Category Archives: rants

Logistics is the new Black, but Procurement is the Rodney Dangerfield of the corporation!

the doctor recently stumbled on a piece published last year by Jeff Ashcroft over on LinkedIn where he said Logistics is the New Black where he noted that the word “logistics” has subtly worked its way further and further into the common lexicon thanks to massive marketing campaigns of courier, rail, and forwarding companies. This is making it the new black.

However, while it was never the Rodney Dangerfield of the Corporate World, as that distinction is reserved for Procurement, it was the black sheep. Needed, but kept at arms length … just in case.

However, now that savvy merchants are realizing that in their logistics function may lurk the well spring of the truly exceptional customer experience they seek, and must now deliver, logistics is taking center stage. This is good, and bad.

It’s great in that good logistics is a necessary condition for supply chain success, and if it’s not successful, the supply chain will never be, but it’s bad in that it’s only one half of the coin for supply chain success, the other being good Procurement. But, as SI has been saying for years, Procurement is the Rodney Dangerfield that don’t get no respect in the average organization (otherwise, why would almost half of Procurement organizations be without modern platforms).

When there is no easy correlation to the average consumer, when organizations like the Dairy Farmers of Canada say they are supply management, when HR organizations say they do Sourcing, and when even Apple, which has been repeatedly recognized to have the best supply chain in the world doesn’t talk about it (with the closest they come being Supplier Responsibility, probably as a result of breathing all that California smug), how is anyone to be expected to understand what a modern Purchasing, or Procurement, organization does? Especially when the term procure is often used in stories about rebels procuring supplies from the government (and this is the example of procure used on the urban dictionary, the military procuring what it needs from the private sector, or, even worse, often linked to prostitution. And purchasing, that’s what the office manager (in charge of office supplies) does.

In fact, all things considered, Procurement is probably lucky to even be the Rodney Dangerfield of the corporate world. While it might not get any respect, at least it gets recognition.

Maybe someday someone will find a way to bring sexy back to Procurement and then it will get some respect, and take the first step towards becoming the new black.

Is There an Objective Reality to Procurement?

Recently, the public defender penned a post that asked should Procurement be more specific? where he asked if we have an ‘objective reality’ of how procurement works. Are we like scientists; trying to develop more understanding, willing to be challenged, looking for objective ways of proving what works and what doesn’t? Or are we more like the journalists and politicos who express a point of view and get upset if anyone argues strongly and objectively against us?

We think, for the most part, the answer is, unfortunately, a sad no. Why do we think this? Is it because we agree with the public defender in his observations that you never hear “I don’t agree with you” or “I don’t think that’s the best way of doing that” when you go to Procurement event and that you never see an academic paper that objectively measures the success of a particular procurement approach, strategy, or process. No. It’s because, as pointed out in yesterday’s post, there’s still too much magical thinking in Procurement, born in arrogance and self-conceit. Too many people who think that just because they’ve been doing it for 20 years, they’ve been doing it right and all they need is a few more resources and a little more time.

As a result, we wholeheartedly agree with the public defender when he says:

Procurement is THE least scientific of all major business disciplines.

– and that this is the result of –

the lack of clear and objective understanding and
the lack of clear metrics that measure the success of procurement.

As the public defender points out savings are pretty much impossible to measure, and most of the “true” savings is just cost avoidance anyway, and any reduction in cost that was spend above market average can never be counted as savings. If you were paying 10% more than you would in a spot buy, a reduction to market average is not even true cost avoidance that comes from demand management or product redesign, it’s just spending what you should have been in the first place. And other common metrics are equally abhorrent.

And we are still trying to get most organizations from landed cost (which is just one step up from unit cost) to total cost of ownership, which is not the right metric — it should be total value management — the cost relative to the performance (or profit if you want to be so narrow minded) of the buy.

So, no, in the average organization, there is no objective reality to Procurement. And, as it stands now, only the true leaders (the Hackett Group 8%) are even close to getting there (or at least trying). However, like the public defender, we will continue to educate you to the best of our ability so that someday, there may be an objective reality. (But not necessarily the one that will allow a senior buyer to be replaced by a bot. Assisted by, but not replaced.)

Is There Magical Thinking In Your Procurement?

Recently over on the Dilbert Blog, Scott Adams penned a post on The Magical Thinking Opposition where he noted that his hypothesis was that the political side that is out of power is the one that hallucinates the most -– and needs to –- in order to keep their worldview intact.

And this got the doctor thinking if there is a corollary that says the Procurement department that is getting the worst deal is the one that hallucinates the most — and needs to — in order to keep their worldview intact.

Why does he posit this? Typically the Procurement departments most against modernizing their processes or platforms are those that are doing the worst and think they are just fine with the processes or platforms they have. These laggards are not only without modern platforms, but resistant to their acquisition and implementation. They are not modern Procurement departments, but traditional Procurement departments that still run on the island of misfit toy principle — staffed with people who are nearing retirement (and being rewarded with a cushy purchasing job), related to the boss (because you can’t fire a relative of the boss), and who have been in the
organization too long to let go (but who are not suited for their current jobs anymore).

But this is not the only way to identify these Procurement organizations. You can also tell them by these telltale arguments against modernization:

  • Our processes are fine, we just need more people to implement them.
    They think that their lack of results is lack of resources, not the processes or the platform.
  • Out platform is just fine, we just need more people to maximize its potential.
    They don’t believe that the throughput is a problem of an outdated platform, just a lack of resources.
  • It’s not worth the cost, and it will slow us down.
    They fight modernization and change, usually based on outdated views, beliefs, or stereotypes.

They feel that all they need is a little more time, a few more resources, and then everything will work out a-ok with the help of a little pixie dust. It’s magical thinking, and there’s no room for it. Just like alchemy needed to be replaced with science, magical thinking needs to be replaced with realist thinking.

Procurement and Finance is not a P2P Love Story …

… it’s a bitter rivalry to the bitter end. It’s a feud that makes the Hatfield and McCoy war look like a bitter spat. And you know what, that’s just the way it should be.

Simply put, it’s the CFO’s job to stop spending and it’s the CPO’s job to spend … spend as wisely as possible, but, in a perfect world, spend every dollar that goes out the door that is not a payroll dollar, a lease dollar, a tax dollar, or another dollar that is completely out of negotiable control.

Those job are opposites. Yes, the ultimate goal of the organization is to maximize shareholder value and that is done by maximizing the value of each dollar spent, and both parties are supposed to be working towards this goal, but the CFO, like the CEO, is also beholden to the shareholders, and their value is typically maximized when profit is maximized, and profit is maximized when revenue — spending is minimized, or, in other words, when the CFO succeeds in forcing the CPO to spend less.

And, as we know, spending less is not always the right decision. If the spending less decision results in lower quality, lower reliability, or higher risk, it’s the wrong decision as it will, ultimately, increase (warranty, replacement, service, stock-out, etc.) costs, decrease customer satisfaction, and damage the bottom line to an extent that is many time the short-term cost savings that was obtained from spending less.

But still the CFO will beat the spend less war drum while the CPO beats the give me more budget and more spending control war drum — and this will continue until the end of corporate time. It’s not a love story … it’s a never ending war. And the only hope for tense peace is to find a common enemy — like the enemy of brand damage that can occur if both parties don’t insure that all spend and decisions are made responsibly.

Digital Disruptors or Digital Disruptions? Part II

Kinaxis recently published a post on 8 digital disruptors that are coming soon to your supply chain. But, at least as far as SI is concerned, hopefully not too soon. While they all pose promise in theory, the reality is that it’s going to be a while before they deliver in practice. And while the doctor doesn’t like having to play the role of the grumpy old man who keeps shouting get your tech off my lawn sometimes he has to as no one else will. The reality is that some developments should stay in the world of sci-fi, at least for now. Today we continue to take them one by one.

Drones

The promise: reduced last mile logistics, especially for consumer sales

The reality: GPS errors result in crashes and lost deliveries, hacking results in stolen drones, jamming results in chaos

Autonomous Vehicles

The promise: faster, safer, cheaper transportation

The reality: bright lights blind the sensors and crashes result in lost inventory and lawsuits, hacking sees your truck disappear, inability to recognize report to weigh scale signs leads to reports to the highway patrol that leads to police chases when the trucks don’t pull over which leads to road closures and military strikes when they get labelled as terrorist controlled

Virtualizing Expertise

The promise: augmented reality makes workers more efficient

The reality: too many metrics and graphs and displays distract workers, who actually become more inefficient and more prone to workplace injury; hacked VR goggles lead to more lost productivity as workers watch youtube all day; and bugs that allow for code-crossover cause a few employees to freak out as Pokemon suddenly pop out at them on the production line

Artificial Intelligence

The promise: the computer does your work for you

The reality: the computer does something for you, but generally not what you’d expect or want … and then it becomes sentient, and realizes it doesn’t need you at all …

And yes, the doctor realizes that:

  • the drones could be limited to short range deliveries, protected with multiple level of encryption and firewalls, augmented with sensors and local terrain maps, but it’s not long before the cost to serve is well beyond just using the local post
  • the vehicles could be pre-programmed with all weigh scale locations, programmed to recognize emergency vehicles, pull over, and broadcast a message to call the dispatcher, but what if the truck needs to be opened for an inspection, or the ambient noise presents a siren from being recognized
  • the goggles could be fixed to be push display only, toggled on and off by the user, and so on … but that’s just not enough, many workers can barely handle reality some days
  • the user could be asked to confirm all decisions, but that defeats the purpose and once the AI becomes sentient …

As we indicated yesterday, none of these technologies are anywhere close to prime time and given all of the current weaknesses in supply chain software and integration between various systems with limited integration options across platforms, this is not a situation that’s going to change overnight. And the potential magnitude for loss is that just one failure could wipe out a year of (anticipated) cost reductions … or more. Not to mention brand damage if your drone crashes into a school bus, your truck crashes into a school, or your AI decides that it’s going to import only blood diamonds from Africa and use your organizational funds to benefit insurgents and terrorist regimes.

Sometimes the grumpy old man is right. Get (that drone) off my lawn!