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

In our last post on Playing With Fire: Hidden Risks in Your Supply Chain, we discussed how your supply chain is filled with hidden risks which can bleed your bank account dry and bring your supply chain to a screeching halt if they rise up and rear their ugly head.

But they can do more than bleed the bank account and stop your supply chain in its tracks, they can tarnish your brand and cause permanent damage to your company. A recent study by CIRANO found that while there is an 80% chance of a company losing at least 20% of its value at least once during a five year period as a result of a negative, but well publicized, incident, a major incident that negatively impacts the brand in a significant way can be much worse. Just ask Airbus that had its stock plummet by over 26% in a single day, equivalent to a market capitalization loss of approximately €5.4 Billion, after it announced on the close of trading on June 13, 2006 that issues with the supply and installation of electrical harnesses would lead to a further six-month delay in the delivery of the A380 (and that the impact of the disruption on earnings before interest and tax would be €500M per year for four years).

Or ask BP, which, as a result of the Gulf of Mexico oil spill when the Deepwater Horizon drilling rig exploded on April 20, 2010, saw its stock price fall by 52% in 50 days. Ouch!

But it’s not just supply delays or disasters that cause loss of brand value. It’s reported violations of clean air, water, energy and other environmental acts that get environmentally conscious consumers to boycott your products after environmental activists get up in arms. It’s poor treatment, or even discrimination of, a class of people that can also get a company in trouble. If your supplier is known to regularly subject its employees to unfit working conditions and violate wage acts, that’s a problem. If a CXO regularly goes on record speaking out against minority groups’s rights (include the LGBTQ community or immigrants), that’s a problem. And if there are investigations of corruption, that’s a big problem.

It’s more than just environmental non-compliance risks that you have to watch out for. To find out more, check out Sourcing Innovation’s latest paper on Playing With Fire – 4 Hidden Risks Lurking in Your Supply Chain, sponsored by Ecovadis to find out the major categories of risk you need to watch out for, some major impacts of each type of risk, and just how many zeros they could take off the end of your bank account.

If You Are Going to Create RFPs – Avoid RFP Hell

And Write Better RFPs!

On Sunday, in Why Create RFP Hell? we referenced a post by Larry Bodine that he posted over ten (10) years ago over on the Law Marketing Blog on Why Go to RFP Hell where we noted that, as a vendor, the last thing you want to do is answer an RFP. Especially a poorly designed RFP, because it is the only thing worse than the Spreadsheet Hell you have to endure to manage your Sourcing Project Pipeline (unless, of course, you have a Sourcing CRM solution, like Per Angusta described in yesterday’s post).

Since the last thing you want to do is be on the receiving end of a bad RFP, the very last thing you want to do is issue a bad one. If you don’t drive away the best suppliers, you will at least put them off and they will not be all that excited about giving you a great solution or putting their best effort into the project. So, as we indicated in Sunday’s post, you really need to Write Better RFPs (membership required). And the new Plus series co-authored by the doctor and the maverick is designed to help you do all that. All five (5) parts of the series are now up, and can be found here:

  1. Intro & Issues
  2. Requirements
  3. Provider Secrets
  4. Buyer Best Practices
  5. Tech Benefits

So how will this series help you write better RFPs? Instead of telling you what an RFP is, specifying the section, and giving you a template with hundreds of useless questions that will have respondents pulling out their hair (and searching for the closest voodoo shop with your linked in profile picture in hand), it addresses a number of key requirements of RFPs that most guides will fail to tell you.

For example, what is more important to keep in mind when writing an RFP — the supplier limits, or your limits? Most people would say “supplier limits” because the supplier will be providing a product or service and you need to know the extent of their capability. And while this is true, it’s more important to know your limits. If you don’t know your limits, you end up asking questions that are too detailed and that effectively only allow suppliers that fit in a neat little box to respond — a neat little box that might represent last year, or last decade’s solution. An initial RFP needs very open, broad, questions that allow a top-notch, engaged, interested supplier to show their capabilities, not just the subset you think you are interested in. Success is describing the desired end, not the acceptable means. If the supplier can host their software on a quantum computer, all the better for you.

And while you might need to Cover Your @ss, Asking CYA questions is pointless. No supplier who takes the time to fill out a 20 page RFP is going to say “NO” knowing that it could be an immediate disqualification. And while you will want to disqualify any supplier unable or unwilling to meet necessary conditions by the first delivery date, you do not want to disqualify a supplier who does not have sufficient insurance now, because, for the right contract, many suppliers will increase their insurance, change their operational practices, and participate in optional sustainability improvement programs. Simply create an attachment that lists, in detail, necessary insurance requirements, and mandatory certifications and audits, minimally acceptable codes of conduct, and any other inflexible requirements and explicitly state that any supplier unable to meet these requirements by a certain date will be disqualified in the next round and that any suppliers selected for the next round (which could be in-person negotiations) will have to verify the ability to meet all of the attached terms and conditions before they will be allowed to continue in the sourcing process. If you take the time to specify all this in detail, the supplier will know your organization is serious, but that it is willing to give a good supplier until the product or services delivery date to meet the requirements. The better suppliers will self-select.

The reality is, as per our in-depth Provider Secrets article, suppliers, and the best suppliers in particular, have a lot of reasons to ignore your RFP. If you want the best suppliers to respond, it has to be a good RFP (for a decent size project which clearly conveys that the best supplier, whether or not it already does business with the organization, has a solid chance of winning some business).

If you follow the tips and tricks in Buyer Best Practices, your chances will improve considerably, especially if you use a good RFP creation tool that makes it easy to engage organizational stakeholders, gather supplier responses, and compare them side-by-side in a meaningful manner (that goes beyond just a weighted scorecard). So check out the series (membership required) and learn to Write Better RFPs today.

Per Angusta: Purchasing CRM

Per Angusta is an interesting SaaS company in the Procurement space. While most Procurement companies focus on the Sourcing or Procurement process, or supplier management, Per Angusta focuses on the workflow that ties it all together — a workflow that is typically managed in Microsoft Excel Spreadsheet Hell.

In particular, Per Angusta is a SaaS platform built to manage sourcing pipelines, track savings for organizational validation, and make Procurement’s impact visible to the organization — which, as per Sigi Osagie (the master of Procurement Mojo), is the key to building your Procurement Brand.

One of the unique things about the Solution is that the Sourcing Project Management Tool is not only designed to manage the sourcing workflow, but to integrate with your best-of-breed sourcing and procurement tool either out of the box (and, out of the box, integrates with Rosslyn Analytics, HICX, Market Dojo, and other Per Angusta partners) or through the API that is being released shortly.

The solution contains all of the basic project management capabilities you would expect, as well as a few unexpected ones including, but not limited to, deep configuration capability, a supplier data repository, and even Slack integration. Moreover, the strengths of the solution are exactly what you need — flexible project definition and the ability to track deep negotiation details. The platform can track projects of different expense types, document proposed negotiation strategies, and document the requirements of each stage: need definition, sourcing, negotiation, and signature. This is a very powerful capability as it allows the Procurement team to demonstrate that over 80% of the costs are locked in during the design and sourcing phases, and that very little savings can be obtained if the stakeholder waits until the (end) of negotiations and the contract phase to engage Procurement.

The Per Angusta platform is one that is worth exploring in detail, and for a very in-depth review, you can check out the recent piece over on Spend Matters Pro co-authored by the doctor and the prophet.

Why Create RFP Hell?

Over ten (10) years ago, over on the LawMarketing Blog, Larry Bodine asked Why Go to RFP Hell? in response to a fellow lawyer who asked how her firm could get more RFPs for legal work from corporations. This question is as relevant today as it was then.

As Mr. Bodine quite astutely noted, RFPs are onerous chores leading to hideous events where clients get the chance to dictate terms, chisel down your fees and turn you into a fungible commodity. Nobody wants to be fungible. Moreover, RFPs were liked to competing to be the first to be hanged.

Why? RFPs were typically 50-page monstrosities divided into a dozen sections that required a complete history of relevant litigation, minority hiring statistics, alternative fee arrangements, financials, references, industry knowledge, and so on — all to make a short-list. At which time, if the firm was not considerably better than the incumbent in the eyes of the buyer, they would not see a penny. It is a hell.

A hell unnecessarily created by buyers who believe that they cannot even consider a supplier for an event before they know everything there is to know, even though a single piece of information can disqualify the supplier from consideration before any negotiations ever begin.

This is not a good thing to do. A company with a reputation for putting its potential suppliers though RFP hell is not one that many suppliers will want to deal with. The more a supplier’s peers complain about RFP hell with Company X, the fewer are the suppliers who will even acknowledge the existence of an RFP from Company X. As the word of RFP Hell from Company X spreads, the only suppliers that will respond to an RFP from Company X are those that are desperate. Those in bad financial shape, those without a stable customer base, and those with a bad reputation. These are not suppliers you want to deal with.

If you need to cast a wide net to find new suppliers, start with an RFI that only requests enough information to determine whether or not an RFP response from a supplier can be seriously considered. And before this RFI is issued, make sure to understand the category need in detail and what the absolutes are and that the RFI addresses each absolute. If multi-lingual support is an absolute, if a platform that encrypts 100% of data is an absolute, if a company with a headquarters in a country where it can be held responsible and liable for its products is required, or if a company with a factory with certain equipment is required, the relevant questions should be asked in the RFI. You should never ask a supplier to complete a 50-page RFP until you are sure the supplier can meet every absolute requirement. You can ask them even if their chances, based upon their initial RFI response, are less than 1% (as long as you make the award criteria, and weightings, abundantly clear), but not if their chances are known to be zero. (With complete requirements, award factors, and weightings clearly known, a supplier should be able to determine its own chances and determine whether or not its investment of time is worth it.)

And then, make sure that if you need a supplier to complete a lengthy RFP, that the RFP is well written. For details on how to write better RFPs, see the ongoing series over on Spend Matters Plus (membership required) by the anarchist, the maverick, and the doctor, of which 3 parts are already up.

  • I: Intro & Issues
  • II: Requirements
  • III: Provider Secrets