Monthly Archives: September 2015

Societal Damnation #48: Worker’s Rights

Now, you’re probably wondering why this is a damnation. Worker’s rights are a good thing, and if one is ethical, there’s absolutely nothing wrong with them or respecting them. The problem is, not everyone is ethical, especially in the corporate world. One has to remember that 1% of the population are psychopaths (with enduring antisocial behaviour, diminished empathy and remorse, and disinhibited or bold behaviour), and that the top four professions that attract psychopaths are

  1. CEO
  2. Lawyer
  3. Media / Publicist / PR / Marketer
  4. Salesperson

and four of the five jobs that every company relies on. You can’t have a company without an incorporation, and laws are so convoluted in most places that you pretty much need a lawyer. Plus, once you get big, you’re gonna get sued. A company needs a leader. A company has to sell something to survive, and it has to advertise that something. The only other must is that it must keep its books and pay its taxes (Finance). In a nutshell, your company is evil. The only real question is “how evil”. Skim a bit off the top evil? Steal from sick grandmas evil? Drown the kittens evil? Or sell guns on the mass market to a guerrilla group planning a coup and a mass genocide evil? (Google knows this. Why do you think it’s motto is “don’t be evil”? It knows that, especially with the power it holds, without a constant, conscious, effort to not be evil it wouldn’t take much to fall down that slippery slope and become the most evil weapon of the most evil empire on the planet as it has access to more data than even the NSA.)

In a nutshell, regardless of the talk they talk, or the walk they walk when they are looking, these psychopaths don’t care about respecting worker’s rights beyond what is absolutely mandated under law (as they don’t want to get sued or fined as that tarnishes the brand imaged which, for most companies these days, is their biggest asset and, thus, their biggest money maker).

Now, this wouldn’t be a problem if every country had good worker’s rights laws and agencies that insured those laws were enforced, but we know that, outside of the prosperous first world nations, there is a lack of worker’s rights laws, if there are any laws at all. In some countries, it’s not uncommon for employers to force employees to work 12 hours a day, in unsafe working conditions with insufficient access to clean water, without any protective gear, under the constant fear of immediate dismissal without recourse if they don’t hit high productivity targets for wages less than what an acceptable minimum wage would be if there was one. If working conditions were good across the board, employees had access to the help and services they need, and employees were generally happy, you wouldn’t see headlines like this Headline from the Huffington Post in 2011 that said Apple Manufacturer Foxconn Makes Employees Sign ‘No Suicide’ pact, which, of course, followed headlines like Foxconn worker plunges to death at China plant, which were numerous as at least 20 employees attempted suicide in 2010 and 2011 at Foxconn, as chronicled on the Foxconn Suicides Wikipedia page.

And while we might want to pretend the companies we buy from are socially responsible and only buy from companies that are themselves socially responsible, that’s not always the case. (We shouldn’t have to enact anti-human trafficking laws in the supply chain in this day and age, but California and the UK just did because we still have to!) If the companies we bought from really were socially responsible, we wouldn’t have seen the headline that More than 100 die in garment factory fire, the deadliest in Bangladesh’s history or Death toll from Bangladesh building collapse climbs above 400 as no one would have working in these buildings to begin with if these companies were socially responsible and respected the rights of a worker to work in safe working conditions.

And making sure your suppliers respect workers rights, so you don’t get a media black eye and a tarnished brand, is not so easy. You can’t schedule an audit — they’ll clean up the plant, instruct the workers who are the most subservient on what to say, send any they don’t trust home, reduce numbers to those they have sufficient safety gear for, and even bring in a doctor for a day to show you they care about employee health. The next day, the doctor is gone, the facilities are dirty and crowded, and it’s back to business abusing employees as usual. Now, if they know you might show up for random audits, they’ll employ one or more tricks to make it look like they’re better than they are, which might include misdirection or outsourcing.  We’ll tackle misdirection first.

If the supplier is big enough and serves enough big customers, they will need multiple plants and locations. A cunning supplier subject to, or afraid of, random audits will designate one plant as the “customer” plant for *every* customer, and in that one plant they will be sure to spend extra time making sure it is clean, uncrowded, and safe. They won’t get much done in that plant, because the whole point will be to make sure it always looks good for a surprise visit. Meanwhile, their other plants will be overcrowded in squalor conditions to keep their overall cost low.

Smaller, cunning, suppliers, who can’t afford extra factories, or don’t want the headaches of having to appear responsible at all times due to the threat of constant, random audits will instead outsource the more dangerous, dirty, or workforce heavy task to a sub-supplier who they claim will meet the requirements you place on them for fair worker treatment but who, in essence, do not come anywhere close.

It’s a management nightmare with the constant risk that a bad media circus could erupt at any time.  It’s pure damnation as you will do your best but still get blamed when a scheming supplier does its worst.

Economic Damnation #6: Mega Global Corps & the continued M&A Frenzy

While the general consensus from a sourcing perspective is bigger is better as it allows for volume discounts from economies of scale, this is not always the case, as recently pointed out in our post on Economies of Anti-Scale. Sometimes it is not only the case that bigger is not better, but also that bigger takes a bigger bite out of the limited butt that you have to work with.

Let’s start by going back to two of the big examples of anti-scale in our post from a couple of weeks back: Energy and Short-Term Contingent Labour.

With respect to energy, as per our post, most energy platens still rely on coal, oil, and natural gas, and, as a result, energy costs are dependent on the somewhat unpredictable prices for these limited natural resources. And since the energy companies can always extract the maximum prices for their energy produced from these limited resources from consumers and small businesses with no negotiation power, they are not overly interested in negotiating with you unless they are not close to their maximum production potential and you will guarantee enough annual usage that it’s worth their time to even talk to you. And even then, unless you have a couple of other energy companies that are also willing to talk, they aren’t going to give you great deals. In any given area, there aren’t that many energy companies, so if a merger or acquisition happens and your options drop to 2, or 1, you are, as they say, up the creek without a paddle and your prices will go from bad to worse.

The situation is similar in contingent labour. If the resources you need are scarce, in demand, and their are only a few providers, the last thing you want is a merger or acquisition. This gives the provider all the power, and your cost is as much as any competitor is willing to pay. Don’t even bother to negotiate. Just sign the offer, thank them endlessly for even thinking of you, kiss the ring, and go on your way. The best you’re going to get is a bit of spit on the pitchfork.

If economies of anti-scale were the only thing one had to worry about when Mega-Corps entered the picture, all would be manageable, but Mega-Corps take you out of the frying pan and dump you in the lava pit when negotiation time comes and categories that were once in your favour all of a sudden shift very fast to their favour.

Buyer power depends on a number of things, but always depends on two critical market conditions being in the buyer’s favour:

  1. Supply exceeding demand.
  2. Multiple vendors competing for the business.

When a Mega-Corp swoops in and buys up one or more suppliers in a category which only had a few suppliers to start with, or multiple supplies merge into a Mega-Corp, the number of vendors competing for your business decreases, and with the smaller guys only being able to support a smaller customer base, more and more companies are forced to go the big guys, like it or not, and these big guys can essentially dictate the prices across the critical goods and services you need for your supply chain. Previously low cost electronics, CPG, MRO, and services categories in some regions can jump double digit percentages overnight and there’s nothing you can do.

But this isn’t the worth. Let’s say two suppliers merge, and one had an exclusive mega deal with your direct competitor which became null and void if that company serviced you. Guess what? Your contract is getting dropped faster than a hot potato covered in scalding oil. And your primary supply source goes up in smoke.

Besides the fact that these Corporations Will Soon Rule the World thanks to the likes of politicians like the Harperman (who makes Chicago politicians look good!), which will bring with it a new level of damnation to the entire world, they are a damnation unto themselves and generally hurt our supply chains at least as much as they help.

Why You Should NOT Build Your Own e-Procurement Platform

A couple of months ago, SI ran a short series on Why You Should Not Build Your Own e-Sourcing System, which also included pieces on Why You Should Not Build Your Own Spend Analysis, Why You Should Not Build Your Own e-Negotiation Platform, and
Why You Should Not Build Your Own Decision Optimization because he heard that a few public sector organizations have this crazy idea that they can build their own and that it can, somehow, compete with best-of-breed solutions on the market today. As per that series, this is not the case.

Neither is it the case that an organization should build its own C(L)M system, as per SI’s post last week on Why You Should Not Build Your Own Contract Management System. It seems that there are (at least) a few organizations that not only think they can (which is often true) but think they should (which is usually not a good idea). Unfortunately, it doesn’t stop there.

Since basic e-Negotiation and e-Procurement is a commodity, and there are even free and open source solutions for both still available on the net (like WhyAbe and archived versions of open source by Coupa and Bupros), some organizations and public sectors think they can roll their own and, believe it or not, do it cheaper and better than just acquiring a low-cost on-demand solution (which might even cost less than the resources the organization / public sector body would require to maintain their own software and hardware, not counting the dollars they would have to invest up front to roll their own). When it comes to B2B or B2C, building your own in this day and age is, well, ridiculous. With so many options to choose from, the chances of your organization not being able to find a cheap, easy solution that meets at least 80% of your needs, and 90% with a few minor process changes, is low. Not only are there no cost savings (which becomes clear when a full total cost of ownership is done, see this classic SI post on X), there’s no value generated by building your own solution. Inflation is coming back with a vengeance, GDP is slowed to a crawl in first world countries, and risks are multiplying faster than Fibonacci’s rabbits. Wasting money on anything with no risk of value generation is just not something 99.99% of companies can afford to do.

While most P2P functionality is straight forward, and the cycle, which has more steps than pre-contract Sourcing, is simpler as it is more tactical in nature, a few requirements, while simple in theory, are actually quite complex to implement technically. In particular, the following three functions are quite demanding to implement technically.

Requisition Management

While the process of managing an approved requisition is no more complicated than managing any other e-Document, the process of approving a requisition can be quite complicated as it could require one or more approvers in one or more departments with the rules for determining who approves dependent upon the item, it’s category, it’s dollar value, it’s (un)approved status, the overall amount of the requisition, and whether or not any affected budget for the buyer, category, or department would be exceeded if the requisition was approved. The approval chain could actually consist of multiple approval chains that need to be executed in parallel, which can possibly be overruled by the last approver in the sub-chain or the entire chain (if it had to get final approval from a VP or CXO because of the amount), and which might need to be approved all-or-nothing for the requisition to help the requisitioner. This implies the need for powerful, configurable, and flexible workflow management that is rather time-consuming and sometimes tricky to implement and not always going to be available in an open source solution that you can easily integrate into a roll-your-own solution.

Purchase Order, Invoice, & Good Receipt Management

Not only do all of the these e-Documents have to be tracked, but they have to be cross-correlated in many-to-many-to-many relationships. For example, a purchase order may need to be split across multiple vendors, each of whom may ship the order in pieces due to geographic stock location and customer locations, and issue multiple invoices, and then the shipments might arrive in pieces, requiring each invoice to be associated with multiple good receipts, or which might arrive in unison, require one goods receipt to be associated with multiple invoices. Similarly, a shipment might arrive before an invoice, requiring goods receipts to be associated with one or more purchase orders. There’s a lot of cross-correlation logic here. Plus, documents can come in as XML, EDI, CSV, PDF (which need to be processed using OCR), or platform specific formats – so there is a lot of pre-processing that needs to be done as well. And then an m-way match has to occur against each line, because, otherwise, the platform is not very useful.

e-Payments & Tax Reclamation

These days, an organization that wants to go e-Payment has to support ACH and wires, and do very difficult secure integrations into a bank; Paypal, Stripe, and similar online platforms for small businesses; and credit cards so its employees can use their P-cards, and integrate into a credit card processor. It’s a lot of integration work that has to be done precisely, because if anything is not done up to Bank, Paypal, or CC Processor spec, and it gets hacked, it will be on the hook for all of the fraudulent payments that will result. And that can add up to hundreds or thousands or millions of dollars very quickly. Very, very quickly. This is one example of just because you can, it does not mean you should.

You’re not buying running shoes here. Just don’t do it.

Procurement 2020, Are we on Track?

Long time readers, including those who worked through last year’s mega series on The Future of Procurement and The “Future” Trend Expose already know the answer to this, but with only 5 years left to go, it’s worth exploring this topic that was all the rage 5 years ago but now no longer a whisper, even from the voices that were once the loudest in their great proclamations.

Why the silence? Because, to be frank, we’re not even close to their predictions, predictions which, to be honest, should have already been met by now.

While there is a lot of cannon fodder to go back to, let’s take Sourcing Innovation’s post from four summers past, which was penned at the height of the 2020 blathering, and which took us back to a report released by Hackett in 2008! In the first of the grand prophecies, which laid out the hierarchy of supply, rather than make grand projections, Hackett simply laid out a set of seven core competencies that businesses would need to acquire. And even though leading providers have offered next generation solutions for each of these since the end of the last decade, progress along these paths is still few and far between.

Business Process Sourcing

Many companies are still taking a scattered approach to process sourcing and outsourcing and indirect spend in general. Some are using BPOs, some are using GPOs, some are using both, and some are simply hiring contingent labour to handle the processes the business does not want to do, or does not have the skills to do, in house.

Supply Performance Management & Supplier Management

Formal Supplier Management is still weak, or non-existent at many companies, and fewer companies still have, or use, modern platforms to manage the performance of their supply base, even though there are a number of second generation platforms out there that have quite extensive capabilities. (The capabilities that are out there will be described in detail in the next platform-based Spend Matters Pro series on Supplier Relationship Management, starting after the CLM series concludes, which will be co-authored by the doctor, the maverick, the prophet, and the anarchist!)

Knowledge Management

According to Hackett, Sourcing will need to master content-driven analytics which integrate external data into internal data models …. We’re not there yet. Less than 1 in 2 Procurement departments are even doing basic spend analysis, yet alone more advanced content-driven analytics using multiple internal and external data sources! Knowledge is still quite poor. (Maybe that’s because only the leading sorcerors in the leading Procurement departments read Sourcing Innovation and Spend Matters CPO?)

Talent Management

After years of reducing the training budget to almost zero following the last big recession in the late 2000’s, there’s still been no sign of restoration and talent is still not getting the training they need to do the best job they could do. Until this happens, there’s no way that Supply Management will be the career path of choice for new talent.

Next Level Strategic Sourcing

Most companies still aren’t doing true TCO modelling or using strategic sourcing decision optimization, which is the only other supply management technology (in addition to true spend analysis) that has been demonstrated to find year-over-year savings. And a true next level company should be at TVM modelling and decision optimization, multi-tier analysis, trending and predictive analytics, long-term strategic supply chain redesign, and other advanced initiatives that will save money now and for years to come.

New Product Development & Introduction

As Hackett said long ago, Supply Management will have to include advanced design-for-supply support that incorporates multi-tier cost modelling, scenario planning and optimization, but seeing as how the majority of Supply Management departments are still struggling with TCO and weighted RFXs and e-Auctions, even though companies like Arena Solutions and DirectWorks (formerly Co-exprise) have been promoting this for close to a decade, this is still a ways off from being main-stream.

In other words, even though 2020 is approaching fast, we’re still a long way from 2020 Vision in Supply Management, despite the doctor‘s best efforts.

75 years ago today

Marcel Ravidat discovered the entrance to Lascaux Cave in southwestern France which was found to contain some of the best known examples of Upper Paleolithic art, estimated at 17,300 years old. Not only do these images depict animals that were roaming the region at the time, but recent research has suggested that the images may incorporate prehistoric star charts, demonstrating that early astronomy, which in ancient times took the form of star gazing and predictions, may have been alive and well long before the records thereof which started around 3,500 BC with the Sumerians (who developed cuneiform, the earliest writing system).

If the “Great Hall” images in the cave really do represent an extensive star map that records all of the main constellations as they appeared in the Paleolithic, than the end of the Upper (or Late) Paleolithic stone age may have occurred well before recent estimates of 8,800 BC in Europe as the beginnings of Astronomy are usually attributed to the Neolithic, which started around 4,900 BC in Europe.

This recent research poses some interesting questions. What societies predated the Mesopotamian, Egyptian, and Aegean cultures that were so advanced in observation, prediction, and organization (and created calendars like the one in Warren Field in Scotland that is the oldest known calendar from 8,000 BC) but yet left little trace and apparently no system of record?

If early astronomy does dates back over 17,000 years in the history of homo sapiens, does this mean that Procurement is actually the world’s third oldest profession? (And not it’s second?) (Either way, we still won’t get no respect.)