Category Archives: Procurement Damnation

Primary ProcureTech Concern: Supplier/Supply Chain Resiliency/Continuity

As this is one of the top risks and top barriers to success, it’s no wonder it’s also a top concern.

Why?

Given that supply shortages/constraints have consistently been identified as an organization’s top three risks, and can easily result from geopolitical uncertainty, economic downturns, and even high inflationary pressure, as well as decrease the category/market complexity barrier if key suppliers suddenly exit the market, this should come as no surprise.

Impact Potential

Impact is very straight forward, and summed up nicely by the Arrogant Worms in 4 words: No Sale, No Store. If you don’t have supply, you don’t have product. If you don’t have product, you don’t have anything to sell. No sale, no revenue. No revenue, no organization.

Major Challenges/Risks

  • supplier stability: ensuring they are legit, financially stable, and operating sustainably
  • supply chain stability: country access, operational ports, secure carriers, and so on
  • raw material availability: mine stability, crop protection, etc.
  • financial security: ensuring you have the right agreements in place to ensure supply chain financing as needed
  • multiple relationships: you need primary, secondary, and alternate sources of supply — and for certain materials or products that are rare or unique or bought in low quantity, this can be extremely hard to arrange

Final Words

Supply chain resiliency is in doubt, but supply is crucial, so you need to figure it out. Re-read our barrier and risk pieces and dive in.

Primary ProcureTech Concern: High Inflation Pressure

The two decades of low inflation we experienced in the noughts and tens are two decades we won’t experience again in our lifetimes. Thus, this is a significant concern.

Why?

More precisely, this is a significant concern for two reasons. The first reason is that if costs rise too much, the cost of acquiring the necessary materials and services to make the products and/or deliver the services you sell rise, as well as the cost of MRO and day-by-day operations. If you’re in a thin margin business, inflation pressure is thus a significant concern.

Moreover, this is also a significant concern because wages never keep up with inflation (because, if they did, we wouldn’t see so many port and logistics strikes every time cost of living skyrockets while wages remain flat or indexed against an outdated cost of living increase as of the last contract negotiation that occurred two to five years ago), and if the inflation leads to substantial cost of living increases, the relative share of consumer spending that will be spent on the organization’s products and services will drop, giving them less cash on hand to deal with their rising costs, increasing the spend pressures of their top joint risk.

Impact Potential

The impact is straightforward.

  1. If costs rise too much, not only does profitability fall significantly, but after a point, so does the sustainability of business operations. Cuts could hav to be made with devastating future conferences.
  2. If sales drop too much, critical revenue stops coming in, and the same problems arise.

Major Challenges/Risks

Inflation Projection
Predicting expected inflation over time based upon typical trends as well as from the impact of significant economic events that can cause rapid increases in inflation.

Impact Mitigation
Finding ways to mitigate the expected impact through alternate sources of supply, currency exchanges, operational efficiency improvements, investments, etc.

Final Words

This is a tough nut to crack, especially for Procurement. The organization needs to hire a top economist to help it predict and prepare for inflationary times.

Primary ProcureTech Concern: Compliance

Compliance is not something that any organization can shake.

Why?

As per our risk entry on compliance, compliance is a major risk. In any given country there are dozens (and dozens) of regulations that have to be adhered to. They cover all aspects of operations from workforce to production to distribution and all of the environmental and operational and labelling requirements that go with it.

Impact Potential

  • fines that can be serious as a result of violating any regulatory requirement
  • seizure and destruction if a product contains banned substances
  • criminal charges in some jurisdictions as gross negligence that leads to people getting hurt or killed by your product or service is sometimes enough for criminal charges

Major Challenges/Risks

  • international organizations are subject to hundreds of regulations and even itemizing what they are can be a near impossible task
  • reporting requirements can be quite onerous and exacting, especially when there are language laws, minimum disclosure laws, precise submission requirements, etc.
  • track and trace requirements that may require every raw material to be tracked and traced back to the source

Final Words

The topic of, risks resulting from non, and the barriers that are imposed by compliance could fill volumes, and has. That’s why compliance will always be a top concern, and why you need experts in the various areas and jurisdictions you need to be compliant in to make sure that you are.

Primary ProcureTech Concern: Talent Acquisition/Upskilling

Despite the false promises to the contrary, AI will not replace people for critical tasks in the near future and talent will be required.

Why?

This should be no surprise since one of the biggest barriers to success is the talent gap and one of the largest risks is the loss of the critical talent the organization has. As a result, an organization worried about its future should be very concerned about its ability to identify, acquire, and retain top talent.

Impact Potential

The potential impact of being unable to attract and upskill top talent ranges from

  • inefficiency: when unskilled sub-par talent take longer to get work done and do it more poorly
  • inaccuracy: in analysis and resulting decisions along with process and tech selection
  • inability: to manage categories, design new products, mange contracts and commitments
  • inaccessibility: to key suppliers, tenders, markets, channels, etc. if there is no one that knows how to manage them, speak the language, follow the rules, etc.
  • incohesiveness: as a lack of leadership and/or competence causes teams to fall apart

In summary, a lack of capable Talent can cripple an organization!

Major Challenges/Risks

  • lack of skilled talent: in many STEM (related) areas, there is a lack of skilled talent in the market due to lack of graduates, and even a lack of an appropriate student talent pool (as the US is 19th in the OECD rankings for adaptive problem solving and 25th in the OECD ranking for numeracy overall. (See our recent post.) That’s the good news. In the 2022 PISA test, the US ranked 34th out of 81 countries. When it comes to advanced math levels in the student population, some tests put the percentage of US students at a mere 7% compared to 30% of students in Singapore. Even back office jobs which are now analytics focussed and data dependent require advanced numeracy and problem solving skills.
  • lack of experienced candidates: with every recession, market instability, purported technological advancement, etc., companies slash headcount to preserve cash and the first to go are the experienced talent; then, when they hire, they hire cheap inexperienced graduates — with no one left to train them appropriately
  • lack of leadership: leadership requires people who have been there, done that with leadership skills — the more been there, done that that are retired, and the less that are properly trained, the less there are

Final Words

In summary, there’s a lack of talent across the board and you’re competing with everyone else. A talent war is coming, and it’s not one any organization is guaranteed to win.

Primary ProcureTech Concern: Cost Control

This is one of the oldest concerns of Procurement. After assurance of supply, control of cost is key.

Why?

Costs are rising. Inflation is coming back with a vengeance. And the trade wars aren’t helping. Rare earths are becoming more rare. Geopolitical tensions and actual wars are resulting in sanctions and cutting off primary supply lines. Everything is driving up costs.

Impact Potential

Shortages can cause significant cost spikes. The costs of raw materials and goods can increase 20%, 50%, 100% or more. During transportation shortages (such as those that occurred during the pandemic), transportation costs can increase as much as tenfold. Costs can cripple an organization, bring down a product or service line, and even an organization if they can no longer manufacture products at a cost that allows them to sell at a price point that consumers can afford.

Major Challenges/Risks

Price Prediction/Trend Analysis: understanding the past, current, and likely future price points to understand when the cost point of a good or service might get to a critical point where it could affect not just profitability, but operation

Impact Events: identifying which events could lead to a rapid, unpredictable, price increase for a good or service, detecting those events, and taking action the minute such an event is predicted

Sustainable Supply: identifying alternate sources of supply that an organization can take advantage of should a primary source become unaffordable or unobtainable, and ensuring those remain affordable until other primary sources can be identified

Final Words

Cost control will always be an issue because an organization can’t pay more for something than it can afford and can’t pay more for raw materials than it can sell the finished good for.