Supply Chain Canada - Q4 2016 by Lester Publications

INSIDE: BAD WEATHER AND THE COFFEE SUPPLY CHAIN | THE INTERNATIONAL COLD CHAIN | SIMA

THE OFFICIAL MAGAZINE OF THE SUPPLY CHAIN MANAGEMENT ASSOCIATION

Q4 2016

THE HIDDEN COSTS AND RISKS OF GLOBAL SOURCING Master the complexities to maximize the benefits

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VOLUME 2 / NUMBER 4

QUARTER 4 2016

SUPPLY CHAIN MANAGEMENT ASSOCIATION 777 Bay Street, Suite 2701, Toronto, ON M5G 2C8 Toronto: 416-977-7111 | Toll-free: 1-888-799-0877 | Fax: 416-977-8886 Email: info@scma.com | www.scma.com EXECUTIVE OFFICE President & Chief Executive Officer: Cheryl Farrow (Paradowski) Manager, Executive Office: Jacintha Ward EDUCATION AND ACCREDITATION Director, Education & Accreditation: Rick Cleveland Coordinator, Education: Simona Zar

CORPORATE SERVICES Director, Corporate Services: Patrick Gauch Accountant: Chloe Hong Administrator, Data Systems: Wilkin Hsien EDITORIAL BOARD Rhoderick Buendia, Katherine Caughran, Diana Gavrila, David Gillies, Michael Horricks, Carlene McTague, Erica Nelson, Loreen Sherman, Dorina Vendramin Supply Chain Canada is published four times per year for the Supply Chain Management Association (SCMA). Published by

LESTER COMMUNICATIONS INC. 701 Henry Ave., Winnipeg, MB R3E 1T9 Phone: 204-953-2189 | Toll-free: 866-953-2189 | Fax: 204-953-2184 Email: info@lesterpublications.com | www.lestercommunications.ca President: Jeff Lester Publisher: Jill Harris EDITORIAL Editor: Andrew Harris ADVERTISING Senior Sales Executive: Quinn Bogusky DESIGN & LAYOUT Art Director: Myles O’Reilly Senior Graphic Designer: John Lyttle

contents DEPARTMENTS

Direct Link......................... 3 Lien direct......................... 4 Message from the Board Chair................................ 7 SCMA National Board of Directors........................... 9 SCMA Institutes.................. 9 Expert’s Corner............... 31

COVER STORY

Master the complexities to maximize the benefits

DISTRIBUTION Office Manager: Nikki Manalo

Publication Mail Agreement #40606022 Return undeliverable Canadian addresses to Lester Communications Inc. Please recycle where facilities exist.

ARTICLES

Bad Weather and the Coffee Supply Chain....... 14 An in-depth look at the coffee supply chain and the effects of bad weather

The International Cold Chain............................ 19 Exporting frozen and refrigerated food products to China

No Dumping!................. 21 What you need to know about the Special Import Measures Act

Global Sourcing: Risks and Costs............... 10

DIGITAL MEDIA Digital Media Manager: Gayl Punzalan Social Media Coordinator: Jenina Bondoc

© 2016 SCMA – All rights reserved. The contents of this publication may not be reproduced, in whole or in part, without the prior written consent of the publisher. Disclaimer: The opinions expressed by the authors and/or editorial sources contained in Supply Chain Canada are those of the respective parties and do not necessarily represent the opinion of the publisher or SCMA.

INCO Terms................... 23 A tear-out cheat sheet

Where Should We Go and How Do We Get There?....26 A vision for the Procurement Group in the Government of Canada

MISSION

To build leadership in supply chain management.

VISION

Employers recognize and value the contribution of supply chain management professionals to the success of their organizations.

VALUES

• We are Professional. • We are Collaborative. • We are Focused.

Part 2

Cover image: Sergey Nivens/Shutterstock.com Above: Toria/Shutterstock.com

PUBLIC AFFAIRS AND COMMUNICATIONS Director, Public Affairs and Communications: Amanda Cormier Manager, Communications: King Siu Manager, Events: Mirissa Caldarola Coordinator, Communications: Nicolas Arnaud-Goddet Coordinator, Education Events: Jeremy Clark Webmaster: Madi Tabagari

SUPPLY CHAIN CANADA • QUARTER 4 2016 • 1

direct link

y the time you receive this, I will already have moved on to my new opportunity as CEO of the Canadian Bar Association. So, I appreciate your indulgence as I reflect on my wonderful six years at the Supply Chain Management Association (SCMA). When I arrived in 2010, it was still the Purchasing Management Association of Canada; the new Supply Chain Management Professional (SCMP) designation program had just been launched; and designation reciprocity was finalized shortly afterwards with the Institute for Supply Management (ISM) for the CPSM and the Chartered Institute of Purchasing and Supply (CIPS) for the MCIPS. Our SCMP program has grown stronger each year since, with an encouraging 280 candidates attending In-Residence Week in 2016, even in the face of some tougher economic times in Western Canada. Other major highlights related to SCMA’s education programs have been the transition to an online program delivery option for both the SCMP and the SMT, as well as for the SCMP final examination. The last two years have also seen an extensive overhaul of the SCMP program content, in response to feedback from employers, candidates and instructors. Finally, the Memorandum of Understanding (MOU) with Athabasca that was launched in May 2016, providing SCMPs with advanced standing recognition and fast-tracking through Athabasca’s Executive MBA program, was a crowning testament to the rigor and quality of the SCMP program. Obviously, the amalgamation and the name change of the organization was a major initiative, kicked off in 2012 and made official on September 3, 2013. It was a great opportunity to align the organization and the designation, achieve consolidation in a fragmented market of supply chain associations and make SCMA’s voice stronger. Employer outreach has been a key focus and has included: my personal campaign of meeting with over 130 employers across the country in 2011; our 2013 employer survey; our targeted advertising campaigns over the years on the radio, TV and in partnership with The Globe and Mail’s Report on Business; and our ongoing outreach to other professional associations, such as those in human resources and financial management. We also made forays into government relations, with positive responses from the Bank of Canada and Global Affairs Canada. We have developed three great white papers

Cheryl Farrow (Paradowski) President & CEO SCMA

THOUGH BEHIND THE SCENES, SCMA HAS MADE SOME TERRIFIC STRIDES FROM A GOVERNANCE PERSPECTIVE. on the impact of supply chain management to the broader Canadian economy and we continue to generate awareness of those materials. Finally, though behind the scenes, SCMA has made some terrific strides from a governance perspective. One of my first initiatives when I arrived was the creation of the Institute Advisory Council to bring all parts of the association together in a more coordinated fashion. This has evolved into the creation of the Federation Council and the signing of a new Federation agreement in 2015. In 2016, we saw the groundbreaking transition to a new competency-based governance model for the National Board, reducing the size from 17 to nine members. Based on my initial meetings with the new board, the skills and contribution that we were seeking are very much in evidence. That brings me to my final thank yous: to your dedicated National Boards of Directors with whom I’ve had the great privilege to work, under the respective leadership of Keith Carruthers, Mike Whelan and Jerome Ferber; to the staff team at the national office, who work so diligently to bring the board’s and federation’s vision to life; and to all SCMA members. It has been an amazing time to be involved with the profession and you are all so justifiably passionate about the important roles that you play in your organizations. I wish all of you – and SCMA – ongoing success and growth, and advanced congratulations on the 100-year anniversary in 2019! SUPPLY CHAIN CANADA • QUARTER 4 2016 • 3

Atstock Productions/Shutterstock.com

Saying Farewell

lien direct

Au revoir!

orsque vous recevrez ceci, j’aurai déjà entrepris de relever de nouveaux défis à titre de présidente-directrice générale de l’Association du Barreau canadien. Je vous remercie de m’accorder cette dernière occasion de m’adresser à vous pour faire le point sur les six merveilleuses années que j’ai passées au sein de l’Association de la gestion de la chaîne d’approvisionnement (AGCA). À mon arrivée en 2010, l’AGCA s’appelait Association canadienne de gestion des achats; le nouveau programme de désignation de « professionnel en gestion de la chaîne d’approvisionnement » (p.g.c.a.) venait d’être lancé, et l’entente de réciprocité entre la certification de l’Institute for Supply Management (ISM), Certified Professional in Supply Management (CPSM), et celle du Chartered Institute of Procurement and Supply (CIPS), membre du CIPS (MCIPS), était finalisée peu après. Avec les années, notre programme menant à l’obtention du titre de p.g.c.a. a pris de la vigueur. En 2016, 280 candidats étaient inscrits au cours d’une semaine en résidence, et ce en dépit des difficultés économiques dans l’Ouest du Canada. D’autres points forts des programmes d’éducation de l’AGCA ont été l’option de pouvoir suivre en ligne les cours du programme de formation en gestion des approvisionnements (FGA) et du programme menant à l’obtention du titre de p.g.c.a., et de passer en ligne l’examen de certification de p.g.c.a. De plus, au cours des deux dernières années, en réponse à des rétroactions d’employeurs, de candidats et d’instructeurs, d’importants changements ont été apportés au contenu du programme menant à l’obtention du titre de p.c.g.a,. Enfin, le protocole d’entente conclu avec Athabasca University en mai 2016, qui offre aux p.g.c.a. la reconnaissance d’équivalence et une progression accélérée via le programme Executive MBA d’Athabasca, témoigne haut et fort de la rigueur et de la qualité du programme de l’AGCA. On ne saurait taire l’importance du regroupement et le changement de nom de l’organisation, entrepris en 2012 et rendus officiels le 3 septembre 2013. Il était opportun d’aligner les organisations et les désignations et de consolider notre position dans un marché d’associations de gestionnaires de chaînes d’alimentation fragmenté, et de donner ainsi plus de poids à l’AGCA. 4 • SUPPLYCHAINCANADA.CA • SCMA

Cheryl Farrow (Paradowski) présidente et chef de la direction AGCA national

L’établissement de relations avec les employeurs a été une orientation principale. En 2011, j’ai mené ma propre campagne pendant laquelle j’ai rencontré plus de 130 employeurs de partout au pays. Un sondage a été présenté aux employeurs en 2013. Au fil des années, nous avons mené des campagnes publicitaires à la radio, à la télévision et dans la section Report on Business du Globe and Mail, et constamment tenté d’établir des liens avec d’autres associations professionnelles, dans les domaines des ressources humaines et de la gestion financière notamment. Nous avons également réussi à nous frayer un chemin dans les dédales gouvernementaux, établissant des relations positives avec la Banque du Canada et Affaires mondiales Canada. Nous avons élaboré trois livres blancs sur l’impact de la gestion de chaînes d’approvisionnement sur l’économie canadienne en général, ouvrages sur lesquels nous continuons d’attirer l’attention. Enfin, bien qu’en arrière-scène, l’AGCA a fait des avancées spectaculaires en matière de gouvernance. L’une de mes premières initiatives à la barre de l’AGCA été la création d’un Conseil consultatif des corporations dans le but de rassembler le différentes composantes de l’Association. Ce Conseil a mené à la formation du Conseil fédéral et à la signature, en 2015, d’une nouvelle entente de fédération. En 2016, la transition sans précédent vers un nouveau modèle de gouvernance basé sur la compétence au niveau du Conseil national a permis de réduire le nombre de ses membres de dix-sept à neuf. D’après mes rencontres initiales avec le nouveau Conseil, les compétences et la contribution que nous cherchions à obtenir ainsi sont des plus évidents. J’en arrive à mes remerciements finaux. Merci aux très dévoués membres de votre Conseil national des directeurs, avec lesquels j’ai eu le grand privilege de travailler sous la gouverne de Keith Carruthers, de Mike Whelan et de Jerome Ferber, aux membres de l’équipe du personnel du bureau national, qui ont travaillé diligemment à réaliser la vision du Conseil et de la Fédération, et à tous les membres de l’AGCA. Quelle période incroyable pour travailler dans ce domaine ça aura été! Vous êtes tous à juste titre passionnés du rôle important que vous jouez dans l’organisation. Je vous souhaite à tous – ainsi qu’à l’AGCA – un succès et une croissance continus et vous félicite déjà pour votre 100e anniversaire en 2019.

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SCMA

NATIONAL CONFERENCE

Come to the heart of the nation and feel the pulse of a vibrant supply chain community at the SCMA NATIONAL CONFERENCE, JUNE 14-16, 2017, in WINNIPEG, MANITOBA. Over 500 supply chain leaders will be LINKING THE NATION in a web of inspiration, innovation, and illumination. Come join the thought provoking discussions, gain insight from supply chain experts, and meet Canada’s top supply chain professionals. The Conference will kick off at the Canadian Museum for Human Rights (CMHR) on WEDNESDAY, JUNE 14, 2017. The CMHR is the first museum solely dedicated to the evolution, celebration and future of human rights. Join us to explore the exhibits and share the experience with your peers!

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message from the board chair

Are you ready for the Trans-Pacific Partnership trade agreement?

ou have undoubtedly heard much about the Trans-Pacific Partnership (TPP) trade agreement. Whether you believe it to be a good or bad trade agreement for Canada, as a strategic supply chain professional you need to be prepared if it becomes a reality. According to André Downs, chief economist at the department of Global Affairs, joining the TPP would generate billions in long-term gains for the Canadian economy, which would largely come through better access to traditionally shuttered markets. From a supply chain perspective, there are some very positive aspects of the TPP agreement that will have a dramatic effect on supply chain strategy in the future. Sandy Moroz, a former trade negotiator for Canada, says that this agreement “could allow Canada to use one set of rules when exporting to any of the other 11 TPP countries, including our NAFTA partners, as well as Japan, which would be the biggest new prize for Canadian exporters.”

Jerome Ferber, SCMP, Chair, SCMA National Board of Directors

Not everyone is optimistic about the TPP. Nobel Prizewinning economist Joseph Stiglitz feels that the agreement will worsen inequality because it includes aspects that heavily favour U.S. corporate interests. Those in the Canadian auto industry would likely join in the negative assessment of the TPP. Moroz alludes to this negative sentiment in his comments: “The central question facing the Canadian auto sector is not whether Canada should stay in the TPP if it is implemented; instead, it is where in North America will vehicles be assembled in the future?” Canada would presumably remove its tariffs over five years, whereas the U.S. has negotiated a 25-year implementation. These differences in implementation timelines, which vary greatly from commodity to commodity and country to country, understandably have Canadian businesses concerned. No matter what your stand is on the TPP, or how great or small its potential impact will be on your strategic planning

NO MATTER WHAT YOUR STAND IS ON THE TPP, OR HOW GREAT OR SMALL ITS POTENTIAL IMPACT WILL BE ON YOUR STRATEGIC PLANNING PROCESS, YOU WILL BENEFIT FROM KNOWING SOME OF THE BASIC FACTS RELATED TO THE TPP.

SUPPLY CHAIN CANADA • QUARTER 4 2016 • 7

message from the board chair

Josef Hanus/Shutterstock.com

Canadian ports, such as the Vancouver Fraser Port Authority, are expected to experience an increase in traffic and volumes when the TPP comes into effect process, you will benefit from knowing some of the basic facts related to the TPP. Some facts related to the TPP are: ■■ 12 – Countries involved in the Trans-Pacific Partnership trade deal. Ratification would create the largest trade zone in the world, spanning four continents and 800 million people. ■■ $28.5 trillion – The combined gross domestic product of the 12 trade-pact countries, which, it is estimated, collectively produce 40 per cent of the world’s economic output. ■■ 45 – Per cent of a vehicle’s content that must come from Canada to avoid import tariffs, a change from the North American free-trade agreement (NAFTA), which established that 62.5 per cent of a vehicle’s content must be local. ■■ $4.3 billion – Subsidy the government has promised over 15 years to protect current dairy, chicken and egg farm revenues. TPP countries get duty-free access to 3.25 per cent of Canada’s dairy market and 2.1 per cent of its poultry market. ■■ $158.6 billion – Average annual value of Canada’s exports of metals and minerals to TPP countries from 2012 to 2014, according to numbers provided by the federal government. The sector includes petroleum products, potash, precious metals, iron, steel, aluminum and nickel. 8 • SUPPLYCHAINCANADA.CA • SCMA

■■

■■ ■■ ■■

■■

■■ ■■

51 – Total number of countries, if TPP is ratified, with which Canada will have free-trade agreements, which account for roughly 60 per cent of the global economy, according to data released by the federal government. Some other important facts: This agreement has not as yet been ratified by Canada There are varying impacts on Canadian businesses The removal of tariffs is not all done at the same time. Some, for example automotive, are five years away for Canada and 25 for the U.S. Some key areas related to supply chain are: ●● Standardization of rules and regulations ●● Reduction or elimination of tariffs ●● Simplification of the Rules of Origin Import of items from TPP countries will become easier and small Canadian businesses will have a wider window of opportunity in the global marketplace New trade zones will open up Canadian ports will experience an increase in traffic and volumes

As always, please feel free to reach out to me at jferber@scma.com with any questions or comments.

board of directors

SCMA NATIONAL BOARD OF DIRECTORS 2016–2017

SCMA Institutes SCMA Alberta Tel: 780-944-0355 Toll-free: 1-866-610-4089 info@scmaab.ca | www.scma.com/ab SCMA British Columbia Tel: 604-540-4494 Toll-free: 1-800-411-7622 info@scmabc.ca | www.scma.com/bc SCMA Manitoba Tel: 204-231-0965 Toll-free: 1-877-231-0965 (for area code 204 only) info@scmamb.ca | www.scma.com/mb

Jerome Ferber, SCMP, C.P.M., P.Log. Board Chair

Andrea Eglert-Rygus Finance & Audit Committee

Jim Peeples Governance Committee

SCMA New Brunswick Tel: 506-458-9414 info@scmanb.com | www.scma.com/nb SCMA Newfoundland & Labrador info@scmanl.ca | www.scma.com/nl SCMA Northern Territories Toll-free: 1-877-231-0965 info@scmant.ca | www.scma.com/nt

Mike Whelan, SCMP Board Vice-Chair

John Liu, CPA, CA, BComm. Treasurer, Finance & Audit Committee

Heather Stewart Education Committee

SCMA Nova Scotia Tel: 902-425-4029 info@scmans.ca | www.scma.com/ns SCMA Ontario Tel: 416-977-7566 Toll-free: 1-877-SCM-N-YOU info@scmao.ca | www.scma.com/on SCMA National Office Tel: 416-977-7111 Toll-free: 1-888-799-0877 info@scma.com | www.scma.com

LouAnn Birkett, CSCMP Governance Committee

Mike Owens Governance Committee

Cheryl Farrow President & CEO Supply Chain Management Association

SCMA Quebec Tel: 514-256-0045 info@scmaq.ca or info@agcaq.ca www.scma.com/qc/en SCMA Saskatchewan Tel: 306-653-8899 Toll-Free: 1-866-665-6167 info@scmask.ca | www.scma.com/sk

SUPPLY CHAIN CANADA • QUARTER 4 2016 • 9

“ GOING BEYOND NATIONAL BORDERS HELPS COMPANIES ACCESS CHEAPER AND BETTER – AND SOMETIMES UNIQUE – SERVICES, MATERIALS AND PRODUCTS.” – ANGELO CRUPI, HUMBER COLLEGE

10 • SUPPLYCHAINCANADA.CA • SCMA

cover story

Global Sourcing: Risks and Costs Master the complexities to maximize the benefits By Kim Biggar

Toria/Shutterstock.com

owadays, in much of the world, you’d have to live a hermit’s life to be unaware of the multitude of goods we consume that come from “elsewhere.” While most people don’t spend any time thinking about how those goods came to be in their possession, for supply chain professionals, securing those goods requires a lot of attention. Sourcing products, materials, parts and services from suppliers around the world is a challenge: it involves significant risk, but also immense potential benefits. Clearly, manufacturers and distributors – as well as consumers – have found the challenge worth accepting; according to data from Statista, the value of the global outsourcing market grew from US$46 billion in 2000 to $89 billion in 2015, with a spike to $105 billion in 2014. “It’s a big world,” said Angelo Crupi, a professor at Humber College in Toronto and coordinator of its supply chain management certificate program. “Going beyond national borders helps companies access cheaper and better – and sometimes unique – services, materials and products.” Grace Zhang, VP of business development at Strategic Global Sourcing Ltd. (SGS Sourcing) in Vancouver, sees global sourcing as “an investigation business” that aims to reduce a company’s purchasing costs, thereby increasing its competitiveness, and help it attain products that are not available in the local market or not available when required. Lower-price and better-quality goods certainly have strong appeal, but do the risks associated with global sourcing outweigh those benefits? SUPPLY CHAIN CANADA • QUARTER 4 2016 • 11

cover story “ ONE OF THE BIGGEST PROBLEMS IN DEALING WITH OVERSEAS SOURCING IS COMMUNICATION. MOST PROBLEMS CAN BE AVOIDED FROM THE BEGINNING WITH PROPER COMMUNICATION.” – GRACE ZHANG, STRATEGIC GLOBAL SOURCING LTD.

GLOBAL SOURCING RISKS AND HOW TO MITIGATE THEM Consider the several major risks connected with global sourcing and you might be put off ever doing it again. Those risks pertain to: ■■ Currency fluctuation: Purchases can become more expensive than anticipated if the value of the dollar drops. ■■ Transportation: Shipped around the world using various modes of transportation, goods are subject to loss, damage and delay at a higher rate than if purchased in Canada, closer to their destination. ■■ Low health standards: Lower health and safety standards in some countries mean that products arrive for sale in Canada in a condition that prevents their sale; the use of lead-based paint on toys, for example, is prohibited in Canada but not in all countries. ■■ Liability and reputation: The sale of imported goods that are found to be unsafe or manufactured under conditions that violate human rights can be disastrous for a company’s reputation and profit. ■■ Language and cultural differences: Different social customs and ethical standards are observed in business relationships around the world. Misunderstandings in this area can put an enormous strain on a business relationship and lead to both financial loss and court battles. ■■ International politics and legal differences: Loss or delay of product can be caused by a purchaser’s lack of awareness of trade barriers, disputes or laws or government instability in the country of origin. Being aware of the risks in sourcing goods outside of Canada is an important first step in protecting your company against them. But awareness is not expertise; much more is needed. Research and alternative plans are essential, says Crupi. Knowing your suppliers and understanding the countries from which you’re importing will help to mitigate the risks associated with global sourcing, as will having backup suppliers for critical products and services. He recommends, too, that you assess the potential costs related to each risk, and manage those with the highest possible costs most diligently. If the cost associated with a risk is determined to be low, that risk requires little monitoring, especially when time is limited. In Zhang’s view, hiring a global sourcing professional, as either an employee or a consultant, is the best way to mitigate 12 • SUPPLYCHAINCANADA.CA • SCMA

the risks inherent in buying from outside of Canada, in particular from overseas. The right person for this role will have a strong background in and knowledge of your industry, as well as the language skills and cultural knowledge to deal effectively with manufacturers and other supply chain parties in the country of origin. “One of the biggest problems in dealing with overseas sourcing is communication,” said Zhang. “Most problems can be avoided from the beginning with proper communication.” Zhang offers as an example the possibility of misunderstanding when communicating with a Chinese supplier, who might say “yes” during conversation, meaning only that he heard what was being conveyed. It could be a costly mistake to instead assume that the supplier in such a case had agreed to whatever was being discussed. Another option to mitigate risk is emerging, says Crupi. Competitors in an industry, mostly large companies that are all sourcing the same parts and services, are coming together to share the risks in purchasing those products overseas. This collaboration helps all of the companies meet their requirements with reduced risk.

THE HIDDEN COSTS OF GLOBAL SOURCING While costs for duties and tariffs are always part of the expense of importing goods – and so are not really hidden – they can be underestimated. For those who “do their homework,” says Crupi, these costs can be a known factor. There are, though, costs to global sourcing that supply chain managers do often overlook, say both Zhang and Crupi. Among them are the costs for the additional time it takes to coordinate with suppliers that are overseas. Different time zones and languages need to be navigated, multimodal transportation planned and border crossings organized. “The process is more complicated,” said Crupi. Late deliveries caused by shipping delays can have a detrimental impact on a company’s relationships with its customers. Further, delays caused by quality issues will likely be longer when imported goods are involved. “Your production line can be stalled waiting for a replacement shipment to arrive,” said Zhang. Monitoring the production process and regularly checking on the status of ordered goods is critical, she says. Audits of the overseas manufacturing facilities from which you source will help to cover this risk, she adds. To limit unexpected costs, Zhang strongly recommends that buyers try to negotiate the use of Incoterms DDP (Delivered

Duty Paid), which requires the seller to bear the risks and costs, including duties, taxes and other charges, to deliver the goods directly to the buyer.

GETTING THE RIGHT HELP Having expert help from someone who knows the risks and potential landmines that are part of global sourcing is extremely important, says Crupi. Zhang agrees. Crupi believes that hiring professionals with the required expertise is the best solution to deal with global sourcing on an ongoing basis. It’s possible to build in-house expertise by training existing employees, he says, but those employees will make mistakes as they learn, a necessary and unavoidable expense in order to build in-house knowledge. Working with a consultant is an excellent option, but is, in Crupi’s view, the

ideal solution to a short-term need. If a company requires help in developing its global sourcing process, for example, using a consultant makes sense. Zhang, on the other hand, sees the use of third-party global-sourcing service providers as the ongoing, cost-effective approach for companies that want to focus on their core competencies. Outsourcing global sourcing, she says, simplifies the process for such organizations. Whichever option looks better for your company, it seems clear that the complexities and risks that are characteristic of global sourcing require expert handling. With expertise, risks can be largely managed, complexities mastered. Given the tremendous benefits of sourcing out of country, the costs for expertise – and to cover all of the potential risks that sourcing involves – appear to be well worth paying.

HAVE YOU VISITED THE NEW SCMA KNOWLEDGE NETWORK?! Visit the new SCMA Knowledge Network, an online community exclusively for SCMA members. Join your peers as they discuss solutions to supply chain challenges, their views on develop ing issues, and more! Share your knowledge and the latest developments in the field. Access is available for all SCMA members. Visit community.scma.com and login with the same information you use for the SCMA Portal.

SUPPLY CHAIN CANADA • QUARTER 4 2016 • 13

pgraphis/Shutterstock.com

cover story

Bad Weather and the Coffee Supply Chain An in-depth look at the coffee supply chain and the effects of bad weather By Jess Campbell

offee. It gets you up in the morning, through your afternoon slump at work and gives you pep in your step when your toddler decides he’s not going to bed. Reported last year by global marketing research company Euromonitor, Canadians ranked third in the world for total amount of coffee consumed in and outside the home, equalling about 152 litres per capita. That’s a lot for a country that imports 100 per cent of its coffee requirements. The busiest time for Canadian roasters and cafes starts now, as autumn turns to winter. So, what happens when the coffee falters – when it’s not up to par, or worse, completely destroyed because of inclement weather? For the supply chain of Canadian coffee importer RGC Coffee (RGC) of Montreal, the best way to overcome the huge challenge of crop shortage due to inclement weather is to be proactive in planning and development of imports rather than reactive to an unavoidable, uncontrollable situation. Jeff Bernstein is a coffee trader and part of the executive management team at RGC. He also helps to oversee the entire RGC operation, with an understanding that the supply chain is very much a part of their business. “As much as we are in the coffee business, we are also in the logistics business. We are moving a high volume of coffee,” he said. RGC is an importer of green coffee, meaning the raw bean before it is processed. RGC imports, trades and stores coffee, and sells it to their customers – who include some of the biggest roasters in North America, as well as micro-roasters working with stand-alone cafes and shops. They also offer their customers other services, such as testing and cupping of the coffee from within their own cupping lab, in-depth insight and information about the entire coffee industry, including the coffee futures market, as well as financing and logistics advice. Started in 1968 by president Ron Gabbay, RGC handles weekly imports from origins including Central and North America, South America, Africa and Asia. 14 • SUPPLYCHAINCANADA.CA • SCMA

iravgustin/Shutterstock.com

BACKGROUND: RGC

case study: coffee “WE FOCUS ON POSITIVE THINGS AND TAKING A PROACTIVE APPROACH.” – JEFF BERNSTEIN, RGC COFFEE

SUPPLY CHAIN CANADA • QUARTER 4 2016 • 15

case study: coffee

Left: This schedule indicates the different harvest times for each of RGC Coffee’s origins throughout the year Above: Inspector grading the beans at the coffee purchasing point in Planadas, South Tolima, Colombia at the Cafisur Purchasing Point Coffee is traded on a futures market, much like other agricultural products such as corn and soybeans. Buying and selling coffee this way promotes the creation of a hedge against price swings in the market, as well as securing a much more consistent supply. Importing coffee from several different origins is typical of Canadian importers like RGC as it allows a more consistent supply of coffee for the huge and demanding Canadian market. Some origins, like Colombia and Nicaragua, have two crops. Peak crop is the main, longer harvest of the year, whereas the fly crop is shorter in duration. Having the ability to harvest more than once per year helps to keep the crop yields and market supply (and therefore, the price) steady, especially if one crop has been affected by disease or inclement weather. Other origins like Ethiopia and India have only one main harvest per year, making them more easily affected by weather and pests. “This year’s fly crop out of Colombia (harvested April to June) was seriously affected by El Niño, which was a lack of rain. It was not good; it affected the country’s ability to export coffee this year. Anyone expecting coffee out of Colombia knows that it is very delayed. But now, we’re coming into the peak crop in Colombia (harvested October to February) and it’s going to be really good,” said Bernstein.

Photos courtesy of RGC Coffee

THE COFFEE SUPPLY CHAIN The Colombian coffee supply chain will be used as a reference in this section, as it is Canada’s largest origin of coffee. Coffee is a fruit that is grown on small trees. Coffee trees can grow up to 20 feet but are pruned between eight and 11 feet. Coffee fruit is made up of five different layers: the cherry, the mucilage or pulp, the parchment skin, the silver skin and the beans. There are two coffee beans inside every individual cherry. The supply chain of coffee is a lengthy one. The coffee cherry is harvested when it is a deep red colour, indicating its ripeness, and is picked by hand from the tree by the coffee farmer. 16 • SUPPLYCHAINCANADA.CA • SCMA

The cherries are tossed into a large tub or bucket that the farmer wears fastened around their waist. Once the tub is full of cherries, they are dumped into fermentation tanks – large, bathtub-like containers filled with water that allow the cherries to ferment. Once fermented, the farmer puts the cherries into a pulping machine that separates the beans from the surrounding cherry. The beans must then dry for several days – between 15 and 20 – on either cement patios or raised drying beds made of bamboo. Once dry, the farmer puts the beans into sacks to be taken to and sold at the local purchasing point. Each sack can weigh between 150 to 200 kilograms (330 to 440 pounds). Since Colombian coffee is grown on mountains, some farmers must carry their coffee sacks down the mountain by horse or mule. Other farmers have Jeeps to drive several sacks down the mountain at a time. When the farmer arrives at the purchase point with his coffee, a coffee grader will take some beans from one of the sacks, remove the parchment from around the beans and then weigh and grade them. This, too, is done by hand. The farmer is then paid for his beans at the rate the coffee is trading on that particular day. The farmer then returns to his farm. The beans, however, are just getting started on their journey. In Colombia, coffee purchase points are, for the most part, run by cooperatives. The cooperatives are responsible for bringing the beans from the purchase point to a dry milling facility, where the beans are put through huge machines that remove the parchment from the bean and then sort the beans by size. The cooperative then bags the coffee in burlap sacks and marks them. Then the cooperative sells the coffee through an export arm that is authorized by the government to export it out of the country. For their Colombian beans, RGC exports through one of the main suppliers, the Colombian Coffee Growers Federation, or FNC, recognized worldwide by their famous Juan Valdez logo.

case study: coffee

Coffee stored in warehouse FNC purchases the coffee from the cooperative and is then responsible for exporting the beans. The coffee moves by truck from the cooperative to a warehouse close to port and owned by FNC. When it is ready to be exported, FNC moves the coffee from its warehouse to port. Whereas other origins may load coffee into containers at their warehouse then move it to port, all coffee exported from Colombia must be loaded into shipping containers at port due to the narcotics trade. Once in the container, the coffee is loaded onto a ship and the ship leaves for its destination port. It takes approximately 20 days for the ship to get from Colombia to Montreal. Once the ship arrives, the containers are offloaded and the coffee is moved into one of RGC’s warehouses. In most cases, the coffee will be stored until it is tendered to one of RGC’s clients. In some cases, the coffee may go directly from port to a roasting facility, bypassing RGC’s warehouse because it has been previously tendered to that client. In total, the supply chain of Colombian coffee, from farmer to RGC warehouse, is between 2.5 to three month’s time.

THE ISSUE OF INCLEMENT WEATHER Coffee production is heavily dependent on ideal weather and growing conditions. But given that Colombia is located within a region of the world that is prone to bad weather, it is understandable that the supply chain may encounter issues due to weather-damaged coffee crops. The weather phenomena of El Niño (dry conditions with no rain and lots of sun) and El Niña (wet conditions with too much rain and not enough sun) are common challenges for Colombian coffee growers at the farm level. At the time this article was being written, Hurricane Matthew was becoming a huge issue for the rest of the coffee supply chain, as it was carving a path directly in line with the export shipments coming from Colombia. Hurricane Matthew’s

Café Granja La Esperanza, Caicedonia Farm, Caicedonia, Valle de Cauca, Colombia

THE QUESTION OF ETHICAL COFFEE Ethically sourced coffee is a buzz-worthy term. But what does it actually mean? According to Jeff Bernstein, it’s very subjective. “That term is defined different ways for different people. At RGC, we deal with reputable exporters in our origin countries and we’re not supporting or engaging in practices that we believe are unethical, such as forced labour or child labour.” While it’s impossible to verify every single farmer, origins do their part for the fight against unethical coffee sourcing by creating lists of farmers or exporters who are known to engage in unethical practices. As well, RGC regularly visits their origin countries. “We do a lot of social work and projects with the people and families there,” said Bernstein. “We contribute added premiums to the coffee to help the local communities.” Each individual section of the supply chain must do their part to make sure what they’re sourcing is ethical, as it is a team effort. “We rely on each other to uphold our own standards but also each other’s standard of ethics,” said Bernstein. “It is in all of our best interests to source coffee that is ethically produced.” Bernstein says that finding a new supplier isn’t as quick and easy as one might think. Relationships play a huge part in the business of coffee. “Coffee is an old value, old family system. It’s not like you just run and find a new supplier and replace your old one. You’ve built a long-standing relationship with your grower that you hope will last many, many years. So it’s about that relationship, and about trust.” SUPPLY CHAIN CANADA • QUARTER 4 2016 • 17

case study: coffee

COFFEE STATS 1. There are two main coffee species, Arabica and Robusta 2. The world consumes 1.6 billion cups of coffee every day 3. Coffee is the second most traded commodity, after petroleum 4. It takes between two and three years for a coffee tree to mature enough to begin producing fruit 5. Most of the world’s coffee is grown in the “Coffee Belt” between the Tropics of Capricorn and Cancer 6. Brazil produces almost one-third of the world’s coffee 7. It takes 100 coffee beans to make one cup of coffee Source: RGC Coffee

effect on RGC’s coffee supply chain included delayed and closed ports, and shipping lines that ceased operations, creating a delay in receiving coffee of a week or more. A delay of this magnitude puts pressure on the rest of the supply chain to fulfill existing tenders and keep up with market demand. Jeff Bernstein puts it this way: “Bad weather is a force of nature. We can’t control it, but it is a big issue. With coffee, you’re dealing with an agricultural product that is not friendly to weather. You have to move it as quickly as possible in the most ideal situation possible. Coffee beans are like sponges; they will absorb anything and everything, from water to chemicals. Weather can have a big impact on roasters because they’re waiting on coffee that we can’t tender to them. It’s not a good thing.”

PROPOSED SOLUTIONS How do you prepare for something so unpredictable as the weather? You can’t, says Bernstein. “You take your index finger and you cross it over your middle finger,” he said. “That’s basically what we do.” The solution isn’t as much about preparing for bad weather but more about having a solid, everyday supply chain in place so that when adverse weather does threaten the supply chain, the effect on its people, product and business is minimal. “Coffee flows every week, sometimes multiple times per week. And to start micro-managing that process will affect your business in ways you really don’t want it to. We focus on positive things and taking a proactive approach. Let us know what ports are shut down. Let us know what cargo we have going into those ports. Let us know when the port opens and we’ll let our supply chain and our customers know. We take a proactive instead of reactive approach,” said Bernstein. 18 • SUPPLYCHAINCANADA.CA • SCMA

It’s also possible to source coffee from other origins, and is the main reason why companies like RGC don’t source coffee from only one or two places. “If we can’t bring in Colombian coffee, we can switch to another origin, such as Guatemalan, that will have similar characteristics,” said Bernstein. Moderately weather-damaged crops can still be harvested with little impact on the supply chain and the world price of coffee. “Using a moderately damaged crop just puts a squeeze on the rest of the supply chain. It doesn’t usually affect the world price of coffee but it will normally drive up the local differential or the premium that the country demands for its coffee, above or below the market,” said Bernstein. What has an effect on the world price of coffee is the quality of the coffee itself which, as discussed, is at the mercy of El Niña and El Niño. “El Niño had a big affect on Colombian coffee this year. It did impact the price differentials and the premium that they demand for their coffee because the product being shipped wasn’t up to par compared to previous years. It also kept certain qualities of coffee in shorter supply,” said Bernstein.

RECOMMENDATIONS Weather – especially adverse weather – is unpredictable at best and catastrophic at worst. For RGC to attempt to plan around weather would also be catastrophic. In conclusion, the clearest way forward to minimize adverse effects of bad weather is to continue with the existing plan: taking a proactive approach to handling adverse conditions by maintaining strong communications throughout the supply chain and keeping everyone involved up to date on the situation as it unfolds. In other words, keep that coffee coming.

international cold chain

The International Cold Chain Exporting frozen and refrigerated food products to China By Sarah B. Hood

“ I

Doug Harrison, the president and CEO of VersaCold One of the Cold Chain Assurance Group’s current projects is to bring all of VersaCold’s distribution centres up to the British Retail Council (BRC) standard, which “is a very high level of food safety and food quality, so in addition to these export standards, we are continuing to evolve our standards to above that level,” said Harrison. “We tell our team members their role is all about food safety and being able to provide safe food to people in Canada and, for that matter, around the world.” Over the past two years, VersaCold has worked with the CFIA and other Canadian government officials, as well as representatives of the People’s Republic of China through a series of inspections of the company’s facilities and processes to ensure they met all the requirements. Ultimately, “those processes were already in place, so any changes were minor in nature,” said Harrison. “We don’t own any of the product that is shipped in to us, but, starting with the producer of the food products, they also have to be licensed, so we can only be involved with export of product from producers that are equally licensed.” The products destined for China are generally shipped by ocean. (“In some cases where there’s time-sensitivity, they may be shipped by air, but in many cases, we’re putting containers on rail, then steamship, and they’re disembarked onto truck.”) For shippers and warehousers, says Harrison, the process begins with the local CFIA inspector, who conducts a SUPPLY CHAIN CANADA • QUARTER 4 2016 • 19

Photos courtesy of VersaCold

want to get you on a slow boat to China” is the opening of an old tune sung by artists from Bing Crosby to Bette Midler. Since China has become a top export destination for Canada, many companies are hoping to start shipping goods there, but it can be difficult to arrange, especially if those products require special shipping conditions. For instance, a limited number of facilities in Canada are approved for exporting meat and meat products to China, but supply chain solutions company VersaCold Logistics Services recently received approval for seven of its refrigerated warehousing facilities (in Delta, Abbotsford and Surrey, B.C.; Calgary and Lethbridge, Alta.; Winnipeg, Man.; and Brampton, Ont.) to export to frozen and refrigerated foods to China. The additional seven facilities bring VersaCold’s total approved facility count to 10. “VersaCold is Canada’s largest supply chain solutions company focused on temperature-sensitive products; all we handle is frozen or refrigerated food products,” said VersaCold president and CEO, Doug Harrison. The company, which also ranks among the top five businesses of its kind in North America, has a warehousing unit with 31 facilities across Canada; several transportation units running trucking throughout Canada and the U.S.; a fourth-party logistics business that manages products by rail and sea as well as fully outsourced supply chain services; and a third-party logistics business that provides dedicated solutions to companies. VersaCold’s clientele includes numerous major national food producers, retailers and distributors. In order to become licensed to ship frozen or refrigerated meat to China, the company had to undergo a “very deep review” process that took several months at the shortest, and as much as two years for some facilities. Some facilities already held export licenses for many countries around the world, but in order to become licensed for cold-storage shipments to China, they had to first show they could meet a series of requirements set by the Canadian Food Inspection Agency (CFIA) under the Meat Inspection Act. “There are multiple levels within the CFIA,” said Harrison. “Through the Food Safety Enhancement Program (FSEP), they have specific requirements that have to be met for the export destination country. We have to meet all the regulatory requirements of Canada and other countries, but in many cases we put in place higher requirements for ourselves. We have an entire group that is headed up by food science individuals that we call our Cold Chain Assurance Group. They oversee food compliance and food safety as well as any processing we do for food products.”

international cold chain

“ [INTERNATIONAL IMPORT REQUIREMENTS] ARE ALL SLIGHTLY DIFFERENT AND UNIQUE, BUT THEY ALL COME DOWN TO THE SAME THING, WHICH IS ABOUT SAFE FOOD AND SAFE SUPPLY CHAINS.” – DOUG HARRISON, VERSACOLD

One of VersaCold’s approved facilities

Compliance Verification Inspection. That document is forwarded with the application to the Chief Veterinary Officer in Ottawa for review, and the CFIA then forwards the results on to China’s Certification and Accreditation Administration (CNCA). “The CNCA will review the information received and process it in the manner that they see fit – either approving, asking for more information or denying the request,” said Harrison. “So it’s a very complete and detailed process to ensure the safety of the food products.” He reports that VersaCold encountered no major challenges in navigating the Meat Inspection Act and China’s veterinary hygiene and public health regulations. “We already had three facilities that were licensed for exports to China, so we were already comfortable with the requirements,” said Harrison. In order to make sure that the licensing process went smoothly, VersaCold worked with third-party advisors on international trade requirements “to ensure that we knew what the appropriate requirements were, but again, because we already had very deep dealings in this piece of legislation and because we had ongoing relations with the CFIA, most of the activity was all done in-house,” said Harrison. “It was not difficult; it was appropriately deep. It was a very good, constructive conversation with the regulatory bodies.” As for the cost, “I would say we invested in the process to make sure we were doing all the right things,” he said. Now, VersaCold is licensed to warehouse many frozen or refrigerated food products in China, as long as they originate from a regulated facility. Beef and pork products are the most

commonly shipped items, but throughout the business, “we handle all sorts of food products – anything you can imagine in the frozen or refrigerated food lines.” China is not alone in requiring this type of process; different importing countries have slightly different requirements, processes and forms. “It’s a big requirement in a big industry, and that’s why we have invested so much in the Cold Chain Assurance Group to make sure we meet those requirements,” said Harrison. Every country the company exports to has “very high requirements,” he says. “They’re all slightly different and unique, but they all come down to the same thing, which is about safe food and safe supply chains.” Managing the safe handling of temperature-sensitive food products throughout an international supply chain is no easy feat. “[It] certainly takes a lot of expertise,” said Harrison. “It’s a product that has a reasonably short shelf life, so time is sensitive, and because it’s a food product, the thing we talk to our employees about is the importance of food quality and the integrity and safety of the product; that’s why we’re so interested in being BRC-certified across our whole network.” “Supply chains are always unique,” he said. “It’s challenging and demanding to ensure we are responding to changes in supply chains on a global basis. This is an important series of certifications and a high standard. We’re thrilled to be able to play this important role in the safety of the food supply chain. As a major player in Canada, we and all of our team members take it very seriously.”

20 • SUPPLYCHAINCANADA.CA • SCMA

special import measures act

No Dumping! What you need to know about the Special Import Measures Act By Sarah B. Hood

SUPPLY CHAIN CANADA • QUARTER 4 2016 • 21

Nutchaya/Shutterstock.com

n the domain of import-export, knowledge is king. To overlook a single requirement can have dire consequences. Consider Canada’s Special Import Measures Act (SIMA), designed to protect Canadian producers from unscrupulous underselling by international concerns. “I know of a case where a company quite innocently wasn’t paying anti-dumping duty,” said David Bucholtz, VP and chief compliance officer with Pacific Customs Brokers Ltd. “Customs did an audit, and they had to pay back dump duty for about four years, to the tune of about $390,000. And since this is for product that you’ve already sold, you can’t recover the cost. In some cases, it may put companies out of business.” But for importers who understand how SIMA works, this type of situation will never pose a threat, and in fact, it offers valuable protection to Canadian producers of goods of all kinds. “The Government of Canada is committed to maintaining an effective trade remedy system to ensure that domestic producers have access to the appropriate tools to respond to unfair trade,” said Paul Duchesne, deputy spokesperson and manager of media relations at Finance Canada. SIMA falls under the jurisdiction of the Minister of Finance. “Trade remedy investigations are jointly administered by the Canada Border Services Agency (CBSA), which investigates whether dumping and/or subsidization is occurring, and the Canadian International Trade Tribunal (CITT), which investigates whether the dumping and/or subsidization has resulted in injury or threat of injury to the domestic industry,” said Duchesne. SIMA sets out a framework for trade remedy investigations and the imposition of anti-dumping and countervailing duties.

special import measures act “ THE GOVERNMENT OF CANADA IS COMMITTED TO MAINTAINING AN EFFECTIVE TRADE REMEDY SYSTEM TO ENSURE THAT DOMESTIC PRODUCERS HAVE ACCESS TO THE APPROPRIATE TOOLS TO RESPOND TO UNFAIR TRADE.” – PAUL DUCHESNE, FINANCE CANADA

Simply put, the term “dumping” applies when a country of export sells goods into Canada at a lower price level than in their own market, or even at an unprofitable level. “A good example would be potatoes out of the U.S. In 1984, there was a finding regarding specific varieties of potatoes. Growers in certain U.S. states were able to export potatoes at a price that made B.C. growers non-competitive. What happens then is that the local potato producers can file a complaint with the CBSA. There’s a long complaint process involved, and if there is a finding of dumping, CBSA will impose an “anti-dumping” duty on specific shipments of potatoes coming into B.C. in order to bring the price charged by the foreign producer up to a level comparable to the market rate for the domestic producer. “It’s quite a program; it covers everything from potatoes to peppers from Holland, fasteners from China and sugar out of the EU,” said Bucholtz. The criteria can be extremely specific: “In the case of fasteners, they have probably 100 different exclusions; a flange screw may be subject to dump duty, but a socket cap screw isn’t.” SIMA also covers cases of subsidizing that give an unfair advantage to foreign producers in the Canadian market. “Subsidizing occurs when goods imported into Canada benefit from foreign government financial assistance. The amount of subsidizing on imported goods may be offset by the application of ‘countervailing’ duty,” said Duchesne. Subsidizing might take many forms, such as government loans to small business, tax incentives or grants in the originating country. One reason that a Canadian importer could be caught offguard by a requirement under SIMA is that “the only time a dump duty would ever be applied is if a Canadian company brings forth an allegation,” said Bucholtz. “Trade remedy investigations are typically initiated following the submission of a properly documented complaint on behalf of a Canadian industry,” said Duchesne. “Once a complaint is filed, the CBSA will evaluate the complaint. If the CBSA determines that an investigation should be initiated, questionnaires will be sent to exporters, importers and, in subsidy investigations, to the foreign government involved.” At this stage, the CITT also becomes involved. “Following a decision to start an investigation, the CBSA will also send a copy of the complaint to the CITT. The CITT, independent from the CBSA, conducts an inquiry into the question of injury to the Canadian industry.” If both the CBSA and the CITT find that an anti-dumping and/or countervailing duty is in order, it is imposed for an initial period of five years. At the end of that time, the case is reviewed, and the duty may be either extended or dropped. 22 • SUPPLYCHAINCANADA.CA • SCMA

The anti-dumping duties can vary considerably, even within the same product category. Bucholtz explains that when a category of goods is determined to be subject to duty, the Canadian government will contact the various manufacturers in the country of origin for further information to assist them in setting the rate. “Carbon steel fasteners coming in from China have a very high dump duty, as high as 170 per cent,” he said. However, for companies that are cooperative in providing Canadian authorities with information, “the dump duty may be lowered, compared with companies that are not (cooperative).” Dump duty may seem steep at first glance, but, as Bucholtz says, it’s really just “a cost of doing business.” Far more unfortunate would be to incur a penalty for ignoring the duty. The fee for a first infraction is $150, and rises to $450 for the third and each subsequent infraction, up to a maximum per infraction of $25,000. The fee applies per shipping transaction, which could be a 10-pound box, or a full container. The fee schedule is covered under the CBSA’s Administrative Monetary Penalty System (AMPS), and it is fairly complex. “Last time I looked, there were 152 different AMPS penalties, of which four were specific to SIMA,” said Bucholtz. A penalty may apply for failing to declare a duty-eligible item, or even for failing to produce documentation during an audit. Of course, he added, “There are appeals. The government will work with companies, depending on what they determine is the issue. Not knowing is not a defense, but they’ll certainly work with you to mitigate the damage to your company.” This may not apply in a situation like one Bucholtz recalls from some years ago, in which an importer claimed to be pricing goods at a level that was exempt from duty, while allegedly receiving rebates from the exporter to offset the price difference. “In a case like that, you’re not going to get any breaks from anybody,” he said. Since import-export regulations are a moving target, most importers rely on the expertise of a company like Bucholtz’s to help them navigate the process. “Our company has 15 CBSA professional designates and 45 certified customs specialists (CCS), a designation provided by the Canadian Society of Customs Brokers (CSCB). We take a lot of pride in our expertise. Importers should be aware of everything they may run into – and part of that is having a good customs broker,” said Bucholtz. Luckily for importers, information has never been easier to access. “CBSA has done a really good job of working with electronic messaging and they have wonderful websites. If worst comes to worst, you dial the 1-800 number,” he said. “There’s not really any excuse anymore for saying ‘Oops, I didn’t know!’”

inco terms

INCO Terms 2010 RULES FOR INTERNATIONAL TRADE AS DEFINED BY INCOTERMS® 2010 DUTIES OF BUYER/SELLER ACCORDING TO INCOTERMS® 2010 ExportCarriage Customs to port of declaration export

Unloading of truck in port of export

Loading charges in port of export

Carriage to port of import

Unloading Loading on Carriage Import charges trick in port to place of Insurance customs in port of of import destination clearance import

Incoterm

Loading on truck (carrier)

EXW

Buyer

FCA

Seller

Buyer

FAS

Seller

Buyer

FOB

Seller

Buyer

CFR

Seller

Buyer

CIF

Seller

Buyer

Seller

Buyer

DAT

Seller

Buyer

CPT

Seller

Buyer

DAP

Seller

Buyer

CIP

Seller

Buyer

DDP

Seller

Import taxes

Source: Skyways Management Services Ltd. Illustration: Sergey Nivens/Shutterstock.com

SUPPLY CHAIN CANADA • QUARTER 4 2016 • 23

inco terms RULES FOR INTERNATIONAL TRADE BY ANY MODE OF TRANSPORT DEFINED BY INCOTERMS® 2010 EXW – Ex Works (named place) The seller makes the goods available at its premises. This term places the maximum obligation on the buyer and minimum obligations on the seller. The Ex Works term is often used when making an initial quotation for the sale of goods without any costs included. EXW means that a seller has the goods ready for collection at his premises (works, factory, warehouse, plant) on the date agreed upon. The buyer pays all transportation costs and also bears the risks for bringing the goods to their final destination. The seller doesn’t load the goods on collecting vehicles and doesn’t clear them for export. If the seller does load the goods, he does so at the buyer’s risk and cost. If parties wish the seller to be responsible for the loading of the goods on departure and to bear the risk and all costs of such loading, this must be made clear by adding explicit wording to this effect in the contract of sale.

FCA – Free Carrier (named place) The seller hands over the goods, cleared for export, into the disposal of the first carrier (named by the buyer) at the named place. The seller pays for carriage to the named point of delivery, and risk passes when the goods are handed over to the first carrier.

CPT – Carriage Paid To (named place of destination) The seller pays for carriage. Risk transfers to buyer upon handing goods over to the first carrier.

CIP – Carriage and Insurance Paid to (named place of destination)

DDP – Delivered Duty Paid (named place of destination) Seller is responsible for delivering the goods to the named place in the country of the buyer, and pays all costs in bringing the goods to the destination including import duties and taxes. This term places the maximum obligations on the seller and minimum obligations on the buyer.

RULES FOR INTERNATIONAL TRADE CONDUCTED ENTIRELY BY WATER DEFINED BY INCOTERMS® 2010 FAS – Free Alongside Ship (named port of shipment) The seller must place the goods alongside the ship at the named port. The seller must clear the goods for export. Suitable only for maritime transport but NOT for multimodal sea transport in containers (see Incoterms 2010, ICC publication 715). This term is typically used for heavy-lift or bulk cargo.

FOB – Free On Board (named port or place of shipment) The seller must load the goods on board the vessel nominated by the buyer. Cost and risk are divided when the goods are actually on board of the vessel (this rule is new!). The seller must clear the goods for export. The term is applicable for maritime and inland waterway transport only but NOT for multimodal sea transport in containers (see Incoterms 2010, ICC publication 715). This Term has been greatly misused over the last three decades, ever since Incoterms 1980 explained that FCA should be used for container shipments.

CFR – Cost and Freight (named port of destination)

The containerized transport/multimodal equivalent of CIF. Seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier.

Seller must pay the costs and freight to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods are loaded on the vessel (this rule is new!). Maritime transport only and Insurance for the goods is NOT included. This term was formerly known as CNF (C&F).

DAT – Delivered at Terminal (named terminal at port or place of destination)

CIF – Cost, Insurance and Freight (named port of destination)

Seller pays for carriage to the terminal, except for costs related to import clearance, and assumes all risks up to the point that the goods are unloaded at the terminal.

Exactly the same as CFR except that the seller must in addition procure and pay for the insurance. Maritime transport only.

DAP – Delivered at Place (named place of destination) Seller pays for carriage to the named place, except for costs related to import clearance, and assumes all risks prior to the point that the goods are ready for unloading by the buyer.

24 • SUPPLYCHAINCANADA.CA • SCMA

Source: Skyways Management Services Ltd.

Congratulations to our 2016 graduates of the Supply Chain Management Professional (SCMP) designation program Woodee Tamayo Aboy, CSCMP Jasmin Abt (Cookson), SCMP Nader Raouf Akkila, CSCMP Karine Akopova, SCMP Jasmina Alibabic, SCMP Erick Altamar Cortes, SCMP Jonathan Amos-Terpstra, SCMP Muhammad Amir Ansari, CSCMP Christopher John Appleby, CSCMP Hanna Arlova, SCMP Olubukola Aroge, SCMP Susan Aspinall, SCMP Yatunde Bademosi, SCMP Yu (Gilbert) Bai, SCMP Mihaela Balanescu, SCMP Ritwick Banerjee, SCMP Paul Barr, SCMP Dale R. Barrett, CSCMP Christopher Belanger, SCMP Joe Bembridge, CSCMP Jerome Benedict, SCMP Quinn Boissoin, CSCMP Adekemi Bomide, SCMP Thiago Braga Da Silva Pinto, SCMP Michael I. Bremar, CSCMP Lana Brenneis, SCMP Fedir Burachok, SCMP Christie Butalid, SCMP Sabrina Caligiuri, CSCMP Steven K. Cassidy, CSCMP Rhea Castro, SCMP Helene Chan, CSCMP Najat Cheery, CSCMP Bonnie Chen, SCMP Meng Chen, SCMP Anthea Chiang, SCMP Elsie Chow, SCMP Gary Siu Wai Chu, CSCMP Christina Corkum, SCMP Vickie M. Couture, CSCMP Amber Dadswell, SCMP Steven Dang, SCMP Ensieh Daniali, CSCMP Thesa Anoba Dayagbil, CSCMP Richard DeJong, CSCMP Widya Dhani, SCMP Tony DiFiore, CSCMP Josie Dinelle, SCMP Achu Divine, SCMP Steven Dix, CSCMP Matthew S. Douglas, CSCMP Cheryl Dunn-Williams, SCMP Michelle Tanya Ebert, CSCMP Duane Ehrhardt, SCMP Silvana Elliott, SCMP Robert Ellis, SCMP Adam Enow, SCMP Solanye Espinosa (Medeiros), CSCMP Rolake Fakunle, CSCMP

Umair Farooqi, CSCMP Dongmeng Feng, SCMP Colin Ferland, CSCMP Nicanor Victorino M. Flores, CSCMP Sylvia Foot, SCMP K. Anne Ford, SCMP Patrick Foré, CSCMP Michael A. Giardetti, CSCMP Carlos Gonzalez, SCMP Grant Goss, SCMP Keenan Guenzel, SCMP Sharilynn Hanna, SCMP Adam Hareuther, SCMP Nathalie Hasiuk, SCMP Robert Hayden, CSCMP Brandon Hickey, CSCMP Ying Shun (Albert) Ho, SCMP Carol A. Houser, CSCMP Lan (Doreen) Hu, SCMP Xuelai Hu, SCMP Kevin Hudson, SCMP Adeola Igbalajobi, SCMP Wendy Iob, SCMP M. Javaid Iqbal, CSCMP Subramanian (Ravi) Iyer, CSCMP Vivek Jagpal, CSCMP Sarah Janzen, SCMP Babatunde Jegede, SCMP Brian Jurkschat, SCMP Tyler Kacsor, SCMP Betina Kalaja, CSCMP Preetinder Singh Kang, CSCMP Sailesh Kapadia, SCMP Tanveer Khan, SCMP Jiechun (Joyce) Kong, CSCMP Michael Kotendzhi, SCMP Shane Kramps, SCMP Lori Krawec, SCMP Henry Kung, SCMP Garry Kupchinski, SCMP Rosalia La Corte, CSCMP Tomasz Lacheta, SCMP Jennifer Lalla, CSCMP John Lam, SCMP Tammy Lam, SCMP Ethan Thao N. Le, CSCMP Antonette Lee, CSCMP David Yet-Zu Lee, SCMP Chris Lengyel, SCMP Alanna Lester, SCMP Jun Li, CSCMP Li Ying (Nicole) Li, SCMP Ran Li, CSCMP Mervyn Li Ying, CSCMP Xiang Liu, SCMP Kyle Low, SCMP Sara Luc, SCMP Sam Lui, SCMP Tracee Lundie, CSCMP

Steven Lutwick, SCMP Barrie Lynch, SCMP Dennis Ma, SCMP Fontaine Ma, SCMP Amy MacDonald, SCMP Kimberly MacDonald, SCMP Mandy Mansveld, CSCMP Alejandra Martinez Badillo, CSCMP Davinder Singh Matharu, CSCMP Christina McDougall, SCMP Rick McKeil, SCMP Owen McNamara, SCMP Tatiana Mineeva, SCMP Lisete Miranda, CSCMP Jonathon Mitchell, SCMP Kimberly Mitchell, SCMP Courtenay Moerkens, SCMP Ali Yousef Mohammed, SCMP Abdiweli Mohamud, SCMP Tammy Moyse, SCMP Austin Muir, SCMP Megan Munro, CSCMP Kristin Myram, SCMP Mandy A. Myronuk, CSCMP Zah Kader Neka, CSCMP Steven Neufeld, SCMP Terrence Ng, SCMP Elaine Nickerson, SCMP Reza Nikjoo, CSCMP Ayodele Oladapo, SCMP Laura Oshust, SCMP Steven Paghal, CSCMP Bharatkumar Pandya, CSCMP Mukesh Dayal Patel, CSCMP Bishwajit Paul, CSCMP Gerald Paul, SCMP Matthew Perri, CSCMP Kevin Persaud, SCMP Ivalina Simeonova Petrov, CSCMP Igor Pisarev, SCMP David Pitre, SCMP Tarah Poirier (Vaculchik), SCMP Audra Pontes, CSCMP Jessica Powell, CSCMP Jennifer Power, SCMP Michella Pritchard, SCMP Alexsey Proskurov, SCMP Bojan Prostran, CSCMP Sham Punchoo, SCMP Kuvar Puri, SCMP Xing (Gary) Qian, CSCMP James Ragan, SCMP Dinesh Ratnayake, SCMP Aaron Rattray, SCMP Nicole Raven, SCMP Ravneet Sahni, SCMP Lexi Rensing, SCMP Lisa Robichaud, SCMP Constantin Robin, SCMP

SCMA.com SCMA’s professional designation is CSCMP (Certified SCMP) in Ontario, p.g.c.a. in Quebec and SCMP in the rest of Canada and internationally.

Kirsten Rodger, SCMP Wagdy Rofail, CSCMP Shaun Rudanec, SCMP Ronald Ryan, SCMP Tabraz Sadruddin, SCMP Manu Sarin, SCMP Monique Savignac, SCMP Melodie Shabaquay, CSCMP Maryam Shahr Aeini, CSCMP Emily Shaw (Lei Xiao), CSCMP Christopher Sheel, SCMP Faisal Rashid Siddiqui, CSCMP Natalie Skoczylas, SCMP Catherine Slaunwhite, SCMP Cheryl L. Slaz, CSCMP Tara Smith, SCMP Laura Spikula, SCMP Matthew Stobart, SCMP Shannon L. Stone, CSCMP Sharon Strain, CSCMP Colin Sturge, SCMP Jin Su, CSCMP Monruthai Sukthavorn, CSCMP Toshimi Takabe-French, CSCMP Julius S. Tarantino, CSCMP Elena Tescaru, CSCMP Susan Tito Coila, SCMP Stephanie Towns, SCMP Lori Trace, CSCMP Kim Tran, SCMP Christina Tremblay, p.g.c.a. Regina Tsai, SCMP Liubov Tsarkou (Postovik), SCMP Cosmus Tseu, SCMP Ijeoma Uche-Ezeala, SCMP Maria Udrea, CSCMP Joshua Ukpebor, SCMP Tiffany Uy, SCMP Eric Vandermeulen, SCMP Amy Le-Mi Vuong, CSCMP Shawn Waskewitch, SCMP Leanne Waye, SCMP Derek White, CSCMP Suzanne Wiley, CSCMP Allan Wilke, SCMP Jia (Emily) Yang, SCMP Amy Young, SCMP Andrew Young, SCMP Cory Robert Young, CSCMP Elizabeth Young, SCMP Lei (Ellen) Yu, CSCMP Nawshin Zaman, SCMP Jingguo Zhang, CSCMP David Dazhi Zhao, CSCMP Duo Zhao, CSCMP Maolin (Bill) Zhao, SCMP

AN UPDATED CLASSIFICATION STANDARD MUST BE A PRIORITY TO ENSURE PERTINENT JOB STANDARDS AND COMPENSATION APPROPRIATE FOR THE PG ROLE, INCLUDING THE SPECIALIZED SKILL SET REQUIRED AND THE INHERENT RISK IN PROCUREMENT WORK. 26 • SUPPLYCHAINCANADA.CA • SCMA

procurement

Where Should We Go and How Do We Get Part 2 There?

A vision for the Procurement Group in the Government of Canada By Jessica Sultan

This three-part series explores the challenges and opportunities for the procurement group within the Government of Canada. Part 1 introduced the department and outlined its current challenges and was published in the Quarter 3 2016 issue of Supply Chain Canada. Part 2 begins to explain how the group will move toward its vision of the future, and Part 3 will outline work that’s already happening.

his series was inspired by the reflection exercise portion of the federal government Comptrollership Leadership Development Pilot Program, which ran from December 2015 to March 2016. The program was developed in partnership with the Telfer School of Management, University of Ottawa and the Office of the Comptroller General, Government of Canada to promote greater horizontal collaboration and to sharpen business acumen of our next generation of leaders, and further develop leadership competencies through self-reflection and interactions with senior officials.

a-image/Shutterstock.com

STARTING AT THE TOP TO MOVE TOWARD THIS VISION Establishing a functional authority in each department would demonstrate leadership and provide direction for the purchasing and supply (PG) community. This position should be equivalent to a departmental security officer (DSO), a role that holds so much importance and gravity within an organization that it sometimes reports directly to the Deputy Minister. Two critical roles for this functional authority could be suggested. First, they should review current policies and procedures and certify annually that appropriate controls and governance structures exist in their organization. This would ensure sound stewardship and lend credence to the professionalism of the functional group. Second, they should review and approve all procurement strategies within the organization. This would SUPPLY CHAIN CANADA • QUARTER 4 2016 • 27

procurement instil confidence in the rigor of the procurement process and further strengthen the professionalization of the PG group. Furthermore, at the Treasury Board Secretariat (TBS), the central hub of comptrollership within the federal government, a leadership position should be created to represent the PG community. A position of chief procurement officer (CPO) could represent the PG group as the chief financial officer (CFO) does the financial management (FI) group and the chief human resources officer (CHRO) the personnel administration (PE) group. Giving the PG community a voice at the leadership table will set us up for success and enable us to reach our full potential. Classification standard The PG classification standard needs to be revisited. The current standard dates to 1990 and is not applicable to current PG work expectations, nor will it be relevant to the PG of the future. An updated classification standard must be a priority to ensure pertinent job standards and compensation appropriate for the PG role, including the specialized skill set required and the inherent risk in procurement work. This will help in recruiting people to the PG category and retain them.

WITH AN ESCALATING VACANCY RATE AND FURTHER SHORTAGES PREDICTED, WE MUST INVEST IN THE FUTURE. RECRUITMENT MUST BE ONGOING AND IT MUST BE A PRIORITY. Professionalization Discussion about the PG classification standard often raises debate about whether the education standard for PGs should be changed from a minimum requirement of a high school diploma to a post-secondary education, or perhaps a degree. Compared to similar comptrollership groups, such as the FI community requiring a degree, the current PG minimum educational component could be seen as a barrier to the professionalization of the group; however, simply changing the educational standard for PGs will not professionalize the group. By developing and building the community, the function will become professionalized, and this will attract the type of employees needed. This does not mean only those with degrees, as professionalization is tied to more than education. An important identifying factor of professional groups is the understanding that there are distinguishable criteria that must be met. By ensuring members meet these benchmarks, professionalization is solidified. Identifying a functional authority for procurement within each department will play a major role in the professionalization of the PG group. A group of such functional authorities could be created to play the role across the federal government 28 • SUPPLYCHAINCANADA.CA • SCMA

that a Contract Review Committee does internally for each organization. This gathering of the senior procurement group representatives to review government procurement strategies will ensure sound application of contracting rules and regulations across the government and allow aggregate planning and strategic procurement opportunities. Recruitment With an escalating vacancy rate and further shortages predicted, we must invest in the future. Recruitment must be ongoing and it must be a priority. We need a constant flow of new, keen people to join our group who are willing and able to learn and grow. The need for procurement personnel will never disappear, and we need to keep attracting and developing capable people. We have to engage college and university students to create awareness of a career in procurement. We must create strong partnerships with post-secondary institutions and look for opportunities to influence and participate in educating tomorrow’s PG population, including co-developing course content and case studies related to federal procurement. It is essential that we continue to employ students through programs such as the Federal Student Work Experience Program (FSWEP) and co-op placements. This will give them firsthand experience and insight into the wonderful career that the PG community can provide, and if the experience is good, they’ll tell their friends. Internal recruitment opportunities should not be overlooked, and we must also consider individuals with the potential to be outstanding procurement employees. There is resistance to bringing in people without hard contracting skills, and this will harm our group in the long run. Contracting skills can be learned, but vision, strategic thinking and leadership skills cannot be so easily acquired. Intense operational demands mean most organizations can’t dedicate the time and effort required to train high-potential individuals who aren’t able to hit the ground running in a contracting environment, and potential leaders are passed over. This is short-sighted, and the understanding that we need space to invest in highpotential people needs to come from the top down. We need capable, smart, interested individuals who are willing to learn PG work and contribute to the PG workforce of the future, and we need to create opportunities at all levels. We will always require experts who know procurement rules inside and out, but a better mix of knowledge and potential should be supported. We need to change the focus of our priority in staffing from straight experience to a hybrid of hard contracting experience and soft skill potential, with candidates who show strengths in softer competencies valued just as highly. Again, procurement can be learned, but innate leadership skills cannot. Collective staffing: Creating “standing offers” for qualified PGs Collective staffing is a must. Currently, multiple directors across the federal government are using their valuable time to run competitions over and over again, which are almost

procurement WE WANT TRAINED PEOPLE, BUT NO ONE HAS THE TIME TO TRAIN THEM. WE WANT EXPERIENCED PEOPLE WITHOUT PROVIDING THEM ADEQUATE ON-THE-JOB EXPERIENCE TO BUILD THE SKILL SETS REQUIRED. mirror images of each other. Furthermore, these directors are vying for the same resources, which means the same candidates might compete in multiple, almost-identical competitions. Yearly collective staffing would put an end to this, and standards must be created and decided upon across government for each PG level, perhaps even using the certification program standards as the measurements for certain levels. For example, level one certification could be a standard used for the PG04 level. One competition per year for each level, using these standards, would create a pool of available PGs for all departments to choose from. This would not only lead to efficiencies in time and effort, it would also lead to standardizing the PG levels and an increased focus to the certification program, giving more credibility to our group as professionals.

INVESTING IN PEOPLE A vibrant, strategic procurement group can mean the difference between average achievements and truly outstanding corporate performance. PGs are uniquely positioned between the corporation’s comptrollership functions and their clients’ operational needs, giving them knowledge and information other groups may not have. We can see consistent needs across the organization that can be met through strategic, effective, creative and agile procurement solutions. Organizations must acknowledge the vital role their PGs play in the organization’s success and instil in their PG teams a sense of their value and criticality. Investing in PGs will empower and motivate them to achieve greatness. Management must also ensure appropriate training for PGs. Access to and frequency of mandatory PG training courses has improved in recent years, but management often struggles to ensure employees are given adequate time and funding to complete them. We want trained people, but no one has the time to train them. We want experienced people without providing them adequate on-the-job experience to build the skill sets required. Our day-to-day operational requirements are so demanding that it can seem impossible to set aside time for training, but this attitude is short-sighted. With the skill set demanded of a PG changing, increasing training and education is more important than ever. Investment in our people will pay

back in terms of their technical skills on the job, and also in their job satisfaction and decision to remain in the PG stream throughout their career. We need to invest heavily in programs such as the Public Services and Procurement Canada Intern Officer (PSPC IO) Training program, a long-standing program with obvious and proven success. Such programs provide the critical training and experience to grow PG employees and prepare them to take on procurement positions. Investing in this type of prestigious occupational training will help resolve the shortage in PGs, ensure PGs of the future are ready to meet our new demands and entice more people to join the PG group. Alternate learning opportunities must also be provided. Assignments within departments are excellent ways to invest in PGs and help grow their skill sets, benefitting each individual but also the organization as a whole. More secondments between departments would give employees the opportunity to learn about procurement in a variety of organizations. Wellversed, experienced PGs with a wealth of broad experiences will bring success to the whole community. Mentoring is also an excellent learning opportunity, for both the mentor and the mentee. A mentoring relationship is incredibly useful in sharing lessons learned among PGs and facilitating the transfer of corporate knowledge and memory. Investment in our people should continue with a commitment to informal learning opportunities such as job shadowing, “lunch and learn”-type presentations and reading to stay current with developments in the procurement world. Perhaps PGs could be offered professional days to work on their Candidate Achievement Records for the certification program, or take on stretch assignments. Finally, consideration must be given to the many employees who are satisfied at their current levels and don’t wish to

LOOKING FOR PUBLIC SECTOR SUPPLY CHAIN TRAINING? The Supply Chain Management Association (SCMA) is Canada’s largest professional supply chain association and has over 2,000 public sector members. While supply chain skills are transferable from one sector to another, those in the public sector have added components of regulation, transparency and defensible decision-making not found in the private sector. SCMA’s Supply Chain Management Professional (SCMP) designation program includes a seven-week course on public sector procurement, and SCMA will be launching additional new public sector workshops and courses in 2017. SCMA continuously collaborates with other organizations, such as the Canadian Public Procurement Council and the Treasury Board of Canada Secretariat, to identify and address knowledge and training gaps in the public procurement field. For more information about SCMA’s programs, visit: SCMA.com. SUPPLY CHAIN CANADA • QUARTER 4 2016 • 29

procurement progress up the chain. Organizations require these types of personnel, but they are often overlooked and we must also keep these employees engaged, motivated and stimulated.

SHARING BEST PRACTICES AND LESSONS LEARNED A PG community will also facilitate sharing information and lessons learned across departments, providing a bigger network of procurement professionals. It is likely that the problem you face today has already been faced by one of your colleagues, and finding a way to share and leverage information and solutions is essential. Furthermore, such a network will allow for more strategic procurement across departments and consistency in the way we apply procurement rules and regulations, as well as purchasing approaches. Some departments, such as those under the Public Safety Portfolio, share many of the same requirements and face similar work environments. Communication and sharing between those close departments can only result in positive outcomes.

CAREER PATHS FOR SENIOR PROCUREMENT LEADERSHIP Career paths must be identified both for PGs and those who progress through the PG category into an executive (EX) position within the federal government. Specifically, consideration must be given to EX01s and 02s who direct procurement functions within their organizations. Often, these jobs report to a comptroller, who reports to a CFO. Both the comptroller and CFO positions require an accounting degree plus a breadth of financial and policy experience that a PG or an EX01 or 02 within the contracting function won’t get. Career paths in procurement beyond the EX02 level are rare, and this is extremely demotivating to high flyers who wish to pursue the PG career path but have aspirations beyond the EX02 level. Creating a

IT IS LIKELY THAT THE PROBLEM YOU FACE TODAY HAS ALREADY BEEN FACED BY ONE OF YOUR COLLEAGUES, AND FINDING A WAY TO SHARE AND LEVERAGE INFORMATION AND SOLUTIONS IS ESSENTIAL. 30 • SUPPLYCHAINCANADA.CA • SCMA

senior management procurement position within organizations that can support it would create opportunities at a level equivalent to a DSO. Furthermore, a CPO position created at TBS would provide another senior management role to which procurement personnel could aspire.

CERTIFICATION The PG role is unique and complex, and standards must exist to measure success and progression. Procurement certification programs, such as the Certified Federal Specialist in Procurement (CFSP) designation offered by the Treasury Board Secretariat in conjunction with the Canadian General Standards Board, are excellent investments that should be promoted heavily within the procurement group. The CFSP is challenging to obtain and should not be underrated. Certification shows a level of knowledge and expertise to be respected, and support for certification shows the importance the federal government places on its PG team. The value in these programs will be fully realized once certification becomes the norm by which you can measure a person’s commitment to, and mastery of, the PG role.

APPROPRIATE TOOLS PGs need appropriate tools to respond to changing expectations and be visionary and strategic enablers and partners. In an effort to drive down prices, TBS and PSPC have created and mandated the use of many tools, such as standing offers and supply arrangements, to cover a multitude of commodities. These tools do not allow for intelligent, innovative, strategic procurement, and these limitations on procurement decisionmaking are handcuffing our PGs. More latitude to make smart, creative decisions is essential. Although well intentioned, PSPC tools impose a one-size-fits-all solution that, in reality, doesn’t fit many.

INTERDEPARTMENTAL COMMITMENT AND COOPERATION “Many hands make light work.” It is critical that a collaborative interdepartmental group exists to tackle items such as shared competencies, job descriptions, training and other PG-related issues. At one time, a Procurement, Materiel Management, and Real Property (PMMRP) Advisory Committee, as well as Director General (DG) Steering Committee, met regularly to consider, approve and implement initiatives that promoted cooperation among departments. Recreating such groups, with representation from all federal organizations, is essential to ensuring communication and agreement among department and shaping the PG community. Often, so much time is spent pointing out the reasons why we are unable to achieve something, or the differences between departments, that our similarities and shared strengths are forgotten. A shared approach to the daunting work ahead will ensure we achieve our goals. Jessica Sultan is director, Strategic Procurement and Material Management Division at the comptrollership branch of the Canada Border Services Agency.

expert’s corner

Is There Blood in Your Waters? Hackers are drawn to companies with digital vulnerabilities

asic risk management is easily illustrated by not venturing into shark-infested waters with an open wound, as sharks are attracted to blood. A parallel can be drawn to the digital world where hackers are drawn to attacking companies or individuals who have vulnerabilities in the digital world. Human error, malicious employees and poor IT protocols are the most common causes of privacy and data breaches. Cyber crime affects all organizations in Canada; however, often small- to mid-sized enterprises are more vulnerable than large national or international companies. This is because many smaller companies typically do not have appropriate resources to manage and monitor their websites and online business effectively.

VENDOR RISK Large entities with a robust cyber security framework in place are not completely immune from cybercrime and should also be concerned about the inherent risks associated with being

served by small- and mid-sized vendors. The hackers that stole the personal data of over 70 million Target Corp. customers used the credentials of an HVAC vendor to get into Target’s network. For many years, it has been standard practice to require your vendors to provide proof of Commercial General Liability insurance. Moving forward, organizations should be demanding that their vendors maintain the appropriate type and level of cyber insurance. Ensuring that your suppliers have a cyber insurance policy in place will not prevent a privacy breach; however, insurance is often the stopgap required to prevent a smaller company from ceasing operations as a result of the financial losses incurred as a result of a catastrophic breach. In fact, a recent report from Symantec, a security software company, states that 60 per cent of small businesses will go under within six months of a cyber attack.

RISK MANAGEMENT Employee education, IT security, prevention, internal auditing and disaster recovery are all critical components of your risk

SUPPLY CHAIN CANADA • QUARTER 4 2016 • 31

Omelchenko/Shutterstock.com

By Derrick Leue, PROLINK

expert’s corner management framework. However, it is impossible to reduce cyber risk to zero, as deliberate malicious acts by an employee or key vendor are difficult to completely prevent. Cyber insurance is a prudent risk mitigation tool that can protect your organization. In the event of a breach, cyber insurance can provide the financial assistance you will need to keep operating, address the breach and defend against lawsuits.

WHAT DOES CYBER INSURANCE COVER? Cyber insurance is a highly unique form of coverage because it can cover expenses incurred to address a breach, as well as provide the legal defence you need to respond to a lawsuit. The forms of coverage available are as follows: First Party Coverage (i.e., coverage for your costs and expenses incurred) 1. Privacy Breach Remediation, Response and Notification Expenses: Covers fees, costs or expenses incurred by the policyholder for the following: a. Determining the persons whose information was accessed without their authorization and the communications required to notify them; b. Credit monitoring services to those affected; c. Compliance with any security breach notification laws. 2. Digital Asset Restoration Expenses: Covers the costs or expenses incurred by the policyholder to restore, replace or reproduce damaged or destroyed computer programs, software or other electronic data. 3. Business Interruption Loss: Covers your loss of business income and the extra expense you incur directly resulting from a disruption to your computer system. 4. E-Commerce Extortion Threat: Covers the costs incurred by the policyholder resulting from threats made to you by an individual or entity other than an employee, expressing an intention to: a. Cause the policyholder to transfer or pay any funds using a computer system without your authorization; b. Sell or disclose confidential information about a customer of the policyholder; c. Alter, damage, or destroy any computer program, software or electronic data that is stored on the policyholder’s computer system. 5. Computer and Funds Transfer Fraud: Covers the policyholder’s loss of money or securities resulting from: a. An intentional, unauthorized and fraudulent instruction transmitted to a financial institution; b. An intentional, unauthorized and fraudulent entry of data or computer instructions.

32 • SUPPLYCHAINCANADA.CA • SCMA

INSURANCE IS OFTEN THE STOPGAP REQUIRED TO PREVENT A SMALLER COMPANY FROM CEASING OPERATIONS AS A RESULT OF THE FINANCIAL LOSSES INCURRED AS A RESULT OF A CATASTROPHIC BREACH. Third Party Coverage (i.e., coverage to defend lawsuits brought against you) 1. Network Security and Privacy Breach Liability: Covers claims brought against the policyholder alleging: a. Policyholder’s failure to prevent unauthorized access to, or use of, electronic or non-electronic data containing personal identity information; b. Policyholder’s failure to prevent the transmission of a computer virus into a third party’s computer network or application software; c. Policyholder’s failure to provide notification of any actual or potential unauthorized access to, or use of, confidential information of others if notification is required by any security breach notification law. 2. Internet Communications and Media Liability: Covers claims brought against the policyholder alleging: a. Policyholder’s unauthorized use of, or infringement of, copyright, title, slogan, trademark, domain name or logo; b. Policyholder’s defamation, libel, slander, disparagement or harm to the reputation or character of any third party person or organization. 3. Regulatory Defense Expenses: Covers the legal defense costs incurred by a policyholder to defend an investigation or regulatory proceeding brought against the policyholder by a federal, provincial or government entity. An effective cyber security strategy can help reduce the risk of a privacy breach or data security incident. The supply chain can represent a significant vulnerability for your organization and Canadian organizations should consider cyber insurance as an important component within their overall risk management strategy. Derrick Leue is the president of PROLINK, Canada’s Insurance Connection. PROLINK is the proud insurance partner of SCMA and manages the business insurance program and the home and auto program for members.

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