Efficiency Is In The Process, NOT THE MARKETPLACE!

the doctor really should stop reading the “news” and “best practice” articles the internet pushes his way because most of them are rubbish and just make him angry, but then again, if he didn’t get angry, what would he have to write about?

One of the articles recently was about how procurement can push efficiency and sustainability into the organization. The sustainability advice of “look for eco labels or EPA ID or products with recycled content” was pretty abysmal (because, duh!), but the efficiency recommendation of “create an e-marketplace to give your buyers an online catalog of goods and services” was just appalling.

That’s only efficient for organization end-users charged with restocking the supply cabinet in the office or keeping the MRO stock levels high enough to guarantee the production lines keep going when the store room gets low. That’s not injecting ANY efficiency into the Procurement process.

When you consider even the most basic strategic procurement process, you have to:

Identify the Need
and efficiency here is an intake management solution that allows you to collaborate with the end-users / end-sellers to make sure you’re procuring the right products for them to ply
Identify the Potential Suppliers
and efficiency here is a solution for supplier discovery, evaluation, and onboarding
Identify the Evaluation Requirements
and efficiency here is an orchestration solution that allows procurement to integrate all of the requirements from the users, the business, and the organizational goals
Evaluate the Bids
and efficiency here is an RFX solution with integrated analytics
Negotiate and Sign the Contract
and efficiency here is a contract lifecycle management that at least supports the contract negotiation process with complete document (and version) tracking and preferably also includes support for initial contract creation from award, key issue tracking, and e-signature integration
Determine the Appropriate Ordering Strategy
and efficiency here is determining whether the best fulfillment is regular shipments (if the factory uses X thousand units a month), auto-reorders on inventory level triggers (if the usage is/sales are irregular, but the product can be pulled quickly), or (managed) catalog-based orders as needed
3+-Way Match (against an invoice)
and efficiency here is a solution that makes it easy to ensure the invoice matches the goods receipt that matches the PO (at a minimum, and you also want to make sure the PO matches the contract etc.)

Efficiency is injecting efficiency into this process, not just setting up a marketplace!

The 1-Step Guide to Responsible AI in Procurement

Forbes recently published an article on Responsible AI Procurement: A Practical Guide For Selecting Trustworthy AI Vendors. It wasn’t bad, but it missed the point.

Today, there’s only one way to responsibly address AI in Procurement.


1) We don’t really understand proper AI Governance (especially when most vendors are using third parties which are illegally scarping content, not checking for bias, and tweaking models on the fly without consideration for the new problems the on-the-fly tweaks will cause).

Plus, it’s not just ethical codes of conduct, it’s agreeing on what the ethics are, and, most importantly, making sure the models are transparent and unbiased — but we don’t know how to do that today, especially since all these models are huge black box models.

2) You can demand all the evidence you want from the vendor as backup for the vendor claims, but if you can’t verify it, how can you trust it?

3) These models require huge datasets to train. Even if you know the data set used and the processing method used, how can you be sure every element was properly vetted? Just like one bad apple can spoil the bunch, just one bad element in a clustering or optimization model can spoil the entire model. Just one!  It only takes a small amount of bad data to spoil a model, regardless of the model used.

4) These models can fail, and sometimes fail spectacularly. If you don’t understand the model, you don’t understand where it can fail, and thus what to look for. Also, many minor incidents (which can foretell future catastrophic failures) will go unnoticed if a human isn’t checking everything.

5) These models are not secure … the AI can leak any training data at any time without warning. Your vendor can have every security certification under the sun, and all will be for naught if they use LLMs.


A Circular Battery Economy is Necessary For Green Vehicles

Regulation (EU) 2023/1542 of the European Parliament and of the Council concerning batteries and waste batteries took effect this summer (on 12 July 2023 to be precise) and it’s a good first step towards a sustainable battery economy that will, hopefully, reduce carbon in the long-term.

When you consider that all of the zero emission claims for battery-powered vehicles are complete bullcr@p when you consider the carbon emissions to produce the vehicle, the carbon emissions required to produce the battery (which, in an inefficient process, can be more than 2X the emissions to produce the rest of the vehicle), and then the emissions to charge the battery from what is usually an oil or coal power plant, you might have to drive as much as 1,000,000 kms just to reach carbon neutrality! (And while the linked article doesn’t work out the best case scenario, it’s likely you’re driving the full warranty, or about 200,000 kms, to reach carbon neutrality when you’re charging the batteries burning oil or dirty coal.)

And even if the vehicle production is optimized, the battery production is optimized, and the power grid is primarily powered by pure renewable energy, it’s still not zero emission. The production of solar panels emit carbon, the production of windmills produce carbon, the building of dams and the generators that run them produce carbon, so you have to amortize that over the expected lifetime every time you charge that battery. So even a green vehicle will produce thousands of kilograms of carbon in its production, thousands of kilograms of carbon in its battery production, and hundreds to thousands of kilograms of carbon during its recharging. If you’re lucky enough to have the best case scenario with access to high efficiency solar, then you can get your carbon footprint down to about 10g per kwH over its expected lifetime, or a mere kg of carbon per full charge (or 400 kg over the first 200,000 km), and you approach carbon neutrality not long after you negate the production costs (which you might never do today as some methods to produce new batteries are so dirty). (But most of us do not have access to clean solar grids.)

This means that most first time produced vehicles with first time produced batteries are actually quite dirty. Very, very dirty. And the only way we’re ever going to get greener vehicles is to 1) cut down the carbon on vehicle production and 2) cut down the carbon in our power generation. Now, until we ban power production from oil, coal, and natural gas for fixed location power production (and build enough renewable power plants or start building micro modular reactor grids [where you could literally keep enough concrete on site to safely bury one in the case of a pending meltdown] and take advantage of the Onkalo spent nuclear fuel repository), there’s not much we can do about 2), but there are lots of things we can do about 1). First of all, we can make vehicles with more longevity (better part quality, more rustproof materials, easy part replacement, design for recycling, etc.). Secondly, we can design our batteries for reconditioning and recycling, to minimize the carbon production in the creation of future batteries, to make the next generation of vehicles greener.

But history has taught us no one does the up front research to design for recycling, or invests in recycling without regulation, so any regulation that forces companies to make more sustainable, circular, and safe batteries is not only a good thing, but the necessary first step on the road to truly getting green(er) vehicles.

A Slow Cautious Approach to Pulling Out of China May Be Justified …

… but the justification has NOTHING to do with geopolitical events or economic factors, as suggested by this recent SCMR article. First of all, those are always in flux. Secondly, neither of these factors are the ones that could be limiting your ability to peel out.

There are two primary factors that could be limiting your ability to peel out of China:

  1. available production capability
  2. source material availability

And these are the only factors you should be considering when you are considering how [do] you reconfigure the global supply chain. Because, unless you are selling in Asia, you HAVE to get out of China if you want stable supply streams.

Available Production Capability

First of all, are there alternative near-shore plants? If not, you’re stuck until you (co-)invest in one, get it built, get it up and running, and verify the quality is acceptable. If there are, can they produce the products you need in the quantities you need, or at least a reasonable percentage? If so, are the quality and service levels sufficient. If there are three or more near-shore suppliers that can collectively meet your needs, you shift a considerable amount of your award to them immediately (depending on existing contracts, the time-frames for the suppliers to fully ramp up to support your business, and the time-frames your organization needs to get ready to support the shift) and start the process of shifting all of your award to them.

Source Material Capability

You also have to consider where the raw materials are coming from, and how easy it will be for your suppliers to get sufficient stacks of the materials you need in steady supply. For example, if you need lithium-ion batteries produced by current processes, you need cobalt. 73% of today’s cobalt comes from the Democratic Republic of Cobalt (DRC). The DRC has considerable trade agreements with Qatar. So while the country has bilateral trade agreements with over 50 countries, its relationship with Qatar could cause you problems if you want to use a producer in the middle east NOT in Qatar if another diplomatic crisis (like the one in 2017) arises.

Also, China is the largest producer of grains, gold, coal, rare earth minerals, and two hundred (200) plus other materials, components, and products, so if your production depends on any of these materials, components, or products, you need to make sure your suppliers are located in countries who have good relations with China or have already locked up enough secondary sources to guarantee your product production will be uninterrupted.

That’s it. Yes, you have to consider the economics, because you can’t pay 50% more and not seriously upset (and lose) your (current and potential) customers with the price increase that will result, but with proper investments in new processes, equipment, and talent, costs can be reduced anywhere in the world, and all it will take for the potential supplier to make these investments is enough guaranteed business from you. (So make it so!)

Of course e-Auctions and Smart Procurement Can Help Beat the Current Chaos …

… and when the doctor saw yet another obvious headline that was something he would have expected to see two decades ago, he was quite tempted to click past it as he’s already seen forty plus regurgitations of the same message over the past two decades. However, the subheading was something new … “CIO’s should engage with their procurement colleagues to understand how they could benefit from more sophisticated IT purchasing“. Many an article touts the value of Procurement, especially in tough times, and many more tout the value of IT Procurement (with a modern emphasis on SaaS), but not many tout the importance of collaboration, especially in tough markets. So seeing this subheading at the top of a recent article on The Stack was welcome.

The reality is that if organizations want to get through these tough times, every department that has to buy needs to work with Procurement, and we mean work, not just use. It will require a mix of category expertise, market expertise, process expertise, and procurement platform expertise to be successful. Procurement can bring the procurement platform, process, and some of the generic market expertise, but it will need the category experts in the various parts of the business to bring the expertise on supplier capability and the category expertise it is missing.

IT Procurement is not easy. A modern organization has to procure:

  • SaaS solutions — where you have no idea what you should be paying (without a SaaS market specialist, who can only get you within a range)
  • cloud computing / rack-space — to run your back office, store your documents, build your custom cloud offerings — and you have little idea how much you should really be paying here either (without a specialist, as all you know is the public quotes)
  • office computing equipment (laptops, tablets, smartphones, etc.) — and while you get plenty of “market intelligence” on public sites like Amazon, Walmart, Best Buy, etc.), how accurate is it when you sometimes see $400 discounts on a $1000 machine … you need to know the specs, the warranty, etc. and how they compare to similar machines … and how much better an i7 is compared to an i5, and if you even need an i7 when all the machine is going to do is access SaaS solutions and run Microsoft Office

And IT is not the only category where the right mix of Procurement know-how and category expertise from the end-user is needed. Most categories in engineering, back-office, maintenance, pharma, etc. require a lot of specialist expertise.

But with the right expertise, success is guaranteed. Prices might go up (that’s what happens during inflationary times), but Procurement can keep those increases to a minimum, and at a point less than what the competition is seeing. And that’s the worst case. In the best case, inflation has not yet hit the category and good processes and practices actually reduce the cost. And in both cases, the supply will be stable, secure, and of at least standard quality. So use Procurement Processes and Practices. They can only help.