Category Archives: Procurement Damnation

Geopolitical Sustentation 25: Government Actions

Upon review of our damnation series, we know that governments can be a major source of damnation. From their meddling in the employment rate (economic damnation 3), currency strength (economic damnation 5), and their sheltering of the 1% (economic damnation 7); their lack of support for postal services (infrastructure damnation 11), ports (infrastructure damnation 13), and roads (infrastructure damnation 14); their (mis)management of customs acts (geopolitical damnation 28), trade embargoes (geopolitical damnation 29), and the TPP poison pills (geopolitical damnation 30); their taxation (regulatory damnation 33), tariffs (regulatory damnation 34), and health and safety (regulatory damnation 35); and their poor urbanization plans (societal damnation 43), utter lack of support for education (societal damnation 44), and their handling of workers’ rights legislation (societal damnation 48), their damning meddling is everywhere. (It’s more ubiquitous than the meddling of those meddling kids.)

But this is just the tip of the iceberg. In our damnation post we listed a few of the more focussed damnations that will cause you a never ending nightmare.

  • Budget Freeze
  • State of Emergency
  • New Legislation Outlawing your Product or Service
  • Criminal Charges against your Organization or Executives

1. Don’t Sell Governments More Than You Can Afford to Maintain in the Receivables Indefinitely.

There’s no guarantee of quick payment, or even late payment in the timeframe you are led to believe it will materialize in. Government might be good money, long term contracts, and guaranteed references, but they aren’t always the best customers if you need money now. Make sure you have a core business selling to the private sector that can sustain you through the dry times.

2. Don’t be slack in receivables recognition and collection

Insure all deliverables are received, acknowledged, and accepted on a timely basis. Make sure the invoice gets in the approved payment queue ASAP, and follow up the minute a payment date is missed. You don’t want multiple invoices in a queue during a budget freeze or budget shortfall. You want as few as possible, and you want them front of the queue as soon as the freeze is lifted.

3. Keep abreast of any proposed legislation that could impact your product

You want plenty of time to engage lobbyists if you can afford it, and if the product line is that profitable, or identify reformulations (or replacements) if the product is important, but not worth enough to engage lobbyists to try and alter the legislation appropriately (which may not be successful).

4. Make sure you have well documented policies and procedures in place … and all follow them.

Have a policy that failure to follow policies and procedures, especially those that are designed to protect the organization and stay on the right side of the law, will result in immediate discipline and possible dismissal. Also implement monitoring systems and processes to do your best to ensure that all individuals follow critical policies and procedures. The goal is that if someone breaks the law, it’s doing so in a way not supported or condoned by the company.

5. Make sure the board oversees the executive and reviews key financial reports and deals on a regular basis.

If one of your executives is engaging in shady business practices, you want to discover it and take action first. It’s often the difference between a slap on the wrist and a public hanging. (And don’t say you have nothing to worry about. It’s well known that the job that attracts the most psychopaths is that of the CEO, with the job that attracts the second most psychopaths being that of the lawyer who defends him.)

Societal Sustentation 44: Education Quality

Supply Management is hard. Real hard. And it’s only getting harder. SI has said it before, and it will say it again … and again — in order to excel at Supply Management a Sourcing or Procurement professional has to be a jack-of-all-trades and master-of-one.

But this is not an easy thing to do. The skill set required by today’s Procurement professional is longer than Santa’s naughty and nice lists put together and is growing by the day. And that’s just the basics. The EQ, IQ, and TQ required for an average Procurement professional to get through the day is enormous. It’s to the point where a person of average intelligence can’t cut it. It used to be that only the best and brightest could do law and medicine and engineering but now only the best can do supply management. And, to make matters worse, just EQ, IQ, and TQ is not enough.

A modern Supply Management Professional needs knowledge — and lots of it. With constantly changing market conditions, new inventions, and new modes of operation, whatever a supply manager knows today is unknown tomorrow. As new methods of production come online, old methods become cost prohibitive. As new products are invented, old products become obsolete. As market conditions change, old plans become irrelevant. And so on. And what you need to know changes by the day.

But where do you get that knowledge. Most universities have a curriculum that is still mired in old-school logistics and operations research. Most professional associations are still teaching you old-school negotiating tactics. Most blogs are mired in the noughts and still preaching the gospel according to Ariba and Emptoris (which no longer exist on their own). And the analysts … well, we’re not too sure just what they are inhaling before they do their preaching, tragic quadrants, and dangerous graves.

And education quality in general in North America is bad, with the US ranked 14th, and getting worse. Only one in seven people can do math. Potheads have a higher IQ than twitterers. And spelling and grammar? The best case is whatever the iPhone autocorrect feature suggests. So what do you do?

1. Find curious people.

Find people who want to learn and get smarter and more efficient on their own. That will seek out the nuggets of knowledge, internalize them, and try their best to incorporate those nuggets into their work.

2. Seek out those that have a higher than average IQ, TQ, or EQ.

Those with a higher IQ will be able to quickly grasp, internalize, and utilize new theories and methodologies. Those with a higher TQ will be able to master new technology faster and find ways to simplify it and train the rest of the organization on the key features. Those with a higher EQ will be able to work better as a team.

3. Make sure you hire people that excel in each area.

Having a mix of high IQ, TQ, and EQ people will create a well balanced team that can work together, adopt and exploit leading technology faster, and learn about new options ahead of your peers.

4. Encourage continual learning … and pay for it.

Bring back the training budget, and pad it well. Even though you’re going to pay more for these well educated, smart, tech savvy, team-oriented, curious people, that doesn’t mean you shouldn’t pay even more for training. In what other organization can a $1 of training take $100 off of the bottom line when the sourceror takes 5% off a category expected to be at rock bottom, gets the supplier to throw in a value-add warranty for free, or finds a new production method that shaves 50% off of overhead cost? Find people that want to learn, and continually educate them. The cost is nothing compared to the ROI you will generate.

Technological Sustentation 91: Proprietary Madness

Not only do you have to deal with IP and Patent Madness, which we recently discussed, again, but you also have to deal with proprietary madness that is likely to drive us all mad (and may someday push the doctor over the edge, into the land of the crackpot, where at least one blogger in the space is already dwelling).

Just what is proprietary madness? It’s mega-corporations, especially in software and electronics, taking the rights of ownership to extreme. Started, and continued, by the current and former Technology heavyweights, including the likes of IBM, Microsoft, and SAP, it’s not only the creation of company specific standards for software and hardware interfaces, its the restriction of the specification of those interfaces to approved partners and suppliers, limiting the supply of support services and related products to a handful of vendors. This not only drives up the price of those products and services to well above the market average price for support services for software and products with open and published specifications, but can make it difficult, if not impossible, to get support when demand is high or related products if one of the few vendors who can produce products shuts down.

Those of you with SAP know exactly what we’re talking about. Unlike Oracle, which publishes its core schema, and does not change it between minor versions, SAP does not publish its score schema, does not guarantee any stability between bug updates between minor versions, such as between 4.7.1 and 4.7.2, instead requiring you to go through its proprietary NetWeaver interface, which you will, of course, have to acquire to actually support any customizations (and likely build applications in the Portal). And learning the portal is no easy task. One of the most complete books on it is 700 pages alone! And that’s just the beginning …

And while there is nothing wrong with proprietary technology, as a company needs some assets in order to survive, the lengths at which some companies go to keep it secret and protect it, in a world where data needs to be shared and products need to be utilized in conjunction with other products makes development (and the supply chains that rely on that development), a nightmare.

So what can you do?

1. Make Open Source / Open Systems a priority.

When doing your weighted evaluation of a provider, penalize any provider with proprietary systems, and severely penalize providers with highly guarded proprietary systems that cannot be maintained by anyone but the provider. Give this a weighting of three times more than your gut thinks it should be weighted.

2. Demand the ability to do full data dumps to an open standard, such as XML, or a text format, such as CSV, whenever you want.

And do them at least quarterly, if not monthly, and do incremental full data backups at least weekly, if not daily. If the system stops working for you, you need to migrate, and even if the system does work, you will still need to integrate that data into your (virtual) data warehouse to support analysis and other processes.

3. Migrate away from proprietary vendors at first opportunity.

It doesn’t matter how much you paid, or how bad you think you will look by trying to replace the solution that was the right solution when you bought it, because it will always cost you more in the long run — with costly maintenance, custom development, and manpower to manually integrate data dumps into third party solutions — and that’s worse than admitting there’s a better solution than what you have. Moreover, chances are when you bought that big, monolithic, proprietary solution, there wasn’t a more open alternative, so you didn’t really do anything wrong and a good Procurement department always looks for ways to improve processes and platforms.

Technology Sustentation 89: IP & Patents

Intellectual property and patents are a good thing, right? They protect your inventions and prevent your competitors from stealing your innovation and making money off of them, right?

As per our initial damnation post, wrong. The theory is considerably different from reality. They don’t stop your competition from stealing your ideas and inventions, they only give you the right to go after your competitors in court for damages (but not necessarily succeed) if your competitors steal your inventions. And moreover, they make it easy for your competitors to duplicate your invention. (Remember, to patent an invention, you have to complete define the invention in enough detail for someone to easily reproduce it. It’s like handing a car thief the keys to your brand new custom made Ferrari and asking him if he’d like a joyride.)

And, as per our initial damnation posts, not only are lawsuits not guaranteed to succeed, but if the competitor who stole your idea has deeper pockets, it could bankrupt you. Heck, even if you don’t sue, nothing stops them from claiming prior art, trying to get your patent thrown out, and suing you for IP theft (for anything not explicitly covered in your patent that they claim they invented first).

But this is not the worst of it. Many companies file, or buy, patents not to protect their IP, but to prevent you from selling yours (and this has been going on for a decade as per SI’s classic post on how the patent pirates will plunder away). Plus, since patent clerks are not experts in anything but the rules associated with filing patents, and the reviewers are typically not experts either, many patents that are much broader than they should be, and that actually patent innovations that exist in prior art as part, or all, of the invention, get pushed through by firms with big pockets and persistent lawyers. These patents are then used by companies, known as patent trolls, with no intention of actually developing or selling such products to go after companies with similar technology and demand licensing fees under threat of a patent infringement lawsuit, whether the patent portfolio is violated or not. (The idea is that, since you know how much a patent lawsuit will cost, you’ll simply cave and pay a small license fee to “license” the patent you are not already using. These patent trolls know that all they have to do to bring you to court (in Marshall, Texas) is make a reasonable sounding (not reasonably effective) case to a non-technical judge who will allow them to bring you before a completely technophobic jury.)

It’s insanity, and since the US is not as smart as the EU (that does not allow computer-implemented inventions to be patented), the insanity is here to stay. So what can you do?

1. Keep great documentation on all inventions so you can always demonstrate prior art when you have it.

The minute something is invented and verified by a third party, gather irrefutable evidence and documentation and insure efforts are taken to guarantee its preservation.

2. Make extensive use of provisional patents.

These don’t have to be as finely detailed as full patents and give you a full year to hammer out the details of the invention and get a product to market before having to hand the plans over to your competitors in a full patent.

3. Plan to patent everything of of value that is invented by you.

Whether or not the organization ever intends to try to profit off of it is irrelevant, if it has value to someone, the value has to be protected because it will allow your organization to exploit that value.

4. Form an industry patent licensing cooperative.

Where each entity puts up a relatively equal share of relatively low value patents (to it) that all entities can use for a nominal licensing fee (of $1), where each member agrees to license each patent it holds to other members at a fair price in exchange for the mutual guarantee of no lawsuits (and to settle all disputes by binding arbitration at a shared cost), and where each party may use the entire portfolio to defend against patent troll lawsuits.

Will this prevent damnations from coming your way? Considering that the worst of the patent trolls believe they can take on anything, probably not, but it will certainly minimize the meaningless lawsuits and demand and mitigate damages.

Economic Sustentation 02: Bank Failure

As indicated in our original damnation post, Wikipedia states that a a bank failure occurs when a bank is unable to meet its obligations to its depositors or other creditors because it has become insolvent or too illiquid to meet its liabilities. Since some banks, including the Federal Reserve, have a license to literally print money, most people think that bank failure is impossible. But since some banks over-invest in hedge funds, high risk mortgages, or commodity markets, it can happen and it has happened.

Banks have been failing since they first incorporated, and the fiscal crises in the late 2000’s caused the failure of a number of really big banks, including Washington Mutual, Lehman Brothers, and Bear Stearns. And regardless of how many new acts are passed to try and insure banks limit their risk exposure or keep enough cash on hand to cover withdrawals or payouts in the case of a loss, banks will still fail. Regulators will never keep up with the new and inventive ways banks and investors will come up with to invest, and lose, money.

This is a damnation because not only do they hold your money, all of which above the FDIC (or equivalent) insured amount could be completely lost in a bankruptcy, but your supply chain probably depends on letters of credit and inventory based loans, and they can disappear with the bank that disappears with a bankruptcy. This could cause your critical supply lines to stop, which would result in your production lines going down, and revenue losses mounting by the day while you search for new banks, new lines of credit, and new inventory loans.

So what can you do?

1. Diversify your Banking Portfolio

Just like you should diversify your physical supply chain, and have alternate sources of critical raw material and product supply, you should diversify your financial supply chain and have alternate sources of savings and financing.

2. Include your Banks in Your Supplier Risk Management and Monitoring Program

Even if you have multiple banks, and no bank has more than the insured limit of your money, a failure will still cause you significant grief as you would have to file insurance claims to get your money, arrange new payroll solutions, arrange new letters of financing, and so on.

3. Balance bank financing and private lender financing

Sometimes private lenders will give you a better deal on invoice factoring and inventory financing than banks. Be aware of all your options and balance them appropriately.