Category Archives: Compliance

CSR, Procurement and North America: Creating a Market

In our previous article, we asked if you could solve the modern compliance challenge, and, more specifically if you could do it with Ecovadis. This is because compliance has morphed over the past few years from insuring you weren’t doing any illegal trading and simply satisfying the tax man (and import/export compliance is essentially just respecting the legality of the country you are trading with and satisfying its tax man) to having to comply and deal with a lot of regulations around financial reporting and global trade to having to respect the environment (pretty much everywhere but the US, with the exception of California) to having to take corporate social responsibility for the organization’s entire supply chain and ensure there is no violation of worker’s rights, child labour, or human trafficking — or face the consequences that can not only include bad press (at internet speed) and large fines but, in some countries, criminal charges against the officers of the corporation.

We also noted that solving the compliance challenge was tough because you needed environmental data, sustainability data, social compliance data, and even third party audits on your suppliers, and sources of this data (outside of internal surveys that were unverifiable without site audits) were few and far between. The few players with even remotely recognizable names that exist are in Europe, and Ecovadis is the largest. As a result, it likely has the best shot at championing a market in North America, especially with its increasing partner footprint, supplier database (with over 55K assessed companies), and global reach (as they cover suppliers across 155 countries).

But Ecovadis is not a household brand in North America. To become one, it really must drive material commercial traction outside of the EU and, most important, prove that the market for CSR ratings and compliance in North America is as central to supplier management as other supplier management initiatives (e.g., risk, EHS, etc.) to truly “go global”.

The case for an Ecovadis model is sound. Most major procurement departments at US F500s and larger mid-size companies are still focussed on cost-cutting. And using Ecovadis to get the sustainability data the organization needs is roughly 20% of the cost of trying to do it in house.

Further:

  • Organizations that are embarking upon more strategic category management want deep supplier information before selecting potential strategic suppliers and the response rate to Ecovadis-initiated assessments is 90%
  • The average organization will struggle with a 70% response rate in such initiatives, especially when you consider the average supplier turn-over (as identified in a recent QIMA survey) is 27%
  • Once a supplier is in the Ecovadis network, the chances that their overall CSR rating will improve on their next (annual) assessment is 64%
  • For an average company, unless they initiate a supplier development program and work with the supplier, the chances the supplier will otherwise improve on their own is, as we all know, closer to 6.4% than 64%

Less money. Better results. You’d think it would be an instant buy, but it’s not. So why. Is it because it’s European?

Not necessarily — Jaggaer One+ and Jaggaer One Direct from Jaggaer, which is one of the S2P juggernauts, has good NA penetration, and those solutions (formerly BravoSolution and Pool4Tool) are European.

So that’s not it.

Is it because the space is new or unproven? Can’t be. Ecovadis has been around for 12 years and Sedex Global for 18. Plus, there are a number of other players in the space. Is it because the solution is not user friendly? No — it’s delivered via a simple SaaS platform and they even have public quotes from F500s to that effect. So what’s the problem?

North American companies.

First of all, with apologies to Spike Lee, many will “only do the right thing” when they are forced, and then only to the extent necessary (although this may be changing).

Second, they’d rather profit today than save tomorrow (even if the long term savings would be multiples of the short term profit gains). This means that for them to invest in a solution, they want to see a large, immediate, sometimes unreasonable ROI.

Third, they tend to only act when they’re scared (e.g., losing budget if they have extra).

This means that, unless something changes, for Ecovadis to create a true market in North America with a similar reasonable TAM for say, the compliance management side of supplier / contractor management, it will need to lead with evangelism and, perhaps, more.

All things are possible. But as Vincent Ngo speculated decades ago, it takes a superhero to change the mind of the corporate culture. Can Ecovadis be that superhero?

For the sake of procurement and a better world, we hope that they’ll do it — or someone else.

For more information on Ecovadis, check out Spend Matters’ recent post on Catching Up on a Provider to Know (which also includes links to a deep 3-Part Vendor snap-shot co-written by the doctor and the maverick).

Can You Solve the Modern Compliance Challenge? Can Ecovadis?

Compliance used to be easy. Collect the tax information. Make sure the other party is not on a denied party list. Don’t buy or sell a restricted material without the right permits and don’t buy or sell a banned substance. Done.

But then came globalization. Now you had to collect information for import / export requirements. Satisfy a new slew of tax regulations. Comply with additional inspection and security requirements. Track all of the restricted substances, denied materials, and denied parties of another country. And then as supply chains lengthened and ships made multiple port stops, multiply these requirements.

And that was manageable, but then came a new round of financial regulations, like SOX, in the wake of corporate meltdowns (like Enron) which made compliance more cumbersome. And that was somewhat doable. But with the global penetration of the internet, news spread faster and faster and the unsafe and sometimes inhumane working conditions that outsourced providers were comfortable with made the news regularly, the dangers of poor “recycling” efforts which just saw almost toxic waste dumped on mass to ill-equipped “recycling” centers, and the use of slave/child labour where it was not known before.

As a result, ethical countries started implementing laws on environmental protection, dangerous substances, especially around recycling and disposal, ethical and safe working conditions in the supply chain, and even anti-trafficking and anti-slavery laws — all of which the last link in the chain, the end buying organization, was responsible for.
This makes compliance a bit more tricky. There’s lots of data on financial performance and financial risk, certifications, import/export, and even public sector performance data, but when it comes to corporate social responsibility — environmental compliance, worker’s rights, anti-trafficking, and so on – where do you get that data. Not D&B. Not BvD.

This is where a new generation CSR player comes into play – one that tracks environmental data, sustainability data, social compliance data, and third party audits. But there aren’t many players here yet, and Ecovadis is the largest. But will they be able to take their European success and globalize? While there are a few other players in Europe (Sedex Global, FLO-CERT, e-Atestations, etc.), there are few, if any in North America.

Ecovadis likely has the best shot, especially with their ever-increasing partner footprint, but they need to be the first to scale and win over the hearts (and wallets) of global procurement organizations, especially those in North America, which generally are not as advanced around CSR tracking compared with their European counterparts. The road ahead will be interesting to watch.

Contract Compliance Trust But Verify: Part III Monitoring Demand

Today’s post is from Eric Strovink, the spend slayer of spendata. real savings. real simple. Eric was previously CEO of BIQ; before that, he led the implementation of Zeborg’s ExpenseMap, which was acquired by Emptoris and became its spend analysis solution.

When you join transaction data to contract data in order to validate contract price compliance, it is possible to discover lots of interesting information. Some if it can be quite surprising.

For example, you might notice that off-contract items make up a surprisingly large proportion of the spending. This may be trending up with time, so it is worth doing a time-series analysis. You might also notice a pattern of overcharges on particular items, which could be an easily-corrected disconnect at the vendor side on contract terms.

In Excel, these analyses require new pivot tables and, concomitantly, more maintenance effort on refresh. But in a spend analysis system, the model can be augmented with additional pivot-table-equivalents in seconds, with just a few mouse clicks. And, refresh is not an issue, because the spend analysis system updates everything automatically upon loading new transactions. So, much more interesting analyses become real possibilities — including monitoring demand.

The Who

Suppose that we have from the vendor not only the item pricing, but also an idea of who within the organization is doing the purchasing. This then enables us not only to identify off-contract spending, but also find the source of the leakage within the organization, so that corrective action can be taken internally.

There are a number of ways that “Who bought the items” can find its way into PxQ data. Sometimes it is present as a matter of course; sometimes it requires effort.

  • If the item is a catalog buy or punch-out, invoice items likely already contain the cost center.
  • If a PO number was provided to the vendor, invoice items should contain the PO. The PO can be easily translated to cost center (well, “easily” if the PO data can be linked in, as it can be with a spend analysis system).
  • If there’s a useful delivery address on the invoice, that can be mapped to a cost center using the spend analysis system’s mapping tools (of course, you need access to the mapping tools, and they need to be simple to use).
  • Your contract with the vendor could require a cost center to be provided on the invoice as a prerequisite for payment. No cost center, no payment.
  • Corporate purchasing cards are by definition associated with a cost center, so these can be mapped to cost center using the spend analysis system’s mapping tools.
  • Consultants put project codes on invoices; lawyers put matter numbers. These can be mapped to cost centers as well. Any invoice without a project code or matter number shouldn’t be paid.
  • Some spend already has a fixed cost center, for example with copiers. Each copier is assigned a cost center, which shows up on the invoice.

In a nutshell, if you want to have a cost center attached to each row of an invoice, it is very doable, and very worthwhile.

Let’s revisit the dashboard from Part II.

  • We can see a breakdown of overcharge buys by cost center (blue). A similar breakdown of off-contract items helps identify who is buying off-contract. There may be very good reasons for this, of course; and those reasons need to be understood, so that we can either get those items onto the contract, or channel the buying to similar items that are on contract.
  • We can see a time-series analysis of item buys by class, with an associated chart (red). Over time, fewer items are being bought with the contract price, which is not a good trend.
  • We can see all the buys, showing both contract and overcharged prices (green). This is all we need to show to the vendor — just dump it to Excel, email the spreadsheet, done.

Click to enlarge

The basic pattern of this type of analysis doesn’t change with the commodity. Providing that the goods or services can be standardized with a fixed price, and that a contract price is available, the technique is always the same — and the analysis always worthwhile, if only to prove that the contract is in place and actually working.

Thanks, Eric!

Contract Compliance Trust But Verify Part II: Monitoring the Vendor

Today’s post is from Eric Strovink, the spend slayer of spendata. real savings. real simple. Eric was previously CEO of BIQ; before that, he led the implementation of Zeborg’s ExpenseMap, which was acquired by Emptoris and became its spend analysis solution.

If you have a contract with a vendor, you should be paying the contract price. But until you check, you don’t really know — and what you find out may surprise you.

In Part I of this series we discussed the two pieces of data required — transactions from the vendor, and contract prices for the items under contract. The next step is to join those two datasets together, in this case by Part Number.

Here is what that might look like if we do it in Excel:

This was done by:

  • Sorting the contract prices by Part Number so VLOOKUP will work
  • Building a helper column K which is the difference between invoice price and VLOOKUP’d contract price (hidden)
  • Building a VLOOKUP to compare contract price to invoice price (shown)
  • Building a Pivot Table to roll up column L

Lots more could be done. For example, we could:

  • Add a computation of the amount of overcharge.
  • Add year-month to the pivot table, giving us an idea as to the distribution of the overcharges. Have they all occurred recently, or just in the relatively distant past?
  • Produce a table of only the overcharged items, in order to send it to the vendor with a request for compensation.
  • Identify “who” is buying the excluded items (more on this in Part III).

However, as the model becomes more complex, it becomes more difficult to maintain. What happens next month, when a new tranche of transactions is available? Who updates the model? Each of the formulas and pivot tables needs to be updated carefully — a process that’s irritating and time-consuming at best, as well as highly error-prone.

Make it Easy, not Hard

A spend analysis tool can make this a lot easier. Load the two datasets, and link them by Product Number. Then build a price difference column, set up a range, and you’re done. This requires no advanced Excel knowledge, and produces a model that updates automatically when new data are added. This dashboard was put together using Spendata, but there are certainly other options.

Click to enlarge

And now, adding next month’s data to the analysis is anticlimactic — literally a couple of clicks, and everything auto-updates. So, even if you could “do it in Excel”, you won’t, because it’s just too painful. But if you use the right tools, you can produce compliance models quickly, and you can maintain them with near-zero effort.

We’ll conclude our discussion in Part III: Monitoring Demand. Thanks, Eric!

Contract Compliance Trust But Verify Part I: Compliance Data


Today’s post is from Eric Strovink, the spend slayer of spendata. real savings. real simple. Eric was previously CEO of BIQ; before that, he led the implementation of Zeborg’s ExpenseMap, which was acquired by Emptoris and became its spend analysis solution.

If you have a contract with a vendor, that’s good news — you’re not paying list prices any more. At least, that’s what should be happening.

It’s fascinating what can really happen. We’ve recently seen a vendor raise prices in a distant region while maintaining contract prices in the headquarters region. This and similar disparities aren’t necessarily deliberate — mistakes can be made by anyone. Even items purchased through an e-procurement system can fall off the price-compliance applecart as a result of exception-handling processes. The lesson is that “Trust but Verify” is a necessity, not a nicety. And, since manual inspection of a large volume of items and invoices is impossible, this process must be mechanized.

The good news is that many goods and services can be standardized with a fixed price. These items can easily constitute 25-30% of spending. For these goods and services, contract compliance is (at least conceptually) straightforward. Examples include physical items, such as computers, office supplies, phones, furniture, MRO parts, facilities supplies, vending items, security equipment, mobile phone plans, stationery and forms, promotional items — even some types of software. Services examples can include cleaning, appraisals, training classes, recruiting, records management, armored car, overnight mail, hotel, and car rentals (when they are for a fixed unit of time or work).

If contract compliance for these goods and services is straightforward, why doesn’t everyone do it? As usual, the devil is in the details.

  1. Who builds the (usually spreadsheet) compliance model?
  2. Does the model show who is buying off-contract items from the vendor? Which items? When?
  3. Who loads next month’s data into the model, and adapts it accordingly? What’s the cost of this, versus the payback?

For these questions, invoice data, aka Price X Quantity (PxQ) data, is required.¹

Acquiring Data

PxQ data is best acquired directly from the vendor. It’s your data; you have a right to it; and you’ve a right to ask for it. Many vendors will supply it in a reasonable format, such as in an Excel spreadsheet, or as a CSV or DSV file. Some vendors, though, will attempt to discourage you by providing data in an unreasonable format — for example, by supplying every invoice they’ve sent, in PDF format, as an individual file (don’t laugh; we’ve seen this). You may want to consider whether doing business with that vendor is in your best interest moving forward. Certainly you should write into any future contract that the vendor must provide PxQ data in a reasonable format.

But, you also need contract data — that is, contract price by item. That data is probably already in a reasonable format, for example as an addendum to the contract. At worst, it can be keyed in manually or minimally edited into shape.

So, there are two datasets to consider. The first, consisting of invoice level PxQ data, comes from the vendor and resembles this:

Click to enlarge

The contract pricing, which you should already have, resembles this:

Click to enlarge

Once you have the data in this form, you can easily figure out whether the contract is leaky or solid. We’ll continue this discussion in Part II, Monitoring the vendor.

Thanks, Eric!

¹Accounts Payable-based spend analysis can help to determine what spend is definitely not under contract. But it is helpless to address contract compliance issues.