Societal Damnation 41: Fraud & Corruption

As per our damnation post last year, fraud and corruption is everywhere and running havoc on your organization and your supply chain. A recent Kroll Global Fraud Report in late 2013 found that 70% of companies were affected by fraud in the prior 12 months, which represented an increase of 15% over the previous twelve months. In other words, at the time, 7 in 10 companies were hit by fraud in the previous year. But it gets worse. The Economist at the same time also found that fraud was on the rise and predicted that it would continue to rise. If the rate of increase remained steady, then 4 of 5 businesses got hit with fraud last year and 9 out of 10 business will get hit with fraud this year. Yowzers!

Procurement fraud can be particularly costly and damaging regardless of if you are in the public sector or the private sector. The UK public sector estimated that fraudulent purchasing on an annual basis cost it £ 2.3 Billion in 2012! Zoinks! And while it’s harder to find good numbers for the US, a 2011 report by Computer Evidence Specialists found that Fraud cost the US $1.32 Trillion in 2010, of which 733 Billion was Corporate (with 68% committed by corporations and 32% committed by employees). Hamana! Hamana!

If you are a large organization, whether you want to admit or not, there is a small percentage of employees, suppliers, and customers that are looking to rip you off for as much as they think they can get. Every day of the week, including Sunday. Not everyone, not by a longshot, but enough people to make your job miserable.

So what can you do? As per our damnation post, a good start is to

  • have an invoice policy that is strictly followed that only accepts invoices from approved suppliers, only for approved goods or received services, and only at contracted or publicly advertised rates
  • have strict spending limits and controls that enforce them which ensure that only people with authority can grant approvals for bypass, and that such approval is clearly logged in an auditable fashion
  • careful inspections of all goods received to make sure the organization gets what was ordered and what is paid for

But that’s just a start. The organization should also:

  • analyze all invoices or expenses without a PO very carefully to ensure they are not duplicate, that the goods or services were received, and that the prices billed are the prices the organization committed to pay
  • have strict policies on who is allowed to buy and what they can buy and have a policy that repeated or serious offences can, and will, result in immediate dismissal
  • have a standard contract rider that no invoices for off-contract goods or services will be accepted without a PO that all contracted suppliers must sign, as this will severely limit how many unexpected invoices show up
  • use data mining and machine learning to identify potential fraud as the same receipt submitted 3 times two months apart, or patterns of the same no-receipt charges, or duplicate billings for the same service months apart will be immediately identified as suspect, for example
  • keep up on fraudulent statistics and schemes and identify methods to enable the quick identification thereof before new fraud methods and attempts cost the organization too much money

But whatever you do, don’t target employees and treat them like criminals. If you treat them like criminals, they will become criminals. Create good procedures and processes for invoices and payments, install solutions where it is easier to follow the procedures and processes than ignore them, and make it about cost control, not fraud prevention, and you’ll find that fraud just isn’t as much of a concern. (Fraudsters choose easy targets.)

HICX: HI-C to the X for SXM

HICX Solutions, a provider of a leading Supplier Management platform, was founded in London in 2004 to create a platform to effectively tackle supplier master data management and supplier risk management. Recognizing that the Supplier Information Management (SIM) platforms of the day were not enough to effectively manage suppliers — especially since the data was needed in ERP/MRP, sourcing, procurement, logistics, and related systems — they embarked upon a mission to create a solution that fixes that.

The problem with SIM solutions, besides the fact that they aren’t true SPM (Supplier Performance Management) or SRM (Supplier Relationship Management) solutions; don’t address risk; and don’t address supplier development, is that SIM is not master data management. It’s supplier data management, but it’s data management within the platform. An organization needs supplier data management throughout the enterprise, not just a single platform. And that is effectively master data management (MDM).

And that is HICX’s core strength. It’s cradle-to-grave supplier management and contract management is built upon this core industry leading MDM capability that can not only accept data from and push data to dozens of ERP and best-of-breed systems throughout the enterprise, but can automatically match and merge the majority of such data, even upon an initial engagement. (HICX has already mapped common fields in dozens of ERP and best-of-breed systems and if your systems have already been mapped, you can skip the mapping step that typically precedes a data merge process.) The MDM system will automatically identify duplicates and conflicts and human data stewards will only need to correct records on an exception basis (when there is a conflict as the system can be programmed to ignore exact duplicates on import).

On top of this MDM capability, HICX has implemented a suite of solutions for:

  • Supplier On-boarding for discovery, enrolment, and enablement on the system
  • Supplier Data Management for supplier data centralization and management
  • Supplier Performance Management for KPI, issue, and initiative tracking
  • Supplier Risk & Compliance Management for risk factor, regulatory, and insurance tracking
  • Supplier Corrective Action Management for issue identification, resolution plans, and implementation tracking

The supplier on-boarding, which is built on the industry leading MDM, is a particular platform strength. In the HICX, the on-boarding process can start as early as the identification of a new supplier which is onboarded using a process that adapts to the type of supplier (be it under consideration as a long-term [strategic] supplier, a sub-contractor, a one-off vendor, logistics company, government organization, etc.) and that is simplified with the provision of a D&B (or equivalent) number that allows for all public information to be automatically imported. One advantage of the solution is that, even before a supplier is onboarded, potential matches or duplicates in the system are automatically identified to prevent a user from inviting a supplier that is already doing business with another organizational unit. And if additional data is needed, data can be imported quickly from any platform using their script-based import capability.

For more information on HICX Solutions, check out the 2-part series on Spend Matters Pro (Part I and Part II [coming soon]) [membership required] by the doctor and the prophet. This in-depth analysis is definitely worth your time if you are on the market for a SxM solution and trying to not only identify the leaders (of which HICX is one), but determine which of the leading solutions is right for you.

Environmental Sustentation 18: Natural Disasters

Natural Disasters are on the rise. The rapid rise to be exact. As per a 2011 publication from THINK Executive, the number of disasters between the 1970s and 1990s occurring worldwide tripled. But as if this was not bad enough, it is predicted that both natural and man-made disasters will increase five times in the next fifty years. Ouch!

Something bad is going to happen. And it’s going to seriously disrupt your supply chain. Are you ready?

Probably not. But regardless of the natural disaster, these tried-and-true techniques can help you survive the next earthquake, hurricane, tsunami, volcanic eruption, or ice storm.

1. Dual Source from remote regions.

That way if a crop or factory in a region is destroyed, you can switch to the alternate source.

2. Maintain visibility down to raw materials for key products.

This way if something happens that affects a supplier’s supplier, you will have early warning and can make plans to switch sources, or help a supplier find an alternate source of supply.

3. Continually investigate alternate designs that require less of raw materials in limited supply.

The less you are dependent upon that one rare earth supplier in China or petroleum based products, the better you will be.

4. Invest in your own renewable energy source.

Should the main grid be overloaded and go down or be destroyed, having your own renewable energy source that your own engineers can maintain can help.

We know you’ve heard this a hundred times, but there’s a reason for that. These techniques are among the few that can be used to prepare for, and deal with, any natural disaster that considerably disrupts part of your supply chain.

It’s Time To Rev Up Your Procurement Value Engine. But Do You Know How?

Procurement doesn’t exist to just buy stuff. Procurement exists, at least if it’s a modern Procurement organization, to identify and deliver organizational value. Long gone should be the days when Procurement, staffed by the island of misfit toys, existed only to process the paper work that allowed manufacturing to buy the parts it needed or the back office the paper and calculators required to do the day-to-day accounting.

But the identification of organizational value, as long-time readers of SI know all too well by now, is not always straight-forward. Every organization is different, and every Procurement function has a different level of organizational maturity. As per the classic Hackett Hierarchy of Supply, a supply organization could still be at the level of supply assurance, could have moved on to analyzing landed cost, may have begun its entry into the modern era with an analysis of TCO, might be poised to become a leader with a foray into demand management, or, and this is the highest level of maturity, may be focused on the art of value management.

However, delivering value takes more than just realizing that your function is to deliver value. It is understanding what value is to the organization and how Procurement can contribute to it. Simply put, one way of defining value to the organization is whatever allows the organization to increase its revenue potential. (More sales, more market share, more brand recognition and brand love, and so on.) One way of assisting the organization in the capture of this value is to deliver products, services, and knowledge that will assist the organization in strengthening its Unique Selling Points (USPs) or Unique Value Propositions (UVPs) that give the organization the competitive advantage it needs to increase its revenue (or profit) potential.

It is not easy to do, especially since a Procurement organization has to understand not only what it must do, why it must do it, and how it will achieve it, but how to be good at it. Few organizations get demand management under control and step up to the highest level of the pyramid. Fewer still can stay there as they will struggle with the how. And even if they occasionally understand the how, they may never master the art of being good.

If one wants to be good and drive to success, one has to have a vehicle powered by a finely tuned engine that can deliver value lap after lap around the sourcing track. Such an engine must be efficient, effective, and sustainable. Only then will Procurement be able to get good and stay good. So what does such an engine look like, what sort of value will it deliver, and how will it deliver that value?

For the answer, check out the new white paper co-authored by the doctor and the procurement dynamo, sponsored by Pool4Tool, on how to Boost Your Procurement Value Engine. Part I of a II-part series (with Part II coming out in Q3), this paper will give you the insights you need to understand the various levers you have to deliver true value and how you can do so in an efficient, effective, and sustainable manner.