Monthly Archives: August 2012

Frack the Fines! Make the Frackers do the Time!

I know it was only a month ago that I was advocating the No-Maximum Mega Fines, but I’m now of the opinion that it’s not enough. First of all, in most circumstances, the fines are not anywhere close to keeping pace with the magnitude of the ill-gotten gains the corporate fat cats are often making when they choose to break the law. And, secondly, since the dastardly are often convinced that they probably won’t get caught, and, if they do, it will be so far down the line that they will already have made, and covered up, a fortune and the losses won’t come close to equaling the gains, they’re not going to stop unless things change significantly.

So what really grinds my gears this time? Why do I want to go all Stewie on their backsides? And throw psycho kitty into the boardroom? (Warning: Links Probably NSFW) This recent article in the Economist on an unsettling settlement where Standard Chartered agreed to a rapid settlement of the case brought against it by the New York State Department of Financial Services that alleged Standard Chartered had illicitly processed at least $250 Billion in transactions with Iran between 2001 and 2007, in (flagrant) violation of American sanctions against Iran.

In other words, if you cough up a big enough chunk of change, and agree to the installation of a monitor in its New York branch to evaluate its money-laundering controls, you can get away with pretty much anything.

Now, it might be the case that not all of the 250 Billion in transactions were illicit, as there may have been some transactions with similar characteristics that got caught in the initial sieve, but state departments are not likely to claim more than they think they can prove, and collect on. I wouldn’t be surprised if there were 200 Billion in illicit payments, and that the bank made around 4 Billion (or more) on these transfers, given usual currency conversion and wire fees, and that the 340 Million represented, at most, 10% of the illicit gains.

But it’s not the fact that the agreement didn’t wipe out all the illicit gains that is making me mad, but the fact that this is clearly a situation where someone repeatedly did something they knew they should not be doing (and thus settled quickly to avoid trouble). Now, it’s one thing if someone does something wrong and doesn’t know it, which is getting more likely by the day in a global multi-national when new laws are coming into effect all the time and it’s almost impossible to keep on top of everything, but it’s not going to be long before someone in legal or risk or compliance notices the infraction and brings it to the organization’s intention. At that point, the infractions should end, or the individual who continues to commit the infractions should be criminally prosecuted. Until the day comes when the worst that will happen to you from knowingly breaking the law behind the corporate veil is a small fine to your company is replaced with automatic criminal prosecution for your crime, nothing is going to change.

In summary, all I have to say is that Skid Row got it right when they said to tear down the rat racial slime and that Halestorm was right to echo their belief and the need to tear this thorn from our side. These rat bastards, who fly in the face of all that is good and just, need to be to be taken down a peg or two and do some hard time. If they knowingly violate contraband laws, embargoes, or laws meant to enhance national security, they should be convicted of treason and sent to maximum security. Because, until that happens, they’re going to keep flaunting the law for the almighty dollar.

Why It’s Important To Only Select Logistics Carriers …

… who insure that their drivers understand relative metrics through written and verbal testing BEFORE letting them behind the wheel:

Topless Truck

Unless, of course, you want your shipment to be the next shipment that is permanently delayed when this happens again next week.*

* It’s a rare week when I don’t see an article about yet another truck getting damaged or destroyed because a driver somewhere in the world doesn’t understand what height restriction means.

45 Million People Are Blind today!! Cheesecake Factory Might Be the Answer? (Part 1 of 2)

Today’s guest post is from Dalip Raheja, past contributor to Sourcing Innovation and CEO of The Mpower Group, Inc.

45 Million People Are Blind today … and 80% of them could be cured through surgery (36 million if you’re looking for your calculator). Oh, of course, most of these people cannot afford the surgery, don’t know about it, cannot physically be where eye care is available, and so on and so on. The answer? Reverse Innovation (RI) — a term coined by Jeffrey Immelt and Vijay Govindarajan. The basic premise of RI is that all innovation cannot flow from the developed to the developing world. There is a lot of innovation going on in the developing world that can and should be adopted here. According to Govindarajan, one can and should argue that the paradigm in the developed world is “spend more to come up with innovation,” while in the developing world the exact opposite is true, “spend less to come up with innovation.”

Let’s look at some comparative facts first:

  India US
Aravind surgeries 2,000 a year 125 a year
Average Cost $30 $1,000
Complications 1 / 2 Double

So, what’s the secret? It must be that they are performing a procedure that is not even accepted in the developed world. Not true. What they perform is called Phacoemulsification (considered the gold standard in cataract surgery).

What they have done is reimagined (not just reengineered) the entire conceptual framework with a different set of assumptions and come up with some innovations that are staggering. They have created an assembly line mentality that allows surgeons to focus on what they do best — perform the actual surgery. Not the prep, not the paperwork, not anything else but that which leverages their specialized skill set the most … allowing a surgeon to do 30 to 40 surgeries a day!! There is no time wasted between surgeries — the next patient is prepped, draped, and ready to go. With no degradation of quality! Oh by the way, Aravind performs about 300,000 of these procedures a year … WITH HALF OF THEM FREE!

Because they are offering the latest procedures with exceptional quality, half of their patients pay them full going market rates which then subsidizes the charity cases, which is what they are really about. They have used the combined volume leverage and scale to start making their own intraocular lenses and providing some lenses for $2, and they are now exporting these lenses to 120 other countries (Canada, Denmark, and Israel amongst them).

If all of this sounds like a classical supply chain/sourcing problem being solved — that’s because it is. They have applied a number of ideas from the business world to the non-profit world. So much so that they have also reimagined the traditional model of a charity organization always looking for a handout — they’ve planned half of their effort to be a commercial venture generating profits to pay for charity.

This is but one example amongst many:

  • GE’s portable EKG machine — developed in China
  • Boston’s PACT program — modeled after a program in Haiti
  • Kangaroo care — developed in Colombia
  • Pedialyte — developed in Bangladesh

And one of the biggest stories is Dr. Therdchai Jivacate (Thailand) who is providing artificial legs made out of plastic yogurt bottles for about $100 with a delivery time of 1-3 days compared to $10,000 and 7-10 days! Dude — don’t throw away that water bottle! And to lower the cost of labor involved in actually working with patients, he has trained local recipients of the artificial legs. He just broke the Guinness Book of World Records by serving 864 amputees in 13 days.

So before you pooh pooh those ideas from your colleagues from the developing world, you may want to keep an open mind and process them. You may want to actively seek innovations from your suppliers in the developing world. Remember — their context is different and context is very powerful and they are able to reimagine problems that we cannot because we cannot shake out of our context.

In the next post, we will continue this conversation about innovation and examine Atul Gawande’s suggestion of using the Cheesecake Factory (a place I’ve never been to) model to reimagine the healthcare system.

Why does everyone look to disqualify when they should be looking to qualify?

Rant on blogger, rant on along
Rant on buddy till the day is through
Rant on brother, sister too
Rant on momma like I asked you to do
And rant on fellow blogger, rant on (Rant On!)

Today’s guest post is from William R. Dorn Jr (Bill Dorn), the Vice President of Operations at Source One Management Services, LLC.

In the last year, I’ve been pretty active talking about one of my favourite topics, “What Not To Do” when conducting a strategic sourcing event. I’ve blogged about it on multiple sites, spoken about it on several guest podcasts, have a chapter in our book about it, and Joe Payne and I even lightly discussed the topic on a morning television news show in Arizona (which I doubt more than five people tuned in for). So when the good doctor told me he was inviting guest rants this month, I knew what I was going to scribble about. But then, I started to think about it a bit more. I think I’ve said enough on the topic, and I think there is an even more basic premise that deserves attention. That premise is: Why do people in business look to disqualify something when then should be looking to qualify it?

I’m sure we’ve all heard the following lines come out of our colleague’s mouths before: “We did that before it didn’t work“, “It’s always worked until now; why would we change it“, “Our staff doesn’t adapt well to change“, “Let’s just push this through for now and look at the alternatives another time“, “it wouldn’t work here“, “we’re not ready for that“, “it’s not really practical here“, “we don’t have the time“, “it costs too much“, “it’s not in this year’s budget“, “we’re too busy“, or the one I hate most “our company (or our requirements) is different“.

As consultants, there really is not a day that goes by that we don’t here at least one of these classic lines from one of our clients. As procurement or supply chain professionals, you probably have all heard one of those dreaded deal breakers right when you thought you had a really creative solution, technology, or vendor that could have helped your business.

But, did you realize that a large portion of you are doing exactly the same thing during your sourcing process? You probably aren’t aware you are doing it, as it’s not as direct as the examples above. And in many cases, it’s really not your fault; you’re just following a procedure, policy or e-sourcing software template that was written in stone before your time. What I’m talking about is a sourcing process that looks to disqualify instead of qualify.

Let’s really look at your sourcing process, whether it’s the Supplier Discovery, RFI/RFQ/RFX/Reverse Auction, or whatever you call it. Does it have questions that really serve any purpose other than to disqualify? Why are those questions included? Chances are, they are simply there to help take a long list of potential suppliers down to a really short list, in order to make the review, selection and award process easier and quicker. Well, we all know that easier and quicker is not always better, but this often gets ignored when it comes to doing work. Here are just some examples of what I’m referring to:

  • Is your company ISO certified? Questions like these (the hard YES/NO), especially used in conjunction with automated rating and scorecarding tools in e-sourcing systems are a huge pet peeve of mine. First off, is the ISO certification even relevant to what’s being sourced? In most cases, it’s not. Secondly, it leaves no margin for answer. What if you are going through the process but will not be certified until next month? What if you are not ISO certified, but are certified by a similar industry specific association, like QS? “Well, we didn’t ask that. You’re disqualified.”
  • We recently responded to a large RFP that had a short deadline. One of the requirements of the RFP was that the response was received electronically and in hard copy, no later than 2:00 PM on a certain date. The company we responded to acknowledged receipt of the submission, but FedEx was actually late in delivery of the hard copy, 2:37 PM to be precise. The prospect promptly rejected the delivery and entirely disqualified us from the bid, even though they already held the electronic copy. They never even opened the bid. We’re not the only ones either; I talked to others who responded that had the same thing happen, all because of a storm that delayed FedEx by a few minutes. In this case, a ridiculous policy had a company throwing away potentially the best possible suppliers without even reviewing their submissions. In other words, “Oh, you’re human and a small mistake happened? You’re disqualified.”
  • We frequently see RFPs that have a “deadline” for submitting questions. Many of those companies refuse to answer any new question you may have after that deadline date. What does that lead to? Well, it forces suppliers to guess at what they THINK you may need, often missing the mark and often submitting a proposal that doesn’t really address the buyer’s needs appropriately. It’s not that they couldn’t support your need; they just simply misinterpreted your requirements and did not have a fair opportunity to present a proper solution. “You couldn’t read our minds, You’re disqualified.”
  • Do you have on office within 25 miles of our location? Well, no, we don’t but the work is being done remotely, so that should not have any impact on our level of service or price … “Too bad, You’re disqualified.”
  • Here’s a 43 page RFP where every answer is a long-form answer and half of the questions don’t apply to this initiative. You have until Friday at 5 to answer it. “That’s not enough time? You’re disqualified.”
  • You must agree upfront that you will use my procure-to-pay punch-out catalog ordering system. Oh, and the software company that runs it gets a piece of every single transaction. But I still want the best possible price. You want more information or are concerned about digging into your margins? “I don’t understand why you could give me a better price if you didn’t have to pay an intermediary too. You’re disqualified.”
  • We’ve got this great opportunity to ask questions for you. We call it a bidder’s conference. You’ll sit around a table with your competitors and must introduce yourself so that everyone knows who they are competing with. “What do you mean you are uncomfortable doing that? That’s what I want. You’re disqualified.” (This is providing that they don’t drop out themselves as most suppliers do after they have to sit through a circus like a bidder’s conference).
  • “Do you have substantial experience supplying the nano-microorganism plating industry? Provide me with 5 references. You sell office supplies? I don’t see how that is relevant to the question. Do you supply other nano-microorganism plating companies or not? No? You’re disqualified.”

I could go on and on with dozens of examples of poorly written questions or poor methodologies that serve absolutely no purpose other than to disqualify, but I’m already over the doctor’s budgeted word count (I hope he doesn’t disqualify my post for it).*

Now, I’m not saying that some questions and some responses shouldn’t be grounds for immediate dismissal, and I understand that you have to find an appropriate balance of how many suppliers you can review for a spend category, but sourcing and procurement folks really should take a hard look at their processes and really look at themselves to see if they are just as guilty as the naysayers throwing around clich├ęd business brush-offs like the ones I wrote about above. Are you really offering a warm invitation to suppliers to help improve your business, or are you just schlepping through a dreaded process just to tell your bosses that you “went to market”?

Thanks, Bill! You’re really helping me with my point that many RFX processes are not implemented correctly, especially in technology acquisition at large companies!

*To be precise, Bill is over my suggested word count, which I’m happy to ignore as long as the rant is raving and engaging!

Best Practice Technology Vendor Selection for True Multi-Nationals Part IV: Open the Doors for a Truly Successful RFX

In the first three parts (I, II, and III) of this series we discussed the proper RFX process to follow when attempting to select a technology(-based) solution provider (for e-Procurement and e-Sourcing in particular) as a true multi-national. We noted that while most companies more-or-less understand the high level process, most get the implementation wrong, focussing too heavy on feature-function checklists (that are usually put together by vendors, even if they are obtained from third parties) and too little on a vendor’s global implementation and support capabilities.

If your organization follows the advice presented, starts with the customer references, and only spends time and energy reviewing those vendors with a track record that suggests that the vendor could meet your global implementation and support needs, then your organization is off to a great start. But this isn’t the only best practice that your organization should be following in the selection of a vendor for your global technology needs. In this post we’ll cover five more.

The Core Solution Litmus Test
Once the vendor has passed the customer litmus test, the next litmus test is the core solution requirement litmus test. After dividing all of the stakeholder problems into must solves, should solves, and nice-to-solves, make sure that the vendor has solutions (technology, services, or a combination thereof) that address each of the must-solve problems and most of the nice-to-solve problems. The vendor is not right for you unless it is a global, cultural fit that brings the right solutions. (There’s no checking of feature/function boxes at this step.)

Third-Party Claim Verification
Most vendors will make big claims in terms of their platform capabilities. Just like a vendor’s ability to serve your organization globally should be challenged and verified with customer references, so should its ability to fill your technology gaps. Not only should you talk to their partners, but talk to analysts, bloggers, and other third-parties they have interacted with and whom have seen (part of) their solution.

Open Book Negotiations
In addition to third-party claim verification, don’t be afraid to force a vendor to prove every claim, statement, and assumption. This should not stop at current, successful, customer references. The vendor should let you speak to analysts it has relationships with, consultants who have implemented their solutions, auditors to verify their financial stability, and even ex-customers if asked.

End-To-End Total Cost of Ownership Elucidation
What is the true cost of the solution to your organization AND your supply chain? This goes beyond the end-to-end platform cost, as discussed in this classic post on Cost Model Calculations in SI’s Enterprise Software Buying Guide series, but also includes any costs that will be borne by your supply base. It’s often the case with e-Sourcing/e-Procurement solutions with Supplier Information Management, Supplier Portal, or Supplier Network functionality that a vendor will charge your suppliers an access fee. An access fee that is just going to hit your organization with interest in a year when your suppliers raise their prices to cover the fees you caused them to incur. In Procurement, a penny saved today at your supplier’s expense often translates into a quarter spent tomorrow. (And if you don’t believe me, then you need to work on understanding the cost of capital throughout your supply chain. Remember that sound, conventional financial management is NOT good for supply chains.)

Open Finals*
Typically, the final negotiations in this space are more secret than what goes on beyond closed doors at Area 51, scientology headquarters, and the backroom of the club where Wall Street mega deals really happen. This is dumb. Blind auctions may be okay when buying commodities, but it’s the last thing an organization should do when buying a critical piece of functionality where a failed implementation will cost (tens of) millions or more. Not only should each vendor be aware of whom it is up against, but vendors should be asked to promote their strengths and counter their opponents weaknesses. They should be instructed to tell the truth, even when asked tough questions (about customer retention and defection to a competitor), and penalized for false answers. Remember, good vendors are honest, especially about the occasional (big) mistake that they made, learned from, and put measures in place to prevent ever repeating it.

If your organization implements the best practices covered in this series, then chances are, it will have no choice but to prepare for success!

In order to get you started, if you are a multi-national looking to roll-out an e-Procurement solution in a multiple countries and languages, want a single solution provider with a global presence that can manage all aspects of the solution implementation including integration to the back-end ERP and supplier on-boarding and support, and has a proven track record of delivering globally, your short list should probably include: Wallmedien, Hubwoo, and Capgemini/IBX. If you are looking for e-Sourcing, your short list should probably include BravoSolution, GEP (Global eProcure), and growing up-start iValua.

* Nothing to do with tennis, folks!