Focused on supplier risk issues for business leaders

NSF Awards Coastal Sustainability Grants to Help Assess Risk

October 01, 2013 | Comments (10)

More than half the world’s human population lived in coastal areas in the year 2000; that percentage is expected to rise to 75 percent by 2025.

With our large footprint in coastal sands–and in the wake of severe storms such as Hurricane Sandy–how do we co-exist with our coastlines? How do we use them sustainably?

A sustainable world is one in which human needs are met equitably, without sacrificing the ability of future generations to meet their needs. The National Science Foundation (NSF)’s Science, Engineering, and Education for Sustainability investments aim to address this challenge.

NSF’s coastal SEES program is focused on the sustainability of coastal systems: the swath of land closely connected to the sea, including barrier islands, wetlands, mudflats, beaches and estuaries, as well as coastal cities, towns, recreational areas and maritime facilities; the continental seas and shelves; and the overlying atmosphere.

NSF’s coastal SEES program has funded its first awards for studies of coasts in the U.S. and around the world. The 11 awards total $13.1 million.

Coastal systems are crucial to regional and national economies. They host human-built infrastructure and provide ecosystem services that sustain our well-being.

NSF’s new coastal SEES projects address topics such as developing high-performance green infrastructure to sustain coastal cities; sustainability of the largest estuary in the U.S., Chesapeake Bay; planning for the hydrologic and ecological effects of sea level rise on coastal water resources; brine discharge from desalination plants; achieving sustainable urban estuaries; and the resilience of coral reefs.

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Conflict Minerals Reporting – The Continuing Saga

September 18, 2013 | Comments (2)

Last week, a law firm in Atlanta submitted a petition for rulemaking to the SEC to delay/modify conflict minerals reporting requirements. In it’s petition, the firm observed that for a number of reasons, compliance with the Conflict Minerals Rules is proving more involved and time-consuming than the Commission, or for that matter Congress, anticipated. As a result, they are petitioning the Commission to permit, for a temporary period, alternative disclosure in lieu of the disclosure currently required by the Conflict Minerals Rules.

As we have discussed in other blog entries on this topic, challenges are coming from a variety of areas including:

  • A significant number of registrants that initially did not expect to have compliance obligations under the Conflict Minerals Rules have learned that they in fact do.
  • Many registrants have found that their existing infrastructure and resources simply are ill-equipped for compliance with the Conflict Minerals Rules, in many cases requiring the redeployment or hiring of personnel and the modification of purchasing processes, including the information technology systems supporting those processes, in order to accommodate identifying products that contain conflict minerals and tracking the compliance of the suppliers of those products.
  • For registrants with substantial foreign footprints, the work has been even greater, because, unlike in the U.S. where many suppliers are getting numerous requests from customers with respect to product content and upstream compliance, it is not unusual for a registrant’s foreign operations to deal with suppliers that never have heard of the Conflict Minerals Rules.
  • As earlier reports have shown, the quality of information gathered from suppliers is often suspect or incomplete.
  • The external resources available to assist registrants in compliance are limited.

Pointedly, the petition states that “Based upon our experience over a broad range of registrants in a cross-section of industries, at this point in time we are unaware of any registrant with a significant number of products that include conflict minerals that has the ability to comply completely with the Conflict Minerals Rules.”

From my perspective, some of these points are not new issues, but rather are merely another packaging of the original industry complaints regarding Dodd-Frank. In fact, early reporting rules do not require product-level reporting. However, supplier data quality and participation are valid concerns. As always, it will remain interesting to see how this latest installment in the continuing saga plays out.

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New Study Says Uncertainty in Fiscal Policy a Risk to SMB Growth

September 08, 2013 | No Comments »

Prime Advantage, a buying consortium for mid-sized manufacturers, announced the findings of its twelfth semi-annual Group Outlook Survey, revealing financial projections and top concerns of its member companies for the rest of 2013. The results show continued optimism about revenues and employment despite concerns about federal regulations and fiscal policy uncertainties.

Summary of Findings

  • Ninety-seven percent of respondents reported they expect revenues to be better than or equal to the first half of 2013. Forty-two percent anticipate revenue growth will be higher in 2H 2013 than in 1H 2013.
  • The level of capital expenditures is expected to increase at 1 out of 3 companies in the second half of 2013.
  • Forty-seven percent of companies expect to hire in the next six months and fewer than 3 percent are planning layoffs.
  • Concern about upward cost pressure on raw materials has declined sharply from previous periods, (63 percent of respondents expressed concern, down from 90 percent in February 2013).
  • The majority of respondents (62 percent) believe fiscal policy uncertainties have had a negative impact on their business and the overall economy.

Strong Revenues and Stable Capital Spending for the Rest of 2013

Forty-two percent of small and midsize manufacturers anticipate revenues will increase in the second half of 2013. A surge in customer demand (55 percent) and launch of new product lines (48 percent) were most often cited as the reasons for the expected increase.

Capital expenditures are holding strong for U.S. manufacturers, as 1-in-3 companies is planning an increase in capital expenditures in the next six months.

Strong Hiring in Manufacturing

A record number (47 percent) of small and midsize manufacturers expect to hire in the next six months. This result is the highest level seen in these second half surveys since the start of recession (up from 39 percent in 2012 and 36 percent in 2011). Meanwhile, less than 3 percent of respondents predict layoffs by year-end.

Top Concerns: Raw Materials Concern Weakens, Healthcare Cost Pressure Aggravates

Procurement professionals continue to cite the cost of raw materials as their top area of focus, but to a lesser degree than seen in prior surveys. Focusing on procurement processes was the second most frequently cited concern, followed by the cost of baseline materials for components, such as oil and gas.

When asked about which areas of cost pressure respondents are most concerned about, raw materials once again received the most votes, but at the lowest level ever surveyed (63 percent, down from 90 percent in February 2013). Healthcare cost pressures remain a strong concern, as indicated by 61 percent of respondents (up from 57 percent in February 2013 and 58 percent a year ago).

Manufacturers Feel Pressure from Fiscal Policy Uncertainties

The majority of small and mid-sized manufacturers (62 percent) felt that fiscal policy uncertainties were negatively impacting their business and the overall economy. Most respondents (58 percent) anticipate the negative impact to continue into the next 12 months.

Legislative and Regulatory Pressures May Halt Business Growth

Survey respondents identified the top barriers to business growth over the next 12 months: legislative and regulatory pressures (47 percent); oil and energy pricing (39 percent) and lack of qualified workers (32 percent).

As the Conflict Minerals Rule, an SEC regulation that requires companies to disclose whether conflict minerals are used in their products, is about to come in effect in May 2014, 15 percent of respondents are already feeling the impact of this rule on their organization. Another 40 percent of respondents are not yet sure if their company will be affected.

Methodology: In August 2013, Prime Advantage surveyed purchasing professionals that represent durable goods manufacturing firms, with annual revenues ranging between $10 million and $4 billion, of which the majority ranges between $20 million and $500 million. The survey received a 16 percent response rate from 490 top professionals representing U.S.-based manufacturers in more than 25 different industries, including commercial food service, packaging, truck and trailer, material handling, food processing and construction.

To request a copy of the Prime Advantage 2013 2H Group Outlook Survey, click here.

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NIST Issues Draft Publication on Supply Chain Risk

August 28, 2013 | No Comments »

We all know that supply chain risk levels and awareness continue to rise across industries. The same goes for the Us Federal Government. A variety of agencies at all levels have begun to grapple with SCM risk issues and controls over the past couple of years. Now the national Institute of Standards and Technology has weighed in with a draft publication on “Supply Chain Risk Management Practices for Federal Information Systems and Organizations.”

NIST defines risk as “Risks that arise from the loss of confidentiality, integrity, or availability of information or information systems and reflect the potential adverse impacts to organizational operations (including mission, functions, image, or reputation), organizational assets, individuals, other organizations, and the Nation.”

The report further goes on to set the stage by observing that the information and communications technology (ICT) supply chain is a complex, globally distributed system of interconnected networks that are logically long, with geographically diverse routes and multiple tiers of outsourcing. This system of networks includes organizations, people, processes, products, and services and the infrastructure supporting the system development life cycle, including research and development (R&D), design, manufacturing, acquisition, delivery, integration, operations, and disposal/retirement) of an organization’s ICT products (i.e., hardware and software) and services. Today’s ICT supply chains have increased complexity, diversity, and scale, while federal government information systems have been rapidly expanding in terms of capability and number, with an increased reliance on outsourcing and commercially available products. These changes have resulted in a reduction in visibility and understanding of federal departments and agencies throughout the supply chain, including how the technology being acquired is developed, integrated, and deployed, as well as the processes, procedures, and practices used to assure the integrity, security, resilience, and quality of the products and services. This lack of visibility and understanding, in turn, has decreased the control federal departments and agencies have with regard to the decisions impacting the inherited risks traversing the supply chain and the ability to effectively mitigate those risks.

When taking a look at implementing supply chain risk management (SCRM) policies and practices, NIST observes that ICT SCRM should be integrated into organization-wide risk management process that includes:
  1. Frame risk – establish the context for risk-based decisions and the current state of the  system or ICT supply chain environment;
  2. Assess risk – review and interpret threat, vulnerability, and related information;
  3. Respond to risk once determined – select, tailor, and implement mitigation controls;
  4. Monitor risk on an ongoing basis, including changes to an information system or ICT  supply chain environment, using effective organizational communications and a feedback loop for continuous improvement.

Managing ICT supply chain risks is a complex, multifaceted undertaking that requires a coordinated effort across an organization, including engaging multiple disciplines in identifying priorities and developing solutions, ensuring that ICT SCRM activities are performed throughout the SDLC, and incorporating ICT SCRM into overall risk management decisions. ICT SCRM activities should involve identifying and assessing applicable risks, determining appropriate  mitigating actions, developing an ICT SCRM Plan to document selected mitigating actions, and monitoring performance against the ICT SCRM Plan. Because ICT supply chains differ across and within organizations, the ICT SCRM plan should be tailored to individual organizational contexts. A tailored ICT SCRM plan will help organizations focus appropriate resources on the most critical functions and components based on organizational mission/business requirements and their risk environment.

The full document is rather lengthy, but has some interesting tables and process flows that can be of use to all risk management professionals. I suggest you take the time to read it.

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Investors Helping to Drive Environmental Risk Mitigation

August 18, 2013 | No Comments »

Investors achieved noteworthy victories during this year’s shareholder proxy season, with a near record 110 shareholder resolutions filed with 94 U.S. companies on hydraulic fracturing, flaring, fossil fuel reserve risks and other climate – and sustainability – related risks and opportunities.

The majority of resolutions filed within the energy sector focused on strategies recently promoted by the International Energy Agency in its Redrawing the Energy-Climate Map (opens PDF) report to reduce sector-wide greenhouse gas emissions at no net economic cost, and in some cases, economic gain. These strategies include:

  • Targeted energy efficiency measures in buildings, industry and transport;
  • Limiting the construction and use of the least-efficient coal-fired power plants; and
  • Cutting emissions of methane, a potent greenhouse gas, in half by 2020.

Investors withdrew more than 40 resolutions after the companies made positive commitments to reduce greenhouse gas emissions, gas flaring and adverse impacts from hydraulic fracturing. Other shareholder successes included strong votes – as high as 38 percent – on resolutions asking oil and gas companies to set methane emission reduction goals. First-time resolutions regarding fossil fuel reserve risks – also known as carbon bubble resolutions – received up to 22 percent support.

Filers of the resolutions include some of the nation’s largest public pension funds, such as the California State Teachers Retirement System (CalSTRS) and the New York State and New York City Comptrollers’ Offices; socially responsible investors such as Green Century Capital Management and Trillium Asset Management; and religious, labor and other institutional investors, who collectively manage more than $500 billion in assets. For a complete set of the resolutions that are tracked by Ceres, an advocate for sustainability leadership, including information on the 29 lead filers, visit http://www.ceres.org/investor-network/resolutions.

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