Monthly Archives: October 2015

Societal Damnation 39: Brand

Joan Jett may not give a damn ’bout her bad reputation, because when you’re a rock star (or a bad girl movie star), that’s actually a good thing, but when you are a consumer-driven corporation, these days, that’s about the worst damnation that can be thrust upon you. Brand disasters can far outweigh the average 10%+ decrease in shareholder value found by Hendricks & Singhal back in 2003. As per a recent study by CIRANO on Corporate Reputation, not only is there an 80% chance of a company losing at least 20% of its value at least once during a five year period, a major incident that significantly impacts the brand can wipe out over half of a company’s value overnight! Just look at what happened to BP after the Deepwater Horizon disaster. BP’s share price experienced a 52% drop in 50 days. Brand has went from that crazy ethereal concept unnecessarily promulgated by marketing mad men to that very real, critical, corporate requirement that must be maintained at all costs. Why?

Bad press results in backlash and consumer boycotts.

Any indication that your corporation is not the most sustainable, ethical, and corporately responsible organization on the planet can land your organization in the news. A minor supply chain infraction will result in a back page story that will be picked up and circulated by bloggers and activists until every concerned customer notices it and decides to write you angry letters and stop buying your products, resulting in that 10% decrease in sales and value found by Hendricks & Singhal while major supply chain oversights such as using suppliers who experienced preventable (man-made) disasters such as the factory collapse in Bangladesh (which should have not only been condemned but demolished) or the Philippines factory fire (in an overcrowded factory with no fire exit) that resulted in large death tolls will get your organization in front page headlines. This will result in significant backlash and widespread consumer boycott. If consumers will boycott a franchise for its beliefs (such as the boycott of Chick-fil-A for its beliefs on same sex marriage, as opposed to an actual refusal to serve the LGBT community), imagine the backlash and widespread boycotts your organization is going to get if child labour, slave labour, or human trafficking is found in your supply chain as a result of lack of oversight.

Bad decisions result in NGO and governmental investigations, fines, and seizures.

If your company gets caught holding the bag when someone finds melamine in the milk, diethylene glycol in the toothpaste, or BPA in the baby bottle plastic, it’s going to have every governmental agency with authority investigating, watching, and looking for ways to fine it even if it was a supplier two tiers down in the supply chain that did the dirty deed. And every NGO in the sustainability and Corporate Social Responsibility space doing a 360-degree supply chain review to find out what other skeletons are hiding in your closet and what snakes are lurking in your supply chain. So, not only will the government seize any products it finds that violate any environmental laws and fine you as much as it can under environmental, supply chain, and human rights / trafficking legislation, but the NGOs will be feeding the media that will in turn be feeding the consumer backlash and consumer boycotts. Losses will multiply quickly.

And both result in lost investor confidence and severe value drops!

As soon as something goes wrong, even if Procurement had absolutely nothing to do with it because a decision was made, or forced on it, by another department and/or it followed organizational protocol in supplier evaluation and selection, it is going to be blamed by the Investors and the Board who are going to be quite perturbed at the egg on the company’s, and their, face, and want someone else to point the blame at. Procurement’s going to be hung out to dry and if the situation is perceived to be bad enough, someone is going to be made a scapegoat that will be sacrificed in efforts to appease the masses.

It’s extreme damnation, and any Procurement department that wants even the slightest hope of being able to deflect the blame is going to have to go well above and beyond the call of duty in supplier evaluation, selection, monitoring, development, and, if all else fails, dismissal if it wants to survive any attack on the corporate brand intact.

Economic Damnation 01: Fiscal Crisis

Bank Failure, which can be a result of fiscal crisis, is pretty bad, but the fiscal crisis that precedes it is often much worse. This is due to the fact that while a bank failure only affects the handful of companies that are using, and relying, on the bank, the fiscal crisis affects every company equally. No company is safe from a fiscal crisis — every company that does business in a country affected by the crisis is a company that is going to experience considerable supply chain impacts. Why?

Letters of credit become worthless

A letter of credit, which is a document from a bank guaranteeing that a seller will receive payment in full as long as certain delivery conditions have been met, is worthless in a fiscal crisis as sellers understand that the guarantee is only good as long as the bank is stable. But in a fiscal crisis, even apparently stable banks can become unstable so quick that a guarantee today might be worthless in a week when the bank, that over-insured buyers who are in danger of bankruptcy and in financial default, becomes unable to honour the letters of credit. As a result, no seller will be willing to take on additional letters.

Lending halts

As more and more companies begin to experience financial duress and become late, or default, on payments, banks will become very reluctant to lend additional funds as they will be short on cash and fearful of additional loss. As a result, companies that depend on that cash for payroll and day to day operations as they wait for customer payments will enter severe financial hardship, and their situation will worsen. These companies will then be unable to support their suppliers who will then be unable to deliver the products on time that the customers require before payment can be made, creating financial turmoil up and down the supply chain.

Corporations go into cash hoarding mode

As a result of the financial crisis that will result from the lending halts and the bank’s unwillingness to issue letters of credit, those corporations with cash will go into hoarding mode. Supplier payment cycles will be extended to 90, 120, and even 180 days and those companies that rely on the cash to survive, especially with few options, will be under even more undue hardship. So even if your company is okay, and doesn’t hoard cash and pays its suppliers on time, your suppliers could still be suffering as a result of most of their payments being delayed, and the actions of others puts your supply chain in jeopardy.

Consumers panic and stop spending

Eventually, when the fiscal crisis starts to enter panic mode, a large number of consumers, fearful for their jobs (as fiscal crisis almost always result in layoffs from cash-strapped or cash-hoarding corporations, take your pick), stop all unnecessary spending. As a result, any product line that your corporation makes that is considered unnecessary by a segment of consumers sees a drop in sales and all those nice rebates and discounts you negotiated based upon an expected volume commitment go out the window.

And since fiscal crises cannot be predicted, it’s another damnation that will drive you mad.

Societal Damnation 46: Mass Hysteria

While mass hysteria is a term that typically refers to collective delusions of threats to society that spread rapidly through rumours and fears, it also means unmanageable emotional excesses on a large scale, and both can be damning to your supply chain. Each of the following situations can significantly impact your supply chain in a negative way.

Fear of Your Product

If a rumour gets out that your product is dangerous to use, it can lead to mass boycotts and an immediate drop in sales whether the rumour is true or not. For example, let’s say someone claims that your bottles are laced with BPA that leaches at room temperature, your cell phones are not properly shielded and increase a person’s risk of brain cancer by 20%, or your toddler toys regularly break into plastic pieces with sharp edges that can be swallowed and cut and choke the toddlers playing with them and the rumour spreads across the internet at today’s internet speed. True or not, that could be thousands of lost sales in minutes.

Fear of Your Processes

Just ask the oil industry how well their operations progress when they want to start drilling, or even worse, fracking. And while the former can be quite safe with today’s technology, and the latter reasonably safe with the right geological conditions (with no nearby ground water reservoirs for the chemicals used in fracking to leak into, no underground caves that can rupture and cause sinkholes, etc.), many people, understandably, don’t like these processes and many more are just outright fearful. And they don’t stop at boycotts of your product. They hold protests and do everything legally, and sometimes, illegally possible to stop your progress.

So, if they fear that you are using a process that creates an unsafe product, that puts people, or animals, at risk, or that is polluting any part of the environment (air, water, or ground), they will speak out. And they will verbally, and sometimes physically, attack your supply chain (and the people who run it).

Fear of Your Ethics

Sometimes people will think you’re just out to make a quick buck, no matter what the cost, and you don’t care who gets hurt, or, more precisely, used, abused, and financially bankrupted along the way. Now, this may be true of your psychopathic CEO (who is, statistically, the most likely person in your organization to be a psychopath, even more so than the corporate lawyer as per our post on societal damnation #48: worker’s rights), but this is likely not true of you.

This poses a real problem during a strike or walk-out, legal or not, when the instigators, who may be delusional (and see themselves as the re-incarnation of Cesar Chavez) or may not, believe that you are going to displace and dispel them at any cost, possibly with force, and believe that their only option is to counter with force. This, of course, not only puts your supply chain at risk but your workforce at risk as well.

Craze for Your New Product

Sometimes hysteria swings in the other direction and instead of fearing your ethics, processes, or products, for whatever reason, everyone has to have your product — now. And we get what is now typically known as Black Friday Madness where people literally trample each other to death trying to get one of your products before the local retail establishment sells out. Now, you’re probably saying, how does this affect Procurement? Isn’t it the job of the retail establishment or sales and marketing to properly forecast demand and make sure there is enough and the public relations personnel to insure the message gets out that there is enough units to satisfy demand and no on needs to panic? Well, yes, but if there are not enough units by the release date, that’s Procurement’s fault and Procurement should know that when it comes to demand planning, the models typically go over the heads of most people in the organization and only Procurement, with its advanced modelling skills (that it applies daily in its Sourcing projects), is fit to check the model and make sure everything is as accurate and reliable as it can be. Procurement’s fault or not, we have the ethical responsibility to do our best to make sure no one else screws up on behalf of the company in a manner that puts people’s lives at risk (or the company’s brand reputation at risk either — we depend on that too).

Hysteria is very real, and since people not only run our supply chains, but provide the reason(s) that they keep running, hysteria is a very real damnation that we have to be prepared for.

Environmental Damnation 20: Oil & Natural Gas

Closely related to Economic Damnation #9: Oil & Natural Gas Reserves and Oil Price Shocks, Oil & Natural Gas is also an environmental damnation that hits us hard on the front end and hard on the back end.

In our economic damnation post, we talked about how the almost randomly fluctuating prices that can often double or halve within a year is a damnation that can wreak havoc with your supply chain. When prices double, your costs are going up, way up, and there’s nothing you can do about it. When prices halve, if you’re in a contract, you’re losing money hand over fist, possibly both hands over both fists if there was a fuel surcharge and the supplier refuses to remove it, claiming they are still in a fuel contract with their supplier and won’t see the price drop for a year. (And that’s why you always have to tie surcharges to market rates and monitor closely.) But that’s just the beginning.

Dirty Power

Oil and Gas is dirty power. Burning oil releases dangerous pollutants into the air that pose a risk to our health, a risk to our environment, and even a risk to machinery that requires clean air to ventilate. As a result, these are pollutants that, in many countries, must be captured upon their creation during the burning process by law. This requires expensive machinery that adds to production costs, maintenance costs, and overhead costs.

Disaster Risk

Oil and gas is explosive. Very explosive. It only takes a single miscalculation and your fuel, your factory, and, possibly even your workforce goes up in a hot fiery ball of liquifying flame and all that is left at the end of the day is charred remains of melted metal and smoke.

Shortage Risk

Reserves are limited. And so is our ability to tap them. There are only so many pumping stations, so many pipelines, so many tankers, and so many people to operate them. A single delay in transportation. A single accident that shuts down a pipeline or a pumping station and your supply can be cut off for days or weeks and your production shut down for that length of time.

Oil and natural gas negatively impacts your balance sheet on acquisition, and, if something goes wrong, on transport and utilization. But, in many places, it’s sometimes the only viable energy source at the organization’s disposal. (And why an organization with the dollars should invest in its own sustainable energy production methodology, and, if located in an appropriate area, solar, wind or hydro power to minimize its dependence on oil.) So, unfortunately, for the time being, it’s a double damnation that Procurement needs to live with.

8 Reasons Best-in-Class Suppliers are Ignoring Your RFP


Today’s guest post is from Brian Seipel, a marking project expert at Source One focussed on helping corporations achieve both marketing and procurement objectives in their strategic sourcing projects.

Imagine you’ve spent hours crafting an RFP defining exactly what you need and finding the right mix of suppliers best able to provide a solution. Despite your efforts, top suppliers are either unresponsive out of the gate or go dark early in the initiative. Suddenly, your supplier pool is shrinking, and key players in the market have thrown in the towel before your RFP even got off the ground. Why is this, and what can we do to ensure sourcing events bring in the best possible candidates?

Failure to Launch

It’s easy to look at an RFP as a way for suppliers to “wow” you, but keep in mind that an RFP is a two way street — You need to “wow” them as well. Your RFP is your first shot at communicating your needs to potential suppliers. As such, the goal of your RFP should always be to attract the best possible suppliers and quickly establish why they should participate.

As soon as your RFP lands on their doorstep, you can bet suppliers are vetting you just as hard as you vetted them. They have a short list of red flags to determine whether they are a go or no-go — if your RFP trips too many, you can bet these suppliers will go dark, even if they are a perfect match. Knowing what these red flags are will help you craft an RFP that draws them in and ensures participation.

Before Distributing the RFP

Prior to reviewing the RFP itself, let’s discuss your potential supplier pool. Two red flags will ground your RFP immediately if not addressed before would-be participants see it.

  • Lack of proper fit.
    How sure are you that the suppliers receiving your RFP really are a good fit for all your requirements? Discovering supplier fit all but a few critical needs late in the game will be a huge time waster, so consider arranging a quick conference call with any suppliers you haven’t worked with before as a measure-twice-cut-once vetting process. Not only will you identify partial or all out bad fits, you’ll be able to establish a level of rapport early on.
  • Lack of a relationship.
    Speaking of rapport, participants know they are likely to run up against incumbent suppliers during the initiative. If you don’t begin building a relationship with them quickly, they may feel they are only being brought in to help you build a case to beat the incumbent down on price. A little glad-handing goes a long way: while you’re reaching out to participants to ensure they are truly a good fit, spend time describing why they were included in the RFP, and get them excited about the opportunity.

Hidden Landmines Within Your RFP

Now that suppliers are fully vetted and raring to go, take a step back and consider what red flags are sitting in your RFP documents.

  • Too much boilerplate language.
    Any supplier who has been in business for even a short time can spot boilerplate language — it isn’t hard to pick out. Boilerplate language creates the appearance of slapdash work, and suppliers won’t want to spend resources crating a thought out into a response when they don’t think as much thought went into developing it in the first place. Unless the boilerplate is needed to fulfill certain legal needs, strip it away.
  • Lack of clarity.
    New suppliers don’t know you, your needs, or what it will take to win your business — and they will bolt if they don’t get this information quickly. Your RFP should be clearly written and organized in such a way to fill in all three of these blanks in short order. At a minimum, include an elevator pitch about your organization, and follow with the reasons behind this RFP and what you hope to accomplish before leading into the scope of work. Lay out the initiative’s key milestone dates, and the deliverables required for each.
  • Poorly defined scope of work.
    It is all too easy to gloss over fine details when building out a scope of work. Stakeholders who are intimately familiar with the initiative from the inside may not consider an outsider’s (very limited) point of view when constructing this section. Nothing sends suppliers running faster than a weak scope, which gives the impression of a poorly defined project requiring too much of a time investment in gathering enough information to participate.
  • No opportunities for communication.
    Even the clearest RFP and most detailed scope of work only tells half the story. Open communication is needed to flesh out requirements and delve deep into the underpinnings of a winning proposal. Are you building time for Q&A sessions into your initiative, and clearly spelling out your availability to participants? If suppliers get the sense that they can’t engage you, they won’t risk spending time drafting a proposal only to learn later on that they missed the mark entirely.
  • Needlessly extensive questionnaire or requirements.
    The longer your questionnaire, the more time and resources suppliers will have to spend responding. Include too many, and you may make responding too difficult. Is each question strictly required to determine if a supplier can meet your needs? Cut out any superfluous questions with extreme prejudice.
  • Requests for financial information.
    The first requirement on the chopping block should be the need for one, two, or even three years of financial information if you don’t actually intend on examining them. Private companies often balk at this requirement, and RFP issuers often subsequently drop it after they decide they don’t truly need them. There are other ways to ensure financial stability, such as Dun & Bradstreet checks and reference checks. So ask yourself, do you need all those years of financial information? Now ask again, do you really need them?

Strategic Sourcing is a Two Way Street

Remember that an RFP is a two way street. Just as suppliers are trying to win your business, you need to ensure they see the value in doing so. Clearing away the red flags above is the first step in meeting that goal.

Thanks, Brian.