Hidden Risks are Everywhere!

In yesterday’s post, we noted that one of the workshops being offered in the 2nd NLPA Conference is on the Hidden Risks of Terms & Conditions. We noted that this is an important topic because terms and conditions are the concealed weapons of the legal world and a big hidden risk in your supply chain that you are likely not aware of.

There are more risks in an average set of terms and conditions then just the one-two knock-out punch of just Force Majeure and sole-source. Other risks that can be hiding in your contracts include:

  • buyer beware
    if you do not take the time to properly specify acceptance (testing) procedures, the goods will be yours the minute they are unloaded into your warehouse and/or a warehouse worker issues a goods receipt
  • non-compliance
    if you do not insure that there are no appropriate no-subcontracting clauses, your supplier could be sub-contracting services that are only to be supplied by certified companies or individuals (which is critical in health care, etc.), critical services could be subcontracted out, leaving you liable
  • weak confidentiality clauses
    if the clause doesn’t specifically indicate that confidential information may only be revealed to non-identified parties in the case of an official legal request, and that any request must be reported to you before such information is revealed, who’s to say that the information won’t be released without your knowledge upon an informal inquiry by someone asking for related information
  • increased liability
    if the contract does not specify a minimum insurance requirement for your supplier, who is performing sub-contracted services on your behalf, and does not mandate that they provide proof of such insurance on a regular basis, then a mistake on their part could result in increased liability on your part, beyond any limits specified in the contract
  • no termination clause
    just because you think you can end the contract for non-compliance doesn’t necessarily mean that you can, if it is sole-source for a guaranteed time, the supplier can argue Force Majeure, lack of quality requirement, etc. to negate any non-compliance claim you may bring forth

And this is just the tip of the iceberg. That’s why poorly negotiated contracts are note just the concealed weapons of the legal world, they are minefields!

The 2nd NLPA Conference: Tackling Topics that Matter!

On September 15th to 17th, the Next Level Purchasing Association is hosting its 2nd Procurement Conference in Pittsburgh, Pennsylvania. The agenda is almost final, and the topics being covered in the workshops are important ones. Unlike most conferences, the NLPA conference is focused on education — education that you need to do your job better (which is what conferences should be about, and not full-time speakers blowing their horns or vendors pitching their products, as you’d know what you had to buy without being told with the right education).

The workshops being offered are the following:

There’s No ‘I’ In Team: Collaborative Sourcing in a Decentralized Organization
Procurement success depends on collaboration — because procurement success depends upon consistent category management. Proper needs identification, vendor selection, contract creation, and compliance! Because, without compliance, maverick spend runs rampant — maverick spend with can only be eliminated when everyone is collaborating and on the same page.

Who’s on First? Strategies for Management and People Changes
Sourcing Innovation is always saying it’s technology, talent and transition for a reason. You need good technology to do your jobs effectively, technology that requires trained skill (talent), and technology that requires you to change your ways and transition to a better way of doing things. This is one type of management. But some people will be resistant to change, this is where transition management comes in — because they will need to be guided to the better way of doing things.

Charting Your Path to Victory: How to Successfully Manage Procurement Projects
Procurement is a lot more complicated than the 3-bids and a buy it was in the not-so-good ol’ days. In fact, some projects will require multi-phase vendor identification and pre-selection before you even begin the multi-phase negotiation and analysis that will lead to an award — which is where the real (multi-year) Procurement process begins! Which will have to be executed as plan, or you will have a lot of maverick (and expedited) spend.

Where is the Playbook: Hidden Risks of Terms & Conditions
Terms and conditions are the concealed weapons of the legal world. Concealed weapons that will be pulled on targeted upon you at the worst possible time. For example, Force Majeure, while seeming fair and innocuous, when combined with sole-source requirements, is a Masamune blade guaranteed to cut you every time. While it’s fair for a supplier to not be expected to deliver when a typhoon shuts down their factory, it’s not fair to have a non-breakable sole-source clause for the contract duration which could force you to shut your production line down if you are unable to get your parts in time.

Supply Managers Will Be the RockStars of The Resource Revolution


I’m through with standing in line
To clubs we’ll never get in
It’s like the bottom of the ninth
And I’m never gonna win
This life hasn’t turned out
Quite the way I want it to be

  from Rockstar by Nickelback

Supply Management hasn’t exactly been the poster-child of the corporation in recent years. In fact, in some organizations it would have been lucky to be the Island of Misfit toys that Mr. Dominick of Next Level Purchasing has compared it to. But if the Resource Revolution comes to pass, that might all change.

A recent article in the 2014 Q2 Edition of the McKinsey Quarterly that asked Are you ready for the resource revolution? said that another industrial revolution is coming, and while the first two focussed on labour and capital, two of the three primary business inputs identified by Adam Smith in his classic treatise The Wealth of Nations, the third will focus on the last input identify by Adam Smith — resources that come from the land.

According to the authors, who recently authored Resource Revolution, five approaches will be utilized by companies that lead the resource revolution. And three of these — namely substitution, optimization, and virtualization — will be critical to success. (The other two, circularity — or design for reuse and recycle, and waste elimination — or lean to the next level, will primarily be used in conjunction with the other methods to deliver significant enhancements that neither approach on its own to achieve. )

Substitution, the process of replacing costly, clunky, and/or scarce materials with cheaper, better, and more readily available materials, is already being used by those companies that have advanced to the highest stage of maturity in Supply Management.

Optimization, the process of embedding software in resource-intensive industries to improve how companies produce and use scarce resources, is also being used by those companies that have advanced to the highest stage of maturity in Supply Management.

Virtualization, the process of moving processes out of the physical world, is being employed by leading manufacturers (who will use a platform like Aravo’s) to determine the most efficient and cost effective process to produce a part as well as aircraft and car manufacturers (who will use advanced 3D modelling tools) to determine the most environmentally friendly or best performing design. But this too will be used more and more by leading Supply Management organizations to design the best supply chain to support the products and the business.

And when you get right down to it, no other organization in the corporation is in a position to make more use of these approaches than any other. That’s why, if the Resource Revolution is to come to pass, forward-thinking Supply Managers will have to lead the way, and become the corporate rockstars they always desired to be. (And put those motor-mouth marketers in their place.)

… And 65 Years Ago Today …

George Orwell published 1984.  He was 30 years too soon in his prediction of when technology would reach the point where omnipresent government surveillance, public manipulation, and a perpetual war (on terror) would be possible, but he was dead on in his predictions of what would be possible … 

85 Years Ago today, the smallest sovereign city-state in the world was established.

That’s right, eighty-five years ago today the Lateran Treaty was signed, bringing Vatican City into existence. With only 44 hectares, and 840 citizens and residents, it is the smallest independent state in the world by both area and population with an annual GDP in the magnitude of 20 Million and not Billions or Trillions.

It is more comparable to a mid-size company with 840 employees who live in residence year round and whose every need requires attention in addition to all of the maintenance associated with the business and resident properties, except this company has valued assets over 10 Billion dollars (as that is the estimated foreign investment by the Institute of Religious Works – the Vatican Bank – in the 1990s) and non-valued assets worth billions (upon billions) more on the open market, which include priceless buildings and works of art going back millennia.

The head of Procurement must have one of the most interesting jobs in the world. First of all, that individual would be procuring almost every commercial and consumer item at one point in time or another. Second, deliveries are limited to truck, train, and helicopter. (There is no airport, only one train line, and deliveries can be made to the gates.) Third, while that person would have every pressure to keep costs down for every day items and maintenance, that person would have an almost unlimited budget for works of art and historical artifacts of religious significance desired by the church. Fourth, security would be a concern with every purchase and delivery. And so on.

Relatively speaking, for an average mid-size company, Procurement is fairly straightforward. But how do you effectively management Procurement for the smallest independent city-state in the world?

If you have educated guesses, leave a comment or send the doctor an e-mail!