Organizational Damnation 56: Legal

While not quite as many organizational damnations in our list as there are technological (which are enough to drown us on their own), there are still quite a few and Logistics, covered back in our post on organizational damnation 48, was just the beginning. Legal can be just as big of a thorn in our side as Logistics, if not bigger.

Everyone hates lawyers, unless, of course, we’re talking about their lawyers working for them doing exactly what they want and succeeding. In your organization, the lawyers work for the Chief Consul who works for the CEO and orders his organization to do what he feels the CEO wants him to do, even if it is not what anyone else in the entire organization wants him to do. So if the CEO has mandated the Chief Consul to get a standard legal template in place for all direct materials contracts, that’s what the legal team is going to try and do (even if half of the clauses are irrelevant to half of the categories or are so onerous that no supplier worth it’s weight in salt would ever, ever sign). If the CEO orders the Chief Consul to make sure the organization doesn’t get mud in its eye due to child labour in the supply chain like the competition did, you can bet the Chief Consul is going to order an operational review of each and every supplier you do business with and their suppliers and so on. And while neither of these are bad things, the Chief Consul and the legal team could get dangerous tunnel vision and make Procurement’s life very, very miserable in the process.

But it’s not just tunnel vision and insistence on onerous clauses or unnecessary deep supply chain reviews (on suppliers you already vetted over the last two years, a vetting process which included surprise audits) that’s the problem, it’s their definition of what a good contract management system is. If you’re a leading Procurement organization, chances are you’ve noticed the similarity between a good Category Management Process and Contract Lifecyle Management (CLM) and are looking to obtain a good CLM or Strategic Sourcing (SS) / Supply to Contract (S2C), or Supplier Relationship Management (SRM) solution with strong contract management capabilities. However, the minute you mention you want a solution which either has “contract” in the title or “contract X” as a significant module, Legal is going to insist that “Contracts” are their domain and they need to be the solution owner of the “contract” solution.

Why is this bad? Because, at the end of the day, all that Legal cares about is contract creation (drafting, authoring, and signing), contract archival, and contract retrieval and their definition of a Contract Management solution is one with strong drafting and authoring capabilities, version control, audit trails, clause repositories, Microsoft Word integration, etc. In a 3-phase, 22-step contract lifecycle management process that starts at the need identification and the production of a business case and ends with a proper post mortem, contract creation is one step — but they will ignore everything else, including all important workflow management, change management, performance management, relationship management, and risk management — among other significant features from a Procurement / Supply Management point of view. The best solutions will be immediately eliminated from consideration if they are missing one unnecessary bell or whistle that Legal wants in the drafting phase and the Procurement organization will end up with the best contract authoring tool on the planet — that does absolutely, positively nothing else.

But this doesn’t come close to the hell you’ll get the first time you try to help them with cost control. The minute you bring spend up they’ll get all defensive that the organization needs the best outside consul it can get, that talent doesn’t come cheap, but the extra cost is well worth the reduced risk that comes from having a high-risk contract drafted by a true expert or the best litigator defending your organization in what could be a very costly court case if the organization loses. They’ll do this even though you agree with them 100%, have no intention of reducing legal spend just to increase legal liability, and only care about getting spend under control for everyday cookie-cutter services and legal firm expenses.

For example, many real-estate transactions, franchise transactions, insurance transactions, etc. are templated, sold by nimble, specialist firms at fixed rates, and do not differ in quality or risk whether you pay $1,000, $5,000, or $10,000. However, many large organizations with a lot of local offices or branches will often pay significantly different amounts for the exact same service that should be a fixed price across the state, or even the country. the doctor knows a number of spend experts who have analyzed legal spend for large organizations and the differentials on some of these cookie cutter category are often a factor of 3 to 5! There’s a huge savings here, which can be used to insure that the organization always has enough in the legal reserve to hire the best talent for the strategic transactions and legal challenges when talent truly matters. Plus, allowing every law firm to choose their own e-Discovery firm and technology, their own business centre / copy house, and even their own messenger service / delivery carrier can lead to significant variations in expenses as well. If the organization takes control of the expenses and insists that it’s lawyers and outside law firms use it’s contracts, non-talent expenses can often be halved as well. Like the Marketing Sacred Cow, the Legal Sacred Cow represents a huge savings opportunity which, when approached correctly, does not increase the organization’s risk one bit. In fact, the increased control, standardization, and visibility reduces risk while increasing the funds in reserve for Legal in case of a law-suit or similar emergency. But Legal never sees it that way at first, and sometimes doesn’t come around.

Legal will drive you nuts. It really is the case that you can’t live with them, can’t kill them. Because, at the end of the day, no matter how miserable they make your existence, there will always be that big contract where you need them to make sure your behind is covered. And, just like the lawyer, you will have to take two sides.

Simply Your Procurement Life and Eliminate the 5 E-procurement Mistakes You Don’t Realize You’re Making

Today’s guest post is from Iyana Lester, a Project Analyst at Source One Management Services who specializes in contract management and negotiation, project evaluation and monitoring, and market assessments.

Along with the boom of internet-based business came the challenges of maintaining an effective supply chain in the digital space. E-procurement offers a seamless solution to streamline processes and improve compliance all while reducing cost. While e-procurement has been around for several years, there still remains several factors that impede businesses from utilizing it fully and attaining maximum savings largely based on their expectations.

A recent Procurement Insights article points out that merely assuring yourself you’re doing everything in your power to maintain supplier relationships isn’t enough. “Even if you are well-versed in procurement and can speak every language in existence, nurturing complex supplier relationships in a global spectrum requires frequent communication that often slips without a system to manage the contact.” So what does this mean for organizations considering the shift?

Inform yourself of what’s out there before committing to one e-Procurement solution. More importantly, become educated on the user short-fallings that lead people to assume that their solutions aren’t optimal. This will allow the largest-scale view of your options without any user-impairment bias. By ensuring your expectations are reasonable, you’re conveniently building yourself a ladder out of a situation coined by Sourcing Innovation as Procurement Damnation. Whether you prefer it as a remix to AC/DC’s Rock ‘n’ Roll Damnation or a procurement state of agitation, you can’t anticipate unrealistic savings and results from an e-Sourcing platform. These solutions are helpful in approaching the challenges of global sourcing, but they are only 100% effective with a strategy that supports them.

Below is a list of several of the most common shortcomings faced in e-procurement. As you develop your e-Sourcing options, keep these organizational glitches in mind:

1. Poorly Implemented Systems

This issue stems from a lack of initial planning. The systems must be integrated with existing corporate systems so that they will be interacting all the way to the end user’s interface experience. They should also be implemented quickly to accomadate any rapidly-developed new technological advancement. Failure to consider any of these focuses can result in systems that aid in one area of the procurement process but cause harmful disruption in others.

2. Partial Implementation

When implementing any large scale change, the change must be adopted and interconnected organization-wide to achieve optimal outcomes. To successfully implement e-procurement, your organization needs to carry out a detailed evaluation of its procurement processes and consider the needs for each division. Roles will continue to depend on effective collaboration between many different organizational players. This will assist in preparing proper agendas and budgets.

3. Uninformed to the Latest Technological Advancements

Monitoring advancements in e-procurement technology will serve as a guide for key risk concerns that should be in your organization’s radar. Observing technological advancements will lessen the chance of your systems becoming outdated.

4. Failure to Develop Performance Metrics

Many organizations have the mentality that once a system is in place, all advantages and will be manually achieved. Considering a comprehensive set of metrics provides a better framework for benchmarking and allows for the procurement process to be more effectively managed. Some metrics areas to consider may include effectiveness, efficiency, quality, and cycle time.

5. Unsuccessfully Identifying the Issues at Hand

A system cannot effectively solve a problem unless the true problem is identified. Organizations often identify sources and causes of the problem and look for fixes that will only temporarily improve the issue. To capture the full potential of your e-Sourcing, never close your eyes to developments and minimize your exposure to Procurement Damnation by following the above steps. The most effective procurement management systems are constantly adapting their capabilities while remaining user-friendly and consistent. Procurement departments should be mindful and eager to pursue new functionalities wherever possible without compromising supplier data quality.

Thanks, Iyana.

Two Hundred and Twenty Five Years Ago Today

The first United States census was authorized. The census is important to the United States not just because it gives us a much more accurate count of how many residents and citizens there are (as opposed to interim projections) but because the resulting counts are used to set the number of members from each state in the House of Representatives and, by extension, in the Electoral College.

It also influences how more than $400 Billion per year in federal and state funding is allocated with respect to neighbourhood improvement projects, public health programs, education programs, and transportation. So, while it might be annoying to have to answer those questions every ten years and reaffirm your Pastafarianism or Jediism, it is necessary.

We’re on a “Highway to Hell”

A Procurement Damnation Interlude

Livin’ easy
Spendin’ free
Season ticket on a one way ride
Askin’ nothin’
Leave them be
Takin’ everythin’ in their stride
Don’t need reason
Don’t need rhyme
Ain’t nothin’ that they’d rather do
Goin’ down
Party time
Their friends are gonna be there too

We’re on the highway to hell
On the highway to hell
Highway to hell
I’m on the highway to hell

No stop signs
Speed limit
Nobody ever slowed ’em down
Like a wheel
Gonna spin it
Nobody ever messed ’em around
Hey Satan
Payin’ my dues
Playin’ in Procurement’s band
Hey mumma
Look at me
I’m on the way to the promised land

We’re on the highway to hell
Highway to hell
I’m on the highway to hell
Highway to hell
Don’t stop me

I’m on the highway to hell
On the highway to hell
Highway to hell
I’m on the highway to hell
(highway to hell) I’m on the highway to hell
(highway to hell) highway to hell
(highway to hell) highway to hell
(highway to hell)
And I’m goin’ down
All the way
I’m on the highway to hell

Just like AC/DC.

 

The New China – The New Global Meltdown?

Last year, China overtook the US as the world’s largest economic powers measured by PPP — Purchasing Power Parity. This may have received little attention, as most people focus on GDP — Gross Domestic Product — where the US still has a commanding lead, but since PPP measures the relative value of different currencies, this is a significant metric.

As a result, this places China at the centre of the global economy as any economic decline in China will send ripples around the world. As one of the biggest consumers of natural resource, the success of many global economies depends on the success of China and its need for natural resources.

And this decline may be coming. As per this recent article over on Business Spectator that asked “what can we expect from China in 2014”, not only has the country lost some of its lustre as of late, but this tarnish on the silver has not escaped the watchful eye of the World Bank, whose chief Economist went on record last month stating that the global economy is running on a single engine … the American one. This does not make for a rosy outlook for the world.

So why the loss of lustre after almost three decades of growth? Simply put, with rapid growth in an economy comes rapid growth in the growing pains associated with rapid growth, which typically include burgeoning local and national government(s) (as cities, provinces, and federal overseers struggle to keep up with growth), excess industrial capacity (once the tipping point where there is enough capacity to meet demand is reached), and a stagnant real estate sector (once the majority of the market that can afford their own homes have them). China has all of these problems. But that’s not the reason that China is loosing its lustre, as many other countries, including the US, have these problems. The real reason is shadow banking.

There is a significant amount of local government and corporate debt in China as these local governments and corporations have borrowed heavily from both the banking and shadow banking sectors to finance their growth. How significant? Standard & Poor’s estimates that total outstanding corporate debt in China was around $14.2 Trillion US at the end of 2013, compared to $13.1 Trillion US debt held by American corporations at the same time. And while exact numbers are not known, local government debt has increased an average of 20% over the last three years and the total government debt level in China is estimated as about 54% of China’s GDP — and that’s just the official debt. The real debt level could be higher when you consider shadow banking and private lenders.

Now, this is a lot of debt, but as the level of government debt is not yet at the level of US national debt or UK national debt which exceeds GDP, it’s not alarming — yet. But it’s enough to cause the World Bank and International Monetary Fund to think twice about China’s rating and if China decides that it’s time to reign in and get the debt under control and significantly curbs spending across the board, a lot of economies that are currently being boosted by China’s spending spree are going to take a big hit.

This will be good and bad news for your Supply Management activities, depending upon where you are in the supply chain. If a company loses a major China supplier, the power shifts back to the buyer and there will be good deals to be negotiated. However, if you lose a major China client and your demand declines, so does your bargaining power and the power shifts back to the supply base. And then there’s the currency hedging to think about. Is the expected drop in currency exchange good or bad for you? (For more about this issue, refer back to our currency damnation post.)