Daily Archives: November 1, 2018

Fraud Permeates Your Supply Chain …

As per yesterday’s post, chances are that fraud is running rampant throughout your supply chain. It might not be all that significant in the grand scheme of things — a few points here, a few K there, a few items go missing from the stock room — and might be costing the organization less than an effort to stop the fraud would cost. Or, the organization might be losing 5% of its total revenue, which could be 5M annually if the organization does 100M annually, or 50M annually if the organization does 1B annually. And it’s very likely that you have no clue which end of the spectrum the fraud occupies.

You might be thinking that there’s no way we’re losing 50M a year — all of my categories over 5M are contracted, we monitor inventory and invoices, and all spend over 5K is tied to an invoice or a PO and the rest of the spend is so minuscule that the most we could be losing is 1M or 2M a year but, as we tried to point out yesterday, just because things look good, that doesn’t mean that they are.

For example, your buyer could be colluding with your primary supplier in your 100M category to inflate the quality and reliability metrics to the point that the overall weighting scheme chooses the supplier despite a 3% markup that is going 100% into the seller’s commission, with a 10% kickback to the less-than-honest buyer who inflated the scores. There’s 3M on one category. It’s a far cry from 50M, but let’s say that your organization also lost 20M this year from a “theft” on your main warehouse that was pinned on an organized crime ring. Was it an organized crime? Or an inside job where an employee cut the power on the way out for a big wad of cash and a local band of unorganized yahoos stole the goods? There’s 23M. Then you have carriers charging double fuel surcharges on 100M of freight and another 4M goes down the drain. Then you have the supplier of 20M worth of inventory that submits the same invoice twice with different invoice numbers 50% of the time, which the system doesn’t catch because it matches a PO and/or goods receipt and you overspend another 5M. There’s 28M. And then there’s the high-powered elite sales team that likes to charge “champagne” at the strip club for their “clients”; the marketing elite that thinks high-end dog kennels are “hotel” charges; and the C-Suite that only flies first class, against policy that flights under 4 hours must be business. And all of a sudden that’s another 2M of employee fraud that is slipping through the cracks and we’re at 30M. And we haven’t looked hard yet.

Get the point?

So why is your supply chain rampant with fraud? Simply put, because you don’t detect it.

Why not?

Platform iZombie.

Your platform blinds you to it. Your outdated, last decade platform that barely gets you through an average sourcing event that hasn’t kept up with the time, hasn’t made you smarter, and, in fact, takes you down the same old, beaten, dying path that you’ve been down before again and again.

So what do you do?

Get a better, more modern, platform.

What do you look for?

Stay tuned!