With Currencies Crazy, Is It Time to Return to Barter?

This is more of a question / thought experiment than anything else, but it’s a good question.

Brexit has thrown the British pound into chaos again. (Nothing new, it’s happened before, it will stabilize eventually, but it will happen again.)

Canadian and Australian dollars have recently made substantial declines from highs that put the dollars almost on part with the American dollar to lows that put it a mere two thirds to current values around the three quarter mark.

The Greek financial crisis is still ongoing and could threaten the Euro further.

And so on.

An organization enters a long term (multi-year) contract with an international partner under the expectation of value, an expectation that is crated based upon a current and projected currency exchange rate — which can change radically overnight when a single country, or in some cases, a single bank, decides to do something extremely unexpected or extraordinarily stupid.

All of a sudden costs can double. That’s considerably more fluctuation than is in the reserve budget.

But what if there was no exchange of currency. What if it was an exchange of a raw material or service for another raw material or service, where each raw material or service came from the organization or a partner in the same country. Since the value of a product or service, adjusted for inflation, is relatively constant over time and since the relative value of one versus another is also relatively constant over time, such a contract would not be subject to rapid changes in value differences regardless of what happened in the currency markets.

Now, you’re probably thinking that this wouldn’t work — you buy from X and don’t sell them anything, but who do they buy from and what do they buy? And what do their downstream partners need? Remember, they have bills to pay too and if their supplier requires a raw material in abundant supply that could be supplied by one of your customers, that has to pay you anyway, all could work out.

For example, just because you’re buying rare earth metals for electronics manufacturing, doesn’t mean bartering is off the table. The rare earth metals provider, which provides a refined metal, might be buying from a mining company that is part of a conglomerate owned by a single company that requires specialized mining equipment on a regular basis. One of your biggest customers could be a producer of this equipment that buys all of its hardware and associated services from you. If you arranged for payment in mining equipment of your choice in today’s dollars, and the seller was happy with that conversion, you could pay in mining equipment over time, regardless of how your relative currencies rose and fell.

This might not have been imaginable years ago given all the supply chain visibility, data, and optimization models that would be required to identify the right value-generating deals that could keep costs constant over time, but with modern supply chain systems that enable visibility from the raw material to the end customer, all supply relationships, demands and spend, and multi-level optimization models, this is now a reality. And currency risk could effectively be made a thing of the past in large, critical categories. It could require more multi-party agreements, but if all parties benefit, why not? It’s not like you have to courier contracts around the world — create a secure collaboration portal, agree, e-sign, and you’re done.

Now, just like buying on behalf of the supplier to get lower costs through greater volume leverage is still only done by the leaders, SI expects that this is something that only leaders would do for at least the next decade, if it was done at all. What do you think? Will leaders catch on?

Top SI Posts: What Are You Peers Reading? Part II

SI doesn’t do many top X lists, because not many are useful — but every now and again it’s informative to look at what is being read and ask why. In yesterday’s post, we summarized the top 11 posts from the first half of 2016. In today’s post, we discuss potential reasons as to why the indicated posts were the top posts from the first half of 2016.

If we analyze the top x posts, we see the following overlapping subjects, in alphabetical order:

  • Automation
  • Marketing
  • Platforms
  • Procurement Strategy
  • SRM
  • Supply Risk
  • Tail Spend

All of these revolve around platform, strategy, risk, and spend with (strategic) suppliers. Basically, your peers, enlightened as they are, are concerned with making the right decisions when it comes to identifying products and suppliers on which to allocate spend. This right decision revolves around a combination of cost avoidance, risk avoidance, and waste avoidance. The wrong decision can cost too much, come with too much (potentially devastating) risk, and cost the organization a lot of resources and effort over the long run to manage and control. All of this wastes time, money, and effort.

A Procurement organization with the desire to (someday) be best in class realizes that the only way it can do so when it is constantly under-resourced and under-funded is to be as efficient and effective as possible. It realizes that it has to build and maintain a sustainable value engine and focus on what matters — reliable supply, quality products and services, cost control (not savings), and value generation — and that this requires the right talent, technology and transformation from a laser focus on savings to a broad value focus on the organizational goals. A focus that understands and manages risk; that forms, adopts, and implements strategy; that gets all spend under management (even if that management is simply 3-bids and a buy or automated auctions for tail-spend so that the organization never spends more than market average and never gets less than market average quality); and that realizes that platforms provide power, but not solutions. Human intelligence is still required.

In other words, what SI has been focussed on since day one.

And that’s probably why these posts rounded out the top 20.

Top SI Posts: What Are You Peers Reading? Part I

SI doesn’t do many top X lists, because not many are useful — but every now and again it’s informative to look at what is being read and ask why. In today’s post, we’ll summarize the top 11 posts from the first half of 2016. Then, in tomorrow’s post, we’ll discuss potential reasons as to why these are the top posts from the first half of 2016.

#11: How Do You Find the Right Platform for You?

In this post we proposed an introductory four step process that could be used to help an organization identify the right Supply Management platform(s) to help it in its operations. This followed our two-part series on “what is a platform”.

#10: Ditch the Pepsi Blues, Already: Become a Marketing Procurement Asset Part II

In part II of this 2-part guest-post from Brien Seipel of Source One he noted that the next step for a Procurement organization that did not want to be ditched was to realign priorities and put the “marketing” into marketing Procurement. What does this mean? Check out the series!

#09: Can Your Platform Handle Direct? Take the Direct Procurement Challenge!

In this post we discussed how the direct procurement lifecycle was considerably different from the classic indirect procurement lifecycle (which is, by the way, cost centric perfect for indirect), and that an organization that wanted to get a grip on direct needed to understand this. We also noted that for an organization to figure out what platform was right for it, it had to take the direct procurement challenge.

#08: Don’t Let Tail Spend Take You For a Tail-Spin!

Tail spend is starting to get attention, and by right it should as this bottom spend often contains an overspend as high as 30%! Getting rid of this overspend can be as effective as saving 7% on the top spend.

#07: How Does Your State of Flux Measure Up?

In this post we noted that, in many organizations, SRM — Supplier Relationship Management, is in a state of flux. Policies are undocumented. Processes are not automated. Critical interaction data is not captured. And the majority of your employees interacting with your suppliers on a daily basis cannot even identify five of your top ten strategic suppliers. (Finance might hazard a guess, but while dollars spent is an indicator, it’s not a guarantee.) Something has to be done.

#06: AI Will Not Save Procurement — Thought Leaders Will

In this post we noted that despite the fact that Procurement is at a crossroads, and despite grandiose claims to the contrary about the power of AI-powered predictive and prescriptive analytics, AI will not save Procurement. Better systems will make us more efficient and effective, and power our Procurement Value Engine, but they will never be able to make decisions for us. They never have all the data, they never see beyond the numbers, and they don’t have the insight to look beyond what they are given. Their proficiency might increase, but it will never be perfect … and automating your Procurement function with them will simply automate your way to failure.

#05: Ditch the Pepsi Blues, Already: Become a Marketing Procurement Asset Part I

In part I of this 2-part guest-post from Brien Seipel of Source One he noted that organizations don’t ditch marketing procurement, they ditch bad marketing procurement and if you’re organization wants to get Procurement spend under control, the only way to do so is to become an asset, not a roadblock.

#04: Driverless Delivery? Tantalizing Theft Target!

Everyone loves automation and everyone loves Google’s and promise to automate everything — but automating deliveries is simply automating theft. Don’t believe it? Read the post!

#03: the doctor doesn’t like lists either, but the 50/50 is as good as it gets

The title says it all — warts and all, the 50/50 is the best Supply Management Vendor List out there.

#02: Failure to Monitor a Supply Chain for Risk Can Tarnish Your Brand

Supply chains are fraught with risk, but the biggest risk of all is the brand impact from an unexpected supply chain disaster that can destroy the corporate bank account.

#01: Aligning Procurement Strategies to Business Goals, Part I

This guest post from Torey Guingrich of Source One talked about how to align Procurement strategies to business goals, a necessity for organizational success.

Pool4Tool: Bringing The Direct Procurement Platform — And Message — To the Masses! Part III

In Part I, we began our discussion of the Pool4Tool platform by focussing on its Sourcing capability. Then, in Part II, we discussed their Procurement and SRM capabilities, and specifically, the catalog management capability, procurement requisitions, service management, the SRM portal, and the overall procurement workflow capability. In this third and final installment of our initial 3-part series on Pool4Tool, we are going to discuss the supply chain management capabilities, which is where many of the capabilities not found in traditional source-to-pay (or procure-to-pay) platforms designed with indirect in mind fall short for direct materials management.

The Pool4Tool platform contains a number of unique supply chain management capabilities, including deep ERP integration, document approval, VMI, automated order dispatch and order acknowledgement, Kanban, and quality control.

Let’s start with ERP integration. Pool4Tool supports extremely deep ERP integration and the integration to SAP is so strong, and the interfaces so useable, that it’s actually deeper than Ariba and more useable by its clients for SCM than SAP’s own interfaces in some cases.

It’s EDI integration with third party content is extensive as well. Third party feeds that have already been integrated include, but are not limited to, D&B, Ecovadis, and about a dozen other providers. This data can be viewed side by side with all internal system and supplier data to provide a true 360 degree view of a supplier that extends beyond the enterprise to the market as a whole.

One of the true strengths of the platform is the integrated VMI capability. Not only does the portal allow a supplier to self manage all of their data, see all of their purchase orders, get real-time visibility into their invoice status, and collaborate with the buyer, but it allows the supplier to manage inventory levels on behalf of the buyer. The supplier can keep track of stock levels in real time, manage deliveries to make sure stock levels do not fall below minimums or exceed maximums, and insure the buyer can run their operations smoothly at all times. This can take MRO to a new level and allow both parties to be more efficient.

And, last but not least, the bill of material support and integrated lifecycle costing with integrated budget management extends into supply chain management capabilities as well. The cost of a product is more than just the production cost, or acquisition cost, or sales cost — it’s the cost of distribution, the cost of maintenance, the cost of return, and the cost of raw material reclamation. The lifecycle cost can be many times more than what it costs to make a product, and the POOL4TOOL platform not only contains models to accurately compute that cost, but also to manage the acquisition, distribution, and support against a budget and track the costs across the lifecycle.

In other words, the capabilities of the Pool4Tool platform, while only briefly discussed in this series, go well beyond the average Source to Pay platform designed with indirect in mind and is, thus, a platform that should definitely be evaluated by any sourcing organization that does a lot of direct (material) sourcing.

For more information on why indirect platforms cannot support complex direct sourcing needs, see Sourcing Innovation’s recent white paper on The Direct Procurement Challenge. For more information on complex direct sourcing needs and the importance of efficiency and effectiveness in general, see the doctor‘s recent paper on The Procurement Value Engine, co-authored with the procurement dynamo. And check out the Pool4Tool platform.

For a deeper dive into Pool4Tool and their platform, see the recent 3-part series over on Spend Matters Pro [membership required] that does a very deep analysis of Pool4Tool and their capabilities. (Part I, Part II, and Part III.)