Consumer Sustentation #71: Government

As per our damnation post, everyone, or at least everyone in sales, wants the government as a customer because once you’re in, you’re in, and it’s almost impossible to get thrown out unless you do something really, really egregious because the process to replace you is so long, arduous, and painstaking that no one wants to do it, especially since management will likely change half-way through the process and put all projects on hold until a new assessment is done. They sign the contract, sit back, and rake in the commission year-after-year as the evergreen renewals keep coming in.

But Procurement doesn’t have it so rosy. Not only can government customers be very demanding, and require you to work extensively with Engineering, Manufacturing, IT, and the Supply Chain to design custom solutions to meet their needs, but they can be quick to pass on the blame to your company even if it’s not your fault. Plus, now many government agencies mandate that you provide bill of material data, shipping manifests, country of origin determinations, quality inspections, and other information with every product that you provide the government so they can meet their accountability mandates. And if that’s not enough, if the government runs out of budget and can’t get agreement to run a deficit, there can be an indefinite spending freeze while the situation is resolved.

Governments can be your organization’s best and worst customer and Supply Management’s biggest point of leverage and largest risk. So what can you, as a Procurement organization, do?

1) Regulatory Compliance

It is critical that you can show you were in full compliance with all of the requirements when you bid, when you signed the contract, and when you delivered the goods and services — at any time. The day after signing. The year after signing. Two years after delivering the last product. You never know when someone is going to rain down fire upon you to deflect the blame from themselves.

2) CRM and Communication Management

Make sure all interactions and communications with the government customer are logged, project and changed plans signed off on by the appropriate authority, and full audit trails always accessible. This is the key to good relations and problem avoidance.

3) Complete Supply Chain Visibility

The key is to always know:

a) what comes from where, all the way down through the components and sub-components down to the raw material (for labelling and country of origin)
b) CSR and Sustainability monitoring for all suppliers in the government product supply chains so that you can insure you are always in compliance to the best of your ability

4) SCF: Supply Chain Finance

Your suppliers need cashflow, so be sure to do your best to arrange Supply Chain Finance / invoice factoring that they can take advantage of any time that they need it.

5) Contract Completeness

Be sure to have any services you deliver deemed as “essential” in the contract as many spending freezes will exempt “essential” services.

And, above all, maintain good relations with the stakeholders at all times.

Playing With Fire: Hidden Risks Lurking in Your Supply Chain

Modern supply chains are fraught with risk that can result in volatility and increased operational costs, large and sometimes devastating losses, and long term damage to the corporate reputation. These risks can be organized into four major categories, but non-compliance risks alone, the first category, should be more than enough to scare you.

Of the four major categories of risk, the costs of non-compliance risk is often the easiest to quantify, and the corresponding price tag of regulatory violations alone can be enough to halt a supply chain in its tracks as the bank account is bled dry.

Corresponding costs can range from the $3.0M, $3.19M, and $4.95M fines from the recent settlements by Washakie Renewable Energy, ExxonMobil, and Noble Energy for violations of the energy policy, clean water, and clean air acts, respectively through the 13.2M settlement by Lumber Liquidators for violating the Lacey Act to the $81.6M in fines that Wal-Mart had to pay in 2013 for the mishandling of products that became damaged or were returned and became hazardous waste, of which $60M was a result of violations to the Clean Water Act and $14M was a result of Federal Insecticide, Fungicide and Rodenticide (FIFRA) violations.

But environmental acts aren’t the only acts that can result in large fines. There are also worker’s rights acts, where even simple filing errors can cost over 1M, as Abercrombie & Fitch found out when they were fined $1,047,110 for numerous technology-related deficiencies in the company’s electronic I-9 system.

And while most violations of worker’s rights law or filing requirements are rather small, the violations could increase now that anti human-trafficking and modern slavery laws are popping up that can hold your organization responsible for any violation of these laws anywhere in your supply chain, even if the infraction is caused by the supplier to the supplier of your supplier.

But these fines will still likely dwarf the fines being levied by the US Department of Justice for violations of the FCPA – Foreign Corrupt Practices Act. In 2014, the average fine for a violation was $156.6 Million, and this included a $772 Million penalty to Alstom, the second largest penalty in history.

But this is just one set of risks with an associated cost that can bleed the bank account dry and effectively cripple a global supply chain. If you would like to know what the others are, watch for Sourcing Innovation’s latest paper on Playing With Fire — 4 Hidden Risks Lurking in Your Supply Chain (coming soon), sponsored by Ecovadis.

Still Grumbling About DST?

It was 98 years ago today that the US Congress established time-zones and approved daylight savings time, two years after Germany and Austria-Hungary organized the first implementation, which began on April 30, 1916.

A good history of daylight savings time is over on Wikipedia. Interesting facts include it was first conceived by a New Zealander, used extensively during the world wars to conserve coal during daylight hours, and didn’t become common place until the 70’s as a result of the energy crisis.

And if you’d prefer to listen to a brief history, John Oliver did an interesting segment last year on Last Week Tonight.

LeanLinking: The Newest Contender in the SRM Arena

LeanLinking is a three year old Denmark company in the SRM space that you haven’t heard much about but should be aware of, especially if you are a smaller mid-market company, as this SaaS company has been rapidly developing their Best-of-Breed SRM solution since day one and it is now a very solid offering for a mid-market company desperate for supplier relationship management capability at a price-point they can afford (and this solution starts at a price point everyone can afford, but more on this later).

It’s certainly no competitor to HICX or State of Flux (both of which have been reviewed on this blog and both of which will soon see deep joint coverage by the doctor and the prophet over on Spend Matters Pro, more on this later) at this point, but when you compare it to the plethora of older-generation SIM solutions on the market, it’s the goose-that-laid-the-golden-egg for many smaller mid-market organizations that need something but have no real budget.

While the LeanLinking tool is essentially designed to help buyers build supplier report cards in preparation for supplier performance review, corrective action, and development meetings, monitor these scorecards over time, and track relevant aspects of supplier interaction, it’s built in such a way that encourages social interaction (which Generation Y likes and which the millennials like even more, which means it is something that is likely to get adopted). It also supports easy file-based data import (and can create complete data format descriptions for IT), which is very helpful to the mid-market, which keeps most of its data in Excel anyway (even though Excel is a damnation that should have already been exercised from the organization long ago). It also has a number of other basic capabilities you’d expect in a SRM system, including compliance tracking, contact management, and so on, but this is not the reason to take note of it.

The reason to take note of LeanLinking is that they realize that it’s hard for Procurement in most mid-size organizations to get any software budget (without a proven ROI, which, of course, can’t be proved until Procurement has the software — the never-ending catch-22) and have decided to bypass Finance (and IT) entirely by offering a consumer (buyer) subscription option starting at just £19 a month for a single buyer. This allows a buyer to expense the platform on his monthly expense report and bury the license cost until he has shown ROI (and then use that as an argument to get a department license, which will be a lot more valuable as the entire team will be able to share data, reduce duplication of effort, get funding to link in feeds from the ERP through the API, etc.).

It’s a novel concept and a novel platform. For more information, see the SM post by the doctor and the prophet as well as our in-depth Pro Analysis (membership required).