Procurement Trend #17. Talent

Fourteen anti-trends from the grey-beards’ glory days still remain, and as much as we’d like to provide more entertainment to LOLCat who is bored with our anti-trend coverage, we must make sure that no good deed goes unpunished and since the futurists’ advice is as good as it gets, we must break it all down until you can look past the shiny new paint job and realize that it’s a twenty year old Skoda you are being sold.

So why do so many historians keep pegging talent as a future trend? Besides the fact that they are, unfortunately, still cemented in the people-process-technology (and not the talent-technology-transition management) mindset, it is probably because, no matter where your organization is on its Supply Management journey:

  • more knowledge is required

    Supply Management professionals are currently climbing the Devil’s Staircase

  • more technology is required

    because most work is still tactical paper pushing work (even if it’s pushing scanned PDFs, it’s still paper pushing work)

  • more skills are required

    to transition to better processes, use new technology, and identify more value generation opportunities for the organization

So what does this mean?

Knowledge

As per our previous posts on inter-departmental collaboration and more stakeholder collaboration you need to implement knowledge management. You need to capture the knowledge you have. You need to capture the knowledge your partners bring you. And you definitely to capture the knowledge you generate before it walks out the door when your people move on to the next stage of their professional and/or personal life. It is a knowledge economy, and if you don’t have the knowledge required, you won’t be in the new economy much longer. C’est la vie dans le nouveau monde de l’enterprise.

Technology

As per our previous posts on increased accuracy in demand planning, process convergence into Supply Management, and e-Procurement System Adoption, you need to implement new and better technology solutions. These solutions need to automate the tactical, optimize the operations, and enable the strategic. Electronically pushing paper is not strategic. Monitoring dashboards is not strategic. Re-sourcing a category for the third time through an e-Auction for a measly 3% savings is not strategic. Doing detailed analyses that allow you to identify untapped opportunities, define new processes that will get marketing or legal on-board with spend management methodologies, or helping R&D design a product that is both more cost efficient to produce and more desirable to the market — that’s strategic.

Skills

It’s like we keep saying here at SI, a modern Supply Management professional needs to be a jack of all trades and a master of one. You need to continually enhance your soft skills, your tech skills, and your knowledge of different organizational disciplines, processes, and goals and learn to take advantage of the new technologies and opportunities that are continually being made available to you.

It Might Be Wabbit Season …

But you don’t have to go all Elmer Fudd and shoot everything in sight …

Even though it would appear to be the case that this is precisely what some bloggers would have you do. A few weeks ago we published a two-part piece on It’s Conference Season And That Means it’s Travel Season on why — even though it’s very, very, very important to get your Travel and Expense spend under control — it’s not Procurement’s job to question the validity of the spend or whether or not it aligns with organizational goals put in place. That’s the C-Suite’s job because, when it comes to T&E, it’s not always about immediately measurable financial ROI.

However, last week saw yet another post over on CPO Rising on T&E, which purported to give you “the three goals that every travel and expense management program must achieve” which, like the previous post, illustrated two of the right things to be doing and one potentially wrong thing because, doing it could be akin to shooting yourself in the foot. Presumably that is not something you want to do?

The post was right in theory when it said that you should strive for alignment between the travel and expense management program and both procurement and finance, but only right in practice if alignment is appropriately defined. According to the author, alignment is achieved when three goals are achieved. The first two goals, which should be achieved, were:

  • Linked capabilities that can capture all booking options which is important because no spend, and no relevant detail, should be lost and
  • Seamless, repeatable processes that result in “straight-through” expense-processing and the ultimate elimination of manual intervention for any expense that does not require manual intervention

because once you see where the spend is going and what the spend should be, and put the right rules in place, there’s no point in wasting a whole lot of manual effort on it.

And the third goal, which should never, ever be pursued without proper definitions was:

  • Pure alignment between the travel and expense management program and both procurement and finance objectives

Why? Because pure alignment dictates that an exception to the rule is never allowed, and there will always be situations during travel where the rules need to be relaxed, and full adherence to the objectives defined in the author’s previous post means that no T&E without an immediate financial return is justified. We already did a two-part rant on why that is not the case (in parts I and II), but it seems we have to remind you of the importance of controlling spend and keeping departments on budget, and the importance of keeping your hands off of policy.

Track, measure, report, and process efficiently — but stay out of policy. The minute you over-step your bounds, the minute the other departments turn against you. And that’s not what you want.

Key Priorities for Ethical Supply Chains – An Interesting Study

Software Advice, a software review company which covers the supply chain management space, recently posted the results of its “Key Priorities for Ethical Supply Chains” Industry View 2014 that discussed the results of two surveys distributed to over 1,100 consumers. The findings are interesting, generally indicative of the current state of affairs, but, as far as SI is concerned, specifically off, though not due to any fault of Software Advice or the methodology employed by the researcher. What do we mean? Read on.

In the first survey, the group of over 1,100 consumers was split into three and each group of consumers was asked how much more they would pay for a product, normally priced at $100, that was produced more ethically with respect to one of three ethical initiatives: ethically sourced materials, carbon emission offset, and good working conditions. The first group said they’d pay an average of $18.50 more if the raw materials were ethically sourced, the second group said they’d pay an average of $19.70 more if the product had its carbon emissions offset, and the third group said they’d pay as much as $27.60 more if the product was made by workers working in good working conditions. A deeper dive revealed that 35% of consumers would not pay a penny more for products made under these ethical initiatives. And while the second finding does not surprise the doctor, he does not believe the first finding in its entirety. But more on that later.

In the second survey, the respondents were asked which of the three broad ethical initiatives would make them more likely to purchase a company’s products: working conditions, reduced environmental impact, or community involvement. The results were more-or-less evenly split. This does no surprise the doctor either.

So why doesn’t the doctor believe the average consumer would pay considerably more (an average of 21.93% if the above survey is to be believed) for an ethically sourced product? Three reasons.

  1. In the vast majority of verticals, it is not the most socially responsible company that is the market leader.
  2. Fly Research’s recent survey, which attempted to determine what factors are really important to consumers in their purchasing decision, found that only 9% of UK and 16% of US consumers rank “ethical company/brand” in their top 3 attributes but the vast majority are more concerned with value for money (86%), price (76%), and quality (73%). (See SI’s recent post on Do As I Say, Don’t Do As I Do!
  3. The study did not take into account the inherent bias of the consumer. As a result of recent disasters and media storms — including the fire in Bangladesh, the BP oil spill, and underground sweatshops in Russia — not only is corporate ethics and supply chain sustainability on the mind of many caring consumers, but it is stirring up their emotions. And an emotional subject is not an unbiased one. While a consumer might try her best to be unbiased when responding to a survey, when all of the questions stir emotional responses, her responses are going to be skewed relative to what they would be compared to the situation where only a small portion of the survey contains questions or answers that stir emotions. So had these been just three factors in a pool of ten or more that she is asked to consider when defining what is most important to her when selecting a product for purchase, and the other seven plus do not stir any emotion, she will be able to better balance her emotion with her objectivity. And this is why when you compare the results of this survey with the Fly Research study, you find a discrepancy (that cannot be easily accounted for unless there is emotional bias in the consumer responding to the surveys). How else do you explain that a third of consumers expressed a wilingness to pay over 10% more (and up to 100% more) while another third expressed a willingness to pay up to 10% more when the Fly Research study found that less than 43% would pay more than 5% extra and the percentage of respondents who would pay more than 5% declined much faster than the percentage of respondents in the Software Advice Study.

In other words, consumers are starting to care, aren’t necessarily sure which issue they care about the most, will definitely choose a socially responsible product over one that is not socially responsible if all things are equal, but if the cost differential is too high, the average consumer will not be swayed to a more socially responsible product, despite their desire for social responsibility. So while the issues are likely spot on, the relative worth to the average consumer is still in question.

However, in addition to confirming our suspicions that there is no high level issue with respect to social and environmental responsibility that is considerably more important than the others, the study did reveal that if you drill down, there are some specific issues that concern consumers more than others. For example, where environmental responsibility is concerned, more consumers care about reduced water use and biodegradable packaging than reduced carbon emissions. Where community involvement is concerned, 43% believe that the best thing a company can do is to open a factory where jobs are needed (and not outsource to another country). And where working conditions are concerned, 45% believe workers should be paid a fair wage. This gives you starting points in your CSR efforts that will earn you brownie points and increase your brand’s reputation if appropriate initiatives are undertaken. It will be interesting to see how these trend over the coming year.

It’s Illegal to Burn Money, But Yet Your Organization Does It Every Day! (So Find Out How to Do Something About It!)

Title 18, Section 33 of the United States Code says you shall not mutilate, cut, disfigure, perforate, unite or cement together, or do any other thing to any bank bill, draft, note, or other evidence of debt issued by any national banking association, Federal Reserve Bank, or Federal Reserve System, with intent to render such item(s) unfit to be reissued and if you do, you can be fined or imprisoned for up to 6 months. But yet, every day, organizations everywhere collectively flush billions of dollars down the drain, overpaying suppliers, including foreign suppliers, millions of dollars that can not be recovered and reissued by the organization for other business purposes.

If it wasn’t for the fact that the vast majority of these organizations don’t intend to overpay and waste money, since this money (and evidence of debt) flows through the American banking system, I would otherwise be inclined to argue that, technically, this gross incompetence in management of corporate funds is criminal.

For proof that the average organization wastes money, we simply have to look to the audit recovery industry which recovers, on average 1% to 1.5% of annual spend. And, typically, this is just what they can find with a quick, mostly manual, review of the top n suppliers that account for 2/3rds (66%) to 3/4ths (75%) of external organizational spend using a very loose interpretation of the 80/20 rule. And that’s just overspend. What about spend that should never of happened in the first place (because it was off-contract and 15% higher than contracted rates)? Or unrecoverable losses due to a key supplier not having mandatory insurance policies in place? Or gross violations of the T&E (Travel & Expense) policy (that border on criminal malfeasance) where the VP of Sales decides that a dinner costing 2K / head at the local strip club is a valid use of the organization’s P-Card?

But most of these situations are easily preventable by a Procurement system that is designed to not only enforce compliance, but make it easy. To find out how, check out Sourcing Innovation’s New White Paper on The Procurement Marketplace and the Power of Compliance (registration), sponsored by Vinimaya.