After my recent post on how Walmart Changed the World … But Not Necessarily for the Better, I reminded my Twitterers* about what happens when you use Walmart Consultants. In a nutshell, when you pay a cut rate, you get a cut job … and the pleasure of the consultant blaming you for his or her incompetence.
However, this is still better than what you get when you use a sleazy consultant (who, in another life, was probably a lemon, err, used car salesperson). As per this great post over on the Enterprise Irregulars on Screwing the Customer (Tales from the Crazy Consultant File), we can still be surprised by the antics of some consultants. The post chronicled two stories.
In the first story, a small, profitable business that was a multi-million dollar money machine, bought on-premise ERP software from a reseller that poorly fit their needs. Since the reseller did not specialize in implementation, the firm wanted the vendor to find them another implementation services company. But since the vendor had no relationship with the buyer, the buyer was dependent on the reseller to find, and manage, the implementation of software that poorly fit their needs. The buyer has outsourced control, leverage, and judgment to an unworthy consulting firm. Translation — the customer is screwed.
In the second story, a small consulting organization has a multi-million dollar change management contract with a large state agency. Part-way through the project, the consulting company unilaterally shifted its focus to advising on tools and methodologies. The state agency threatened termination, and the consultancy responded with a large invoice and threats of legal action. Meanwhile, the agency hiring manager has limited options since any change would involve delays and additional expense. Translation — this customer is also screwed.
Unfortunately, the sleaze is not limited to these two examples. The Supply Management space also has its share of sleazy consultants, which are our equivalent of the the used car (lemon) salespersons, and many of them fall into the following two categories:
Slippery Spend Analyst
Yes, it’s true, that the doctor promotes a good spend analysis almost as often as he promotes a good optimization-based sourcing project, but there are two types of spend analysts in the world. Those that educate you, and those that just tell you where your spend is too high and offer to negotiate it down for you. In the short term, this works great — the consultant identifies a category, like telecom, where you are 15% over market average and the consultant negotiates your rates down to 5% below market average and you save 20%. But in the long term, as users are added to and removed from the plans, and usage changes, rates creep back up and in three years your organization is again paying 15%-plus over market average. And, again, you have to pay the consultancy to do the spend analysis to reduce your rates. Now, if they had trained you on their process and one or more tools, you’d have the option to do it yourself, or to just use them for the negotiation. But since they didn’t, you’re left in the dark.
This is a wonderful racket. Almost every big organization overpays its suppliers due to duplicate payments on the same invoice (by accident, when it is resubmitted due to a late payment), duplicate payments against the same products (as the organization will resend the invoice with each shipment corresponding to the same PO), overpayments (because negotiated payments were misapplied), and failed deductions (because parts were bad and payment was not refunded). But not every organization catches all of these overpayments, which can add up to Millions for Global 3000s. There are consultancies out there that specialize in this recovery, and this is a good thing as long as they don’t take advantage of you.
The problem is that most of the consultancies that specialize in recovery use “black-box” methods to identify these overpayments, which are guarded more securely than Fort Knox. So even though they might find an organization a Million in savings, and take Two Hundred Thousand as a Fee, the organization isn’t that much better off than if it hadn’t hired the consultancy because. In as little as eighteen months, there will be another Million in overpayments hidden in the books because the consultancy didn’t tell the organization how the majority of overpayments originated or what best practices the organization could adopt to minimize the amount of overpayments it made. This could allow the organization to go longer between significant recovery audits, and the organization would likely pay less, and lose less, over time. A good recovery firm will do this, and a really good recovery firm will even advise you on the software options that exist to plug some of the holes in your payment processes and/or tolls that will automate part of the recovery process.