and

accountable governance in the Parliamentary Service;

(v) satisfy itself that its recommendations are reasonable and made on the grounds of the

information available to it and without prejudice; and

(vi) make a recommendation to the Accounting Officer to make the final award or on how to

proceed with the relevant procurement in accordance with this Act, the Preferential

Procurement Policy Framework Act and the PP Regulations.

(b) The Accounting Officer may appoint persons other than officials or persons in the employ

of the state to advise the Bid Adjudication and Evaluation Committees and must record such

appointments in his or her award of the bid.

(c) The Accounting Officer-

(i) may approve or reject the recommendation of the Bid Adjudication Committee, or make a

decision that differs from the recommendation of the Bid Adjudication Committee: Provided

that where the decision differs, the Accounting Officer must report the decision and the

reasons for the decision to the Executive Authority and the Auditor-General as contemplated

in section 43 of the FMPA;

(ii) may refer any recommendation back to that committee for reconsideration, clearly setting

out the reasons for such referral;

(iii) may cancel a bid prior to an award in accordance with the PP Regulations, provided that

the Accounting Officer must publish the reason for cancellation on the official website of

Parliament;

(iv) must, where a decision that is disputed was made in terms of the Delegation of Authority,

note all appeals against that decision, or a request for a review of any part of the bid process

whether submitted by an official, or a prospective or preferred supplier during or after the

completion of the process - but not later than 14 days after the signing of a contract, unless

good reasons for a delay can be provided, and refer such appeal or review to a person senior

to the decision taker for consideration and action;

(v) must implement the decision referred to in item (iv), which decision may include:

(aa) Starting the bid process anew;

(bb) correcting a procedural mistake;

(cc) obtaining and considering additional relevant information;

(dd) reviewing a recommendation or step in the process;

(ee) revoking a decision to award a bid or offer a contract; and

(ff) such other decision as may be appropriate under the circumstances; or

(vi) must declare invalid any recommendation or decision made which was taken by or in any

way influenced by-

(aa) members of Parliament in contravention of this Act or any applicable code of conduct for

members of Parliament; or

(bb) officials of Parliament in contravention of this Act or any applicable code of conduct for

officials of Parliament.

(d) Neither a member of the Bid Evaluation Committee, nor an advisor or person assisting

such a committee, may be a member of the Bid Adjudication Committee.

(e) A Bid Adjudication Committee member may not advise or assist in a Bid Evaluation

Committee.

8. COMPULSORY DISCLOSURE BY PROSPECTIVE SUPPLIERS

(1) A prospective supplier must, when submitting a bid, disclose whether he or she or, in the

case of a legal person, the entity, any of its members, directors, managers, or shareholders

with a controlling or other substantial interest is-

(a) in the employ of the State, or has been in the employ of the State in the twelve months

preceding the submission of the bid; or

(b) a member of Parliament, Cabinet, a provincial legislature, a provincial Executive Council

or is a Municipal Councillor.

(2) The Accounting Officer must reject a bid from a prospective supplier if he or she, or, in

the case of a legal person, the entity, any of its members, directors, managers, or shareholders

with a controlling or other substantial interest is-

(a) in the employ of the State and his or her participation in the bidding process may

compromise the fairness of the process; or

(b) a member of Parliament, Cabinet, a provincial legislature, a provincial Executive Council

or is a Municipal Councillor.

(3) The Accounting Officer may reject a bid from a prospective supplier if he or she, or, in

the case of a legal person, the entity, any of its members, directors, managers, or shareholders

with a controlling or other substantial interest has been in the employ of the State in the

twelve months preceding the submission of the bid and his or her participation in the bidding

process may compromise the fairness of the process.

(4) The Accounting Officer may condone a failure to disclose the information referred to in

sub-regulation (1) timeously, but must reject a bid from a prospective supplier if it failed to

disclose that information at the time the Bid Adjudication Committee makes its

recommendation to the Accounting Officer.

9. BARRING OF PERSONS PARTICIPATING IN THE BIDDING

PROCESS

(1) The Accounting Officer must require from a prospective supplier participating in a

bidding process such information as is necessary to establish whether the prospective

supplier, or, in the case of a legal person, the entity, any of its members, directors, managers,

or shareholders with a controlling or other substantial interest-

(a) has been convicted of fraud, corruption or any other crime involving dishonesty in the

past five years;

(b) has wilfully breached a contract with an organ of state during the previous five years; or

(c) is not cleared by the South African Revenue Service in respect of their tax matters.

(2) The Accounting Officer must exclude a prospective supplier from the bidding process if

he or she, or, in the case of a legal person, the entity, any of its members, directors, managers,

or shareholders with a controlling or other substantial interest-

(a) has been convicted of fraud, corruption or any other crime involving dishonesty in the

past five years;

(b) has wilfully breached a contract with an organ of state during the previous five years;

(c) is listed in the Register for Tender Defaulters in terms of the Prevention and Combating of

Corrupt Activities Act, 2004 (Act No. 12 of 2004);

(d) is not cleared by the South African Revenue Service in respect of tax matters;

(e) has been found to be dishonest in its participation in the Supply Chain Management

System of Parliament during the last five years; or

(f) fails to disclose the information required by the Accounting Officer in terms of these

Regulations.

10. COMBATING ABUSE OF THE SUPPLY CHAIN MANAGEMENT

SYSTEM

(1) The Accounting Officer must prevent abuse of and combat corruptive practices in the

Supply Chain Management System by requiring officials, non employees [sic] and other

persons involved in the Supply Chain Management System-

(a) to recognise and declare any conflict of interest that may occur;

(b) to treat all prospective and preferred suppliers in accordance with the Act and applicable

legislation;

(c) not to use their position for personal gain or to improperly benefit themselves or another

person directly or indirectly;

(d) not to compromise the credibility and integrity of the Supply Chain Management System

through the acceptance of gifts or hospitality or any other act; and

(e) to assist in combating fraud and corruption in the Supply Chain Management System.

(2) The Accounting Officer must invalidate any recommendation or decision that was made,

taken or in any way influenced by-

(a) members of Parliament in contravention of this Act or any applicable code of conduct for

members of Parliament; or

(b) officials of Parliament in contravention of this Act or any applicable code of conduct.

(3) The Accounting Officer must investigate any reasonable allegation of abuse of or corrupt

practices in the Supply Chain Management System and institute civil or disciplinary action or

prosecution, if applicable.

11. CONTRACT MANAGEMENT AND DISPUTE SETTLING

General

(1)

(a) The Accounting Officer's decision in regulation 7(9)(c)(i) is subject to the preferred

supplier entering into a written contract for all goods and services-

(i) Procured through a bidding process; and

(ii) in accordance with the Delegation of Authority, with specific reference to-

(aa) the period for delivery of the goods and services;

(bb) the value of the goods and services procured; and

(cc) the amounts of deposits required.

(b) The Accounting Officer must ensure that a contract, including an enabling contract

procured through the Supply Chain Management system, is consistent with the award and

implemented in accordance with the requirements set out in the invitation for the bid.

(c) If a contract period will exceed one year, an appropriate contract price adjustment formula

must be specified in the bid documents where applicable.

(d) A contract must provide for a dispute settling procedure.

(e) If the contract period does not exceed one year, the bid must be a fixed price bid and may

not be subject to a contract price adjustment.

Contract amendments

(2)

(a) A contract for goods or services procured through the Supply Chain Management system,

other than a contract procured through a competitive bidding system, may be amended by

agreement between the parties, or as provided for in the contract.

(b) A contract for goods or services procured through a competitive bidding process may be

amended by agreement between the parties, or as provided for in the contract, provided that

the amendment remains consistent with the invitation for the bid.

(c) Any amendments to a contract must be in writing in accordance with the contract and

signed in accordance with the Delegation of Authority.

Contract renewal

(3)

(a) A contract may not be renewed without following the Supply Chain Management system.

(b) Reasons for the renewal must be furnished, and approved by the Accounting Officer.

(c) A contract may only be renewed for a period determined by the Accounting Officer from

time to time but may not exceed the initial contract period.

Contract management

(4)

(a) The Accounting Officer must establish a contract management function, with the

responsibility for, amongst other things:

(i) Creating and maintaining a contracts database for all active contracts held by the

Parliamentary Service, setting out:

(aa) the official responsible for management of the contract;

(bb) the period of the contract;

(cc) the deliverables and date for delivery;

(dd) remedies in the event of non compliance [sic];

(ee) rand value of the contract;

(ff) date or period of payment;

(gg) date on which renewal notice must be given, if any; and

(hh) any other information which may assist in the proper management of contracts;

(ii) liaising with the officials responsible for management of contracts to ensure that-

(aa) the contracts database is kept up to date;

(bb) the vendor's performance is monitored and reviewed for compliance with specifications

and contract conditions for particular goods or services;

(cc) deadlines for delivery and payment are adhered to; and

(dd) contracts are closed off and stored for safekeeping after completion;

(iii) retaining copies of all contracts for safekeeping; and

(iv) advising the Accounting Officer if any risk means are identified based on the statistics

provided by the contracts database.

Termination of contracts

(5)

(a) The Accounting Officer may terminate a contract-

(i) in accordance with the contract where the preferred supplier is in breach of a material term

or condition thereof;

(ii) in accordance with these regulations, where these regulations so allow; or

(iii) where it was awarded on account of false information furnished by the bidder in order to

secure preference under the Preferential Procurement Policy Framework Act.

(b) The process to terminate a contract must be-

(i) In accordance with the terms of the contract; and

(ii) preceded by consultation with the preferred supplier: Provided that this requirement-

(aa) will not prevent temporary suspension of performance by either party; and

(bb) will be fulfilled if the reasons for cancellation were put to the preferred provider in

writing and the preferred provider did not supply a satisfactory response within such

reasonable time as the notification may stipulate.

(c) If an agreement has been concluded with any preferred supplier on the strength of

information furnished by him or her in respect of which it is after the conclusion of such

agreement proved that such information was incorrect, the Accounting Officer may, in

addition to any other legal remedy he or she may have-

(i) recover from the preferred supplier any costs, and any damages incurred or sustained, as

the case may be, as a result of the conclusion of the agreement; or

(ii) terminate the agreement and recover from the preferred supplier damages suffered by

having to make less favourable arrangements thereafter.

12. LOGISTICS MANAGEMENT

The Accounting Officer must establish and implement an effective system of logistics

management, which must include:

(a) The coding of assets to ensure that each item has a unique reference number;

(b) the setting of inventory levels that include minimum and maximum levels and lead times

wherever goods are placed in stock;

(c) the placing of manual or electronic orders for acquisitions;

(d) before payment is approved, certification by the responsible officer that the goods and

services are received or rendered on time and are in accordance with the order, the general

conditions of contract and specifications where applicable and that the price charged is as

quoted in terms of a contract;

(e) appropriate standards of internal control and warehouse management to ensure that goods

placed in stores are secure and only used for the purpose for which they were purchased;

(f) regular checking to ensure that all assets are properly managed, appropriately maintained

and only used for official purposes;

(g) ensuring that a register of all applicable assets is maintained;

(h) ensuring that preventative measures are in place to eliminate theft, losses, wastage and

misuse of the assets or perishable goods; and

(i) investigation of damages and losses with a view to possible recovery.

13. DISPOSAL MANAGEMENT

The Accounting Officer may alienate, let or otherwise dispose assets of Parliament in

accordance with the Delegation of Authority: Provided that-

(a) any transfer of assets to another organ of state must be at market-related value or, where

appropriate, free of charge;

(b) any selling of assets at market-related value must be by way of written quotations, a

competitive bidding process or auction, whichever is the most efficient and effective, taking

account of the costs of disposal;

(c) the highest possible value is negotiated for any trade-in of an asset for another asset; and

(d) any disposal of assets must take into account the public interest and be development-

orientated.

14. RISK MANAGEMENT

(1) The Accounting Officer must proactively manage risks to Parliament and its

administration by timeously and systematically identifying risks on a case-by-case basis,

including risks related to the identification and combating of:

(a) Fraud and corruption within the Supply Chain Management system;

(b) other economic transgressions within the Supply Chain Management system, such as theft

and financial misconduct; and

(c) misconduct in terms of the Act and other applicable legislation.

(2) The Accounting Officer must analyse and assess risks, including conflicts of interest, and

develop appropriate management plans in respect of these, including:

(a) Avoiding risks where possible;

(b) allocating risks to the party best suited to manage them;

(c) obtaining adequate mitigating strategies for residual risks;

(d) assigning relative risks to the contracting parties through clear and unambiguous contract

documentation;

(e) accepting the cost of the risk where the cost of transferring the risk is greater than that of

retaining it; and

(f) ensuring that the costs incurred in managing risks are commensurate with the importance

of the purchase and the risks to the operations of Parliament and its administration.

15. SUPPLY CHAIN MANAGEMENT SYSTEM PERFORMANCE

The Accounting Officer must regularly assess the performance of the Supply Chain

Management system in order to determine, on the basis of the retrospective analysis, whether

the authorised and prescribed supply chain management processes were followed and

whether the desired objectives were achieved.

16. COMMENCEMENT

These Regulations take effect upon publication or on a later date determined by the Executive

Authority.

The Seven S’s of Supply Chain Management Posted on August 20, 2015 by scn

Disruption is all around us and in order to

capture some of the key disruptors in the Supply Chain space we have identified what we’re

calling the Seven S’s of supply chain management to act as the framework for our upcoming

supply chain management work

Without further ado, the seven S’s of SCM are Synergy, Standards, Semantic, Serialization,

Synchronization, Sustainability and Social and we will now review each of these at a

summary level so you can see where we’re headed.

Synergy

Synergy is an elusive thing. It is sometimes difficult to identify and even more challenging to

capture, this is even more true when it comes to the search for synergy in complex global

supply chains. Synergy means savings and the focus of our synergy research will be on

identifying the different varieties of supply chain synergy that exist in today’s marketplace,

think overlap, offset and many other forms available once multicompany data sharing and

active collaboration commences. We will also be very interested in looking further at the

need for hybrid software/service firms in order to tap into a number of the synergy types we

have identified.

Standards

When it comes to successfully implementing advanced supply chain management models

standards are like oxygen. They are a prerequisite for success without which no scalable

multi-company solutions can be built or rolled out in any sustainable manner. Standards for

product numbering and data sharing, identification, location numbering, communications,

RFID and now emerging standards for semantic data formats. An important part of our

discussions will be on integrating standards with processes and how to facilitate widespread

adoption overcoming current inertia.

Semantic

Transparent and simplified data sharing is the key to unlocking the latent synergies that exist

in all supply chains, due to the many forms of siloization, as well as the cultural issues that

have often prevented access to the data needed to identify and begin the capture process.

What semantic data formats will emerge as the most effective standard in supply chain

management or will multiple interoperative formats emerge? How will these most effectively

be integrated into SCM software systems? And last but not least how will these datasets

ultimately be merged in an effective, reliable, secure and actionable manner?

Serialization

Traceability, e-Pedigree, carbon tracking, RoHS/WEEE/REACH, consignment and item level

RFID are all emerging reasons why serialization is rising in importance in supply chain

management. What impacts will serialization have on systems and most importantly actual

logistics processes these systems support? How can these impacts best be mitigated to ensure

reliable performance and realistic as well as efficient operations? Accurate reporting of

carbon at the unique product level for sustainability purposes will require serialization in

order to capture and report accurately.

Synchronization

Synchronization is where the rubber meets the road in terms of bringing together all of these

component methods and systems to deliver a future state end to end supply chain network.

Supply Chain Synchronization is not as simple as it may sound, in fact there are at least eight

different dimensions across which supply chains can be synchronized. In our research we will

share further details on these dimensions and how both end users and IT/Service vendors can

best utilize and integrate synchronization in their operations, products and services.

Sustainability

There are many unfamiliar with the direct correlation between supply chain performance and

carbon footprint. In most cases a company’s supply chain represents 75% of the carbon

footprint generated by the organization. Of course there are a number of applications

emerging relative to overall carbon tracking and Adrian Bowles our Sustainability systems

guru will provide coverage of these. Our focus will be on the direct supply chain

ramifications, because “when not if” cap & trade or similar programs are introduced, current

supply chain network design thinking (and the systems which model & optimize them) will

be turned on their heads. Those companies which recognize this and take preparatory actions

will see direct competitive advantage in supply chain costs for perhaps one to two years

before those not taking action can catch up.

Social

Social is the most recent development in supply chains and in our opinion the one factor

which will most differentiate the performance of both end user operations and IT products

over the next several years. The application of social networking based technologies in the

supply chain will be at a number of different levels including employee engagement,

innovation, continuous improvement and a number of others in operations and supply chain

planning/forecasting. Our intent with this research is to also identify and begin definition of

the use of social applications that can deliver hard benefits to supply chain operators and also

facilitate collaborative cross company efforts.

We look forward to expanding our work on all of the above topics and sharing the results

with you in future updates and blogposts. In addition a keynote presentation on the Seven S’s

of Supply Chain Management is also being prepared for delivery at major conferences in

order to get the word out on these potentially disruptive forces. And as always we welcome

your input, ideas and suggestions as we crystallize our thinking around these key future state

supply chain factors.

SCN

This entry was posted in CSR, Emerging Trends, Freight & Transportation, New Ideas, News & Info,

RFID, RFID Information, social media, Social SC Synergy, Supply Chain Management. Bookmark the

permalink.

Reaching the Supply Chain Sustainability Tipping Point Posted on June 30, 2015 by scn

Since the 1990’s I’ve been writing about sustainability, cap & trade and carbon footprints

mainly in the realm of logistics and supply chain as that’s where I live.

Supply chains are incredibly important in this context as roughly 75% of most company’s

carbon footprint emanates from their supply chain.

My mantra throughout this time has been ‘when not if’ these measures will be enacted and

today I have to say we’re rapidly approaching the tipping point for supply chain

sustainability.

Tipping Points for the Malcolm Gladwell uninitiated are defined as….

The tipping point is that magic moment when an idea, trend, or social behavior crosses a

threshold, tips, and spreads like wildfire. Just as a single sick person can start an epidemic of

the flu, so too can a small but precisely targeted push cause a fashion trend, the popularity of

a new product, or a drop in the crime rate.

Let’s talk about some of the signs of this impending shift to more sustainable commerce that

are now becoming evident in Canada.

Canadian consumers continue to become more interested and active in demanding the

companies they do business with make an effort not to harm the earth and environment.

Social media and networks of all types are giving them the ability to be heard on many issues

and decades of apathy may soon be overcome.

Recent survey in 2014 indicated that overall 86% of Canadians are buying green and

Canadians are willing to pay more for green products. The ‘green’ profile of products and

services is scrutinized now more than ever by Canadians, 43 per cent of whom indicated they

are more willing to pay more for products and services that are ethically and responsibly

manufactured or delivered

And as people go so do politicians follow and have spoken before about the Western Climate

Initiative, which includes BC, Quebec , Manitoba and Ontario. And as of January 1, 2013 cap

& trade under this program became law in the Province of Quebec.

British Columbia introduced a Carbon Tax which was implemented on July 1, 2008, B.C.’s

tax covers most types of fuel use and carbon emissions. According to Stewart Elgie,

Professor at the University of Ottawa in a 2014 article.

It started out low (C$10 per tonne of carbon dioxide), then rose by C$5 each year, reaching

C$30 per tonne at present (about 7 cents per litre of gas). “Revenue neutral” by law, the

policy requires equivalent cuts to other taxes. In practice, the province has cut $760 million

more in income and other taxes than needed to offset carbon tax revenue.

Perhaps most significantly on April 13th the Province of Ontario announced it’s intention to

introduce Cap & Trade in Ontario likely by the end of 2015 working in conjunction with the

Quebec cap & trade program.

So if you just consider just the individual provincial initiatives and ongoing lack of action on

this file at the Federal level one might think, so what’s the big deal here?

Well from a business perspective, when you put these four provinces together they represent

76 percent of Canada’s GDP so it seems clear the major markets we operate in are now

primed for significant change.

As I write this on Earth Day 2015 I’m pleased to say that here in Canada, from a bottom up

provincial perspective, we’re closer than ever before to the tipping point of making

sustainable change as described above, but unfortunately still face inertia at the Federal level.

Most concerning though, at the same time we’re also sitting on the brink of another tipping

point for making the needed changes to stop the soon irreversible and accelerating cycle of

climate change. Soon the climate change drivers that mankind has been setting in motion

over the last hundred years of growth and inactivity on carbon will result in an interconnected

and irreversible process that we will be unable to stop.

See the below image from the University of East Anglia highlighting the connected elements

in this case of Biome Loss due to Deforestation and Reef impacts, Polar, Permafrost and

Glacial Melting, and ongoing Circulation Change in ocean currents.

Companies have the power to make changes in their business and can specifically target their

supply chains which produce 75% of their Carbon Footprints. Many of these changes are

actually expense and cost positive whether driven from Logistics Network Strategies

incorporating carbon as a variable in the analysis or simply through implementing innovative

pallet programs to generate carbon credits for the billions of pallet moves made in the supply

chains of the world every year.

Companies also purchase trillions annually in services and can wield the power to create

change with just today McDonalds announcing a pledge to eliminate deforestation from its

entire global supply chain.

As our supply chains are very complex systems that many lay business persons don’t

understand, it’s the role of responsible supply chain professionals to explain, demonstrate and

educate their C-Level teams on these opportunities and get the support needed to make

sustainable change in their supply chains.

We sit today on the verge of two potential sustainability tipping points and the actions of all

of us will ultimately determine which one we choose.

Jeff Ashcroft

If you enjoyed this post click here to see All my Posts, Follow or Connect with me on

LinkedIn! Cheers!

Supply Chain Fraud on the Increase Posted on January 31, 2009 by scn

From Engineering News: ” International fraud detection specialist Kroll says in its 2008

report that at every step along the supply chain, opportunities for fraud exist, ranging from

simple theft through to large- scale misrepresentation of inventory assets. It notes that as

firms expand across borders and multiply their product offerings, opportunities for fraud

augment too.

As modern companies have adapted their structures for modern global business, so too have

they unwittingly loosened the ties that bind all corporate activities to a company’s head-

office. As decentralised decision-making structures prevail, an organisation’s many facets

become vulnerable to fraud and theft on a variety of levels, particularly along the many legs

of its supply chain.

Kroll senior director Stefano Demichelis says: “You’re facing fraud from the very

beginning, on every single factor: raw materials, production and delivery.―

While supply chain fraud is too broad to be measured meaningfully, a survey Kroll conducted

in 2007 showed that 42% of companies globally had suffered from at least one instance of

either supplier fraud or physical asset theft, while 9% had experienced both. Supply Chain

Fraud on the Increase As the global recession worsens, there is no doubt that supply chain

fraud will increase even further. Want to learn more about the risks for supply chain fraud

and actions you can take to mitigate and reduce? Read our full series of Supply Chain Fraud

articles here at Supply Chain Network contributed by Norman Katz.

This entry was posted in Emerging Trends, Freight & Transportation, News & Info, Supply Chain

Fraud. Bookmark the permalink.

Who’s Involved in Supply Chain Fraud? Posted on October 30, 2007 by scn

WHO’S INVOLVED?

Fraud, especially those related to the supply chain, will encompass internal, external, and

mixed (internal and external) types of collusion scenarios. In brief:

Internal fraud will be perpetrated solely within the organization, without the known

involvement of an outside entity, such as a customer or supplier. This may involve an

individual or several people on the inside collaborating together to perpetrate the fraud.

External fraud will be perpetrated by an external entity, such as a customer or a supplier, with

no knowledgeable or willing person inside the organization as an accomplice.

Mixed frauds will involve collusion between an external entity (i.e. customer, supplier) and

one or more internal persons (i.e. full-time employee, contract employee, consultant, etc.).

• Engaged employees (29%) are innovators and drive organizations forward.

• Not Engaged employees (56%) “do their time― during the workday, but are also

water-cooler chatters and Internet-surfers for a significant amount of the workday.

• Actively Disengaged employees (15%) are those who purposefully and intentionally

thwart and subvert the progressive activities of the organization and other employees.

What Are the Causes of Supply Chain Fraud? Posted on October 30, 2007 by scn

WHAT CAUSES FRAUD?

There are many theories and psychological studies as to why a person commits fraud. Some

of the different theories propose that fraud is committed due to:

• The Western culture that emphasizes material goods in association with social status,

where we are forced to “keep up with the Joneses―.

• External pressures beyond our control, such as the healthcare costs of sick parents or

children, daycare expenses, etc.

• Pressures we may not be able to control, such as gambling and drug addictions.

• The lack of good morals and values being imprinted upon a person by their social groups,

especially beginning at a young age.

• Revenge against the organization due to poor pay, being overlooked for advancement,

overworked, etc.

In regards to supply chain frauds, while revenge against the organization is a strong candidate

for perpetrating fraud, another culprit is the internal pressures that build within to either

increase performance or decrease task times. This is typically the result of management

pressures to cut costs without providing the necessary tools to achieve the new performance

goals, or due to the establishment of unrealistic benchmarks.

For example, if the manufacturing department is pushed to produce more without any

increase in staffing or machinery, at some point supply chain fraud is likely to occur, whether

the fraud is the falsification of production output or the production of inferior quality goods.

And while the manufacturing department will be held to blame for the failure to produce

first-quality goods, it is really the fault of management. The manufacturing employees, out of

fear of losing their jobs, may have reverted from “flight or fight� to “fraud or

flight―, opting to perpetrate fraud rather than lose their jobs. Fear becomes the motivation

to perpetrate fraud, with the sole intent of retaining employment.

Supply Chain Pressures to Increase the following:

– New Orders / Recurring Orders

– Picks Per Hour

– Manufacturing Throughput

– Receipts Per Hour

– Quality Assurance Testing

Supply Chain Pressures to Decrease the following:

– Order Entry Time

– Manufacturing Time

– Picking Time

– Receiving Time

– Quality Assurance Time

Where Does Supply Chain Fraud Happen? Posted on October 30, 2007 by scn

WHERE IT HAPPENS

With an understanding that the supply chain is both internal and external to an organization,

supply chain fraud can occur at any link in the chain, for example:

– Fixed Assets

– Trigger Events

– Purchase Orders

– Picking

– Returns

– Packing

– Distribution

– Shipping

– Receiving

– Quality Assurance

– Inventory

– Manufacturing

– Invoicing

– Sales Commissions

Common Supply Chain Fraud Categories:

– Asset Misappropriation – Misuse / Abuse

– Asset Misappropriation – Theft

– Contract & Procurement

– Financial

– Payroll

– Regulatory – Government & Industry reporting

SUPPLY CHAIN FRAUDS

With perpetrator possibilities being both inside and outside the organization, where is fraud

likely to occur?

Percentage of Supply Chain Fraud by Area and Median Occurrence

11.2% Customer Service $50,000

1.8 % Human Resources $64,000

14.0 % Sales $96,000

2.8 % Warehouse / Inventory $100,000

2.4 % Information Technology $138,000

30.3 % Accounting $199,000

3.8 % Manufacturing / Production $245,000

20.9 % Executive $900,000

3.0 % Purchasing $1,000,000

9.8 % Other N/A

* Source ACEF: 2006 Report to the Nation

Of particular interest:

 The average loss across these departments was $310,222, with an approximate weighted

average (excluding Other departments) of $314,011.

 While Purchasing had one of the lowest occurrences of fraud at just 3%, this department

also had the highest median loss at $1M.

 Accounting had the highest occurrence of fraud at 30.3%, but it was significantly lower

than several other departments, and its median loss of $199,000 was significantly less than

the average median loss.

 Executive management was responsible for perpetrating both the second highest

occurrence of fraud (20.9%) and the second highest median dollar amount ($900,000).

Other articles in this series:

Assessing the Impacts of Supply Chain Fraud Posted on October 30, 2007 by scn

IMPACTS OF SUPPLY CHAIN FRAUD

In the short-term, the impacts of supply chain fraud can include reduced cash-on-hand and

lower profits. Small-time frauds may turn into big-time crimes. The more fraud is seen as

being acceptable, and even profitable, by employees, the more fraud will be committed by

more employees who may have been “on the fence― previously about the commission

of fraud. And this attitude may spill over to customers and suppliers who become engaged by

employees to commit fraud against the organization.

More fraud is discovered by tips from employees, customers, and suppliers than is discovered

by audits.

Source: Association of Certified Fraud Examiners

Fraud early in the supply chain can have a ripple effect and eventually lead to serious product

liability claims, product recalls, excessive warranty payouts, negative press, and lawsuits

when the fraud results in products that are unsafe or fail to live up to their warranted life. The

costs of correction after-the-fact are typically much higher than the costs of prevention, yet

too few organizations realize the value in this simple equation. Damage-control costs can be

considerably higher than the value of fraud detection and reduction programs, especially

considering that some damages may not be repairable.

Organizations can be found guilty of criminal misconduct, just like individuals.

Existence of effective compliance programs can reduce penalties.

Lack of effective compliance programs can increase penalties.

Source: United States Sentencing Commission

Other articles in this series:

Methods of Detecting Supply Chain Fraud Posted on October 30, 2007 by scn

SUPPLY CHAIN FRAUD DETECTION

The detection of supply chain fraud encompasses a variety of techniques and methodologies,

processes and procedures, and relies on the availability of accurate data in electronic form. It

is no longer possible to sift through mountains of paperwork in hopes of manually catching

inconsistencies, though this is not to say that a document review would never be in order.

Rather, it is necessary to employ analytical programs that can review the increasing volume

of information on a timely basis and report anomalies to be reviewed further both

programmatically and manually.

To accomplish this requires the movement away from paper-based operations. Readily

available and reliable technologies, from barcode applications to Electronic Data Interchange

(EDI) are cost-competitive and easily integrated to many Enterprise Resource Planning

systems, which are typically the electronic heart-and-soul of an organization’s operations.

A primary goal is to close the data gaps – places where paperwork exists and data may not

well validated for accuracy and integrity. As the data begins to flow smoothly between these

previously manual points, the information can be used to validate other transactions and catch

anomalies or fraud.

1 = Purchase Order

2 = Shipment

3 = EDI ASN

4 = Receipt

5 = Quality Assurance

6 = Invoice

Other articles in this series:

Dreaded Shrinkage: Bottomless Pit or Grave? Posted on October 30, 2007 by scn

SHRINKAGE: BOTTOMLESS PIT OR GRAVE?

Many organizations just write off losses – especially raw materials and finished goods –

to shrinkage: a general ledger bucket of seemingly endless depth and widespread use for all

sorts of ills that may plague an organization. As long as shrinkage is within some acceptable

percentage range, no one typically gives it too much thought or care.

If the “acceptable― shrinkage range is arbitrary, i.e. not based on industry standards or

market studies, this may be the initial indication of the attempt to cover up fraud.

One problem, therefore, is that all the root causes of the shrinkage are not investigated.

Certainly, human error – honest mistakes – will be partially to blame. And while

technologies such as barcode scanning and radio frequency identification (RFID), especially

when coupled with effective business processes and employee reward programs, can help to

reduce the effects of human error, they cannot be expected to fully eradicate error or fraud.

Shrinkage is mostly thought of as due to theft, but the fraud of theft can take many forms and

represent different internal and external collusion scenarios between the organization and its

customers and suppliers. While no fraud investigation should presume guilt, the root-cause

analysis as to the reasons for the inventory shrinkage should include the possibilities of

uncovering fraud. As such, having just organization employees conduct such an investigation

may be like asking the fox to guard the proverbial hen house.

The affects of inventory shrinkage include:

– Inaccurate inventory counts

– Finished Goods not available to fill sales orders

– Raw Materials not available for manufacturing

Other articles in this series:

Budgeting For the Repercussions of Supply Chain Fraud Posted on October 30, 2007 by scn

ARE YOU BUDGETED FOR FRAUD REPERCUSSIONS?

If your organization is not budgeting for fraud detection, prevention, and reduction, then you

better be budgeting for fraud repercussions. In much the same way as supply chain fraud cuts

across the operations of the enterprise, the repercussions from supply chain fraud are just as

far-reaching, (if not actually more so), and much more damaging and costly:

– Manufacturing Downtime

– Machinery Flush / Clean / Repair

– Sourcing Replacement Suppliers

– Customer Credits (Distributor, Wholesaler, Retailer)

– Consumer Lawsuits (from injury or death)

– Delayed New Products To Market

– Delayed Advertising Campaigns

– Damage-Control Advertising Costs

– Vendor Compliance Chargebacks

– Product Recall Costs (shipping, handling, destruction)

– Loss Of Brand Trust

– Loss Of Market Share To Competition

– Regulatory Investigations & Audits (costs & disruptions)

The ramifications and costs of supply chain fraud can leave your organization left hanging for

dear life.

You don’t want this to be your neck either.

Other articles in this series: