If Instead of Trying to Replace, You Redeployed People — What Could You Accomplish?

The big push for AI is not to help you, but to achieve every executive’s dream of a perfect utopia where they have 24/7/365 robotic workers they don’t have to pay, feed, or even provide safe working conditions for. Where they have endless slave labour, workers with no rights, and only have to worry about counting the virtual dollars in their endlessly increasing bank accounts.

But anyone with a working brain, who doesn’t live in a fantasy world, who hasn’t given into the cognitive surrender brought on by excessive use of Gen-AI, knows that reality is far, far, away. The algorithms are dumber than doorknobs, hallucinate to various degrees on almost every response, and are only good at sounding right, NOT being right. Intelligent humans are still needed, more than ever (as AI has NOT changed the fundamentals of Procurement. It HAS Only Strengthened Them.)

While there is very little Gen-AI can do, there is a lot traditional AI, and even more that (A)RPA (the real agentic technology) can do if properly defined, constrained, and deployed — and in many back office functions, a lot of the data analysis and processing (still) done by humans can be done by machines (and could be done by machines for at least a decade — if not two). In Procurement, we’ve had invoice technology that could automate invoice processing error free 95% to 98% of the time for over a decade, auto-reorder technology based on stock levels, forecast changes, or production schedules for over two decades, technology for automatic contract creation based on clause templates and clause libraries for almost as long, and sourcing automation since the first major sourcing platforms hit the market.

If this was properly done, and 80% of the tactical bit-pushing time that, with fire-fighting, constitutes about 90% of a Procurement professional’s time, was eliminated — imagine what could happen. All high impact and high risk categories could be strategically sourced. All complex categories could be examined in detail, BoMs and production technologies optimized, and supplier relationships (and thus supply assurance) strengthened. And that’s just the start.

Procurement would have time to examine, shape, and even divert (and eliminate) demand. From the classic example of negating the need for more printers, paper, and printer ink by just ensuring every employee had a second monitor at their desk and a tablet for mobile document receipt and review to a more modern example of elimination of expensive cell phones for non-sales on-demand employees by Whatsapp (and cheap subscription) mandates or elimination of expensive office leases in areas where most employees are/work remote most of the time and only a few hot-swap desks at a work-sharing centers (and the ability to book / rent meeting rooms for occasional meetings) is acceptable (as they all use laptops anyway), demand shaping can result in major organizational cost savings.

Moreover, Procurement could even go beyond demand shaping and reduction to true value identification by helping the departments they serve define, and redefine, what value actually is and how best to achieve that value when going to market.

A great example of this is how IKEA approached its use of AI in customer service. As per this great summary on LinkedIn by Alberto, when IKEA’s AI bot deflected 47% of calls, instead of calling it a win, firing half it’s staff, and moving on, IKEA did two things.

  1. They asked what the AI bot wasn’t helping with and what concerns still had to be handled by the customer support team.
  2. They retrained and redeployed over half of their customer support team to handle the most common inquiry, and built a ONE BILLION DOLLAR business around it. (So Far! It’s IKEA. And they’re just getting started.)

To clarify, many (potential) customers weren’t calling just about missing parts or issues understanding the assembly instructions. They were calling to ask what they should buy to meet their needs. “What works in a small living room.”

They needed basic interior design advice. So IKEA trained a significant portion of their customer service workforce as interior designers, and generated over €1 billion in additional business in the first year simply by spending the time to figure out what customers needed before they could make a purchase decision (interior design advice and the identification of products IKEA offered that would meet the design criteria) and giving them exactly what they needed.

Imagine how much value Procurement could add to the business if, instead of reducing staff with automation, the C-Suite retrained (or, if the existing staff doesn’t have the education/experience, replaced that staff with an equal amount of more senior personnel) and redeployed this suddenly freed up staff to act as an internal value identification consultancy that brings Procurement (cost management, risk mitigation, and supply assurance) best practice to the rest of the business.

Think about that before you try to replace real intelligent talent with unintelligent talentless AI (and find yourself in the bog of eternal stench that results from your lack of foresight).

A Buyer is NOT a Buyer — Exact Purchasing Makes That Clearer than Ever!

A month or so ago, Tanya Wade posted a great article on how “A buyer is just a buyer” is BS because a buyer is NOT a buyer.

Tanya noted that while she buys marketing agency services, software, consultancy services, and logistics — stuff that companies need to operate but that customers never directly see — her friend Simon buys food — a commodity that has to arrive on time, meet quality standards, survive audits, and keep processing lines running (as shutdowns can cost millions). This is entirely different from marketing services and consultancy services as it’s rare that a week late will make a difference (and if it does, you waited way too long to contract them).

Tanya then notes that in addition to buyers who support physical supply chains, like Simon, and buyers who support stakeholder needs, like her, there is a third type of buyer — the retail merchandiser who decide what actually hits shelves. And they need entirely different skill sets.

In actuality, there are more types of buyers than that. Think of the physical supply chain — you’re buying inputs or you’re buying finished goods. For the information chain, you’re buying data subscriptions, or you’re buying the software that processes it. For the organization, you’re buying products from the physical chain, information, or services to support the business — which could be agencies/consultancies that process and present the information in different ways (media advertisements, studies, etc.) than software would process such information.

But even this does not capture the complexity of purchasing. You need to embrace Busch-Lamoureux Exact Purchasing to properly segment your buyers.

Because you don’t just care if it’s a product, service, data, or software offering — you care about how it is used and where it falls in the pocket cube. Because if the product is complex (i.e. you need precise specifications for your manufacturing process) or very high risk, you need to manage it differently than if it is not complex or low risk. In the first case, you need to spend a lot of time doing spec reviews and detailed inspections of physical samples before making any decision, and in the second scenario you need to understand all of the events that could present a significant risk of disruption, monitor for them, and have mitigation plans ready to go should an event happen that is going to impact your supply.

And to make matters worse, what’s complex or high risk at one level in the supply chain is less so at another level. If you’re manufacturing electronics, like cell phones or laptops, RAM is a highly complex category that needs to meet exact specifications, have very low failure rates, arrive on time, and fit in your product where the sizes must be within 1/10 mm or it won’t fit in your product. This requires a high degree of manufacturing expertise, spec review, and sample inspection and testing. This is very different than the needs of an IT department supporting desktops in a large development shop where all you care about is the RAM type (SDRAM, SGRAM), the capacity, and the MHz. Brand doesn’t matter — because you’re just upgrading or repairing a desktop or internal server and shoving them in a slot based on whatever is cheapest, height doesn’t matter, because you have extra centimeters, and the production technology (and how that may impact the failure rate) doesn’t matter, because you expect 1% to fail and you just replace them.

In other words, a buyer is defined not just by the category, but where it fits in the Busch-Lamoureux  Exact Purchasing framework from the viewpoint of the organization — as it defines not just how you buy, but how you mitigate, monitor, and manage.

Can You Truly Have Structured Risk Conversations without Exact Purchasing?

We’ve been talking a lot about the Busch-Lamoureux Exact Purchasing Pocket-Cube model lately because we’re never going to solve the exponentially proliferating Procurement problems unless we fix the fundamentals. And when it comes to risk management, it’s pointless unless the risks being managed are the ones that really matter relative to their criticality which should be defined not by Risk Management, but by Procurement based on the importance of the categories they impact.

If you look at risk in isolation, you’re going to focus on:

Traditional Risks

  • limited commodities, especially foodstuffs, where bad yields or natural disasters wipe them out, or minerals that come from limited mines
  • transportation shortages, where routes are at capacity and any man-made or natural event that impacts the lane in any way causes a shortage
  • factory limitations, as it’s a custom product that can only be produced by a few existing factories without extensive customization

And you’re going to completely ignore:

  • restricted commodities, where a significant percentage of global production comes from a single region, or country (and when that gets cut off, a glut of supply suddenly becomes a dearth of supply)
  • global transportation chokepoints, and what happens when a lack of rainfall limits the amount of traffic that can pass through the Panama Canal, the Red Sea closes, the Strait of Hormuz is cut off, etc.
  • local transportation chokepoints, such as the ILA controlled east-coast ports in US or the ILWU controlled west-coast ports in the US, and a strike cuts off your routes and back-up routes
  • skilled worker limitations because it’s not just the factory, it’s the work force, and if most of the workforce is > 60 and the educational/mentorship programs that trained the next generation workers were shut down … that factory is gone in a few years

And what you address might not be that important.

If you’re a traditional mechanical manufacturer, you’re only dependent upon rare earths for magnets and lighting, as most rare earths are in electronics. If you’re monitoring anything beyond the rare earths used in the magnets and lights you need to make/source, you’re wasting your time.

If everything being sourced through a taxed transportation network could be sourced from somewhere else through a network with a lot of capacity, at only a slightly higher price point, then you don’t really care about that transportation network.

If you’re dependent on two factories, and you aren’t monitoring the turnover, the influx of new workers, and the output of future workers in the local economy, you will someday, without warning, find yourself needing to find a new factory with a new supplier that will need to customize their production lines, processes, and workforce to your needs … which they may not be able to accomplish in time to keep your supply chain flowing and main product line in stock — which could risk your entire business model.

Meanwhile, you don’t notice the risk above where

  • 60% of the rare earth you depend on for your magnets are coming from different suppliers in China, so when a pandemic strikes and China institutes a no tolerance policy against a virus that can’t be eliminated, your supply goes up in smoke (and you had no warning to secure as much supply as you could while you still could)
  • you weren’t watching for events that could close the Strait of Hormuz (thinking the Red Sea was the end of it) and aren’t watching the Strait of Malaca (which carries almost 25% of global trade … so if the pirates leave Africa …)
  • you will get shocked when the ILWU contract expires on July 1, 2028 and the US West Coast ports shut down as the pay increase that was negotiated in the last round is NOT keeping up with the inflation your current administration is creating;
  • and so on.

And if you attempt to solve your supply chain risk identification by acquiring a multi-tier supply chain visibility and monitoring solution, you’ll get sucked down every risk rabbit hole that is identified based upon every raw material used anywhere in your supply chain and detected impact event.

Unless you are properly categorizing your purchases using Busch-Lamoureux Exact Purchasing, identifying those categories both high-risk and high-impact, and identifying what risks would be devastating to you, you aren’t addressing the right risks and any attempt at a structured conversation will be a waste of time.

And only then will you be able to identify:

  • where the impacts will be felt,
  • which functions need to be involved,
  • who should own the risk,
  • why identified monitoring via subscription data feeds is needed,
  • when a risk-related event is significant and needs to be manually assessed/addressed,
  • what needs to be done if significance is determined, and
  • how response success will be determined.

And then you can use the tips offered up by Greg Schlegel in his We Discuss Risk Regularly post to have truly successful risk management conversations.

Four Broken Procurement Processes You Wouldn’t Have With Exact Purchasing

Gaurav Sharma recently penned a truly great post on LinkedIn on 5 dated procurement processes/setups you can get rid of without AI or any tool whatsoever. This is the type of post we need more of because AI isn’t always the answer (and in fact, it’s rarely the answer), and AI shouldn’t even be considered until the technological needs are identified (which, if the right process is followed, require AI a lot less than the hype machine would lead you to believe).

Not only should you not have the five processes he outlined if you are a best-practice Procurement department, but 4 of them wouldn’t exist in the first-place if you built your Procurement programs off of Busch-Lamoureux Exact Purchasing.

Let’s take them one-by-one.

Spend it or Lose it at the end of the year.

Proper Procurement, and the proper business operations it would dictate, would never have this because budgeting based on historical spend is bad budgeting, as is pricing based on historical price points. The era of global stability is over, natural disasters are on the rise, critical resources are becoming scarcer by the day, and logistics becoming uncertain and unpredictable due to the fallouts of sanctions, wars, disasters, strikes, and uprisings. As a result, what you will pay this year, and what you will have to charge to maintain a fair profit margin, will not necessarily have any correlation to what you paid last year, especially in categories where more than half of supply comes from a single country (such as rare Earths from China) or flows through a single chokepoint (like oil, fertilizer, etc. through the Strait of Hormuz).

Budgets need to be based on expected costs using the most up to date data at the time, and revisited every time a category comes up for (re)sourcing. And, most importantly, be based on forecasted demand, which needs to be up-to-date when budgets are created and updated regularly based upon category velocity and actual sales/utilization over a typical, statistically significant, time window (which will be different for every category). This is the key: budgets should be based on expected, and approved, demand and cost ranges — not fixed spend buckets.

And you need to make three critical changes to budget management to be successful.

  1. If the purchases are needed (i.e. buying less will shutdown a production line, result in a costly stockout, etc.), the expected spend can be exceeded (as long as all efforts are made to keep it as low as possible) and the organization will react by either increasing pricing or cutting elsewhere if they can’t.
  2. If the forecasted demand has been reached, it cannot be increased without approval (or approved forecast updates for input components), even if the expected spend hasn’t been reached.
  3. For discretionary categories, if the organization was able to delay demand (by finding a way to get one more year out of that cell phone or laptop, delaying hiring through better automation and occasional overtime, or simply pushing off MRO restock until the next major project started), expected baseline demand is NOT reduced for the next year. In fact, if a valid argument exists, unused demand may even be carried over. Organizations that can reduce or defer demand need to be rewarded. In the long term, you’ll save money if you encourage delay of spend until absolutely necessary.

And if you use Busch-Lamoureux Exact Purchasing, you’ll have an infrastructure where you are able to re-compute forecasts as needed, query current pricing as needed, monitor for events in high risk or highly volatile categories, get alerted when you may need to accelerate an event, and have an infrastructure to take the right action at the right time where you aren’t sourcing based on a fantasy budget but a real, up-to-date, demand with real, up-to-date, market pricing.

Approval Chains

If you’re using Busch-Lamoureux Exact Purchasing, you have regularly updated, agreed upon, forecasts and expected demand. You have pre-vetted suppliers. You have market pricing, contracts, purchase orders, and m-way match. Once the demand, suppliers, and contracts / bids have been accepted and approved, if everything matches, there is no need for a human in the loop. You configure the (A)RPA and let it issue the okay-to-pay to the payment system and let the payment happen. Unnecessary approvals add unnecessary time, create unnecessary work, and potentially cost you not only the opportunity for early payment discounts, but even fines if you don’t make the payment windows mandated by the UK, EU, and other countries for paying small suppliers.

PowerPoint Category Strategies

A PowerPoint dies as soon as it is presented. No one ever goes back to it. With Busch-Lamoureux Exact Purchasing, for any high complexity, high risk, or high impact category (which are 7 of the 8 categories), you setup the necessary price, risk, quality, delivery, etc. monitoring systems from day one. You have alerts whenever a significant event occurs that could significantly impact your pricing, quality, or supply. And, for any category that is high impact, you have mitigation or response strategies already defined in your procurement systems that you can action.

KPIs that incentivize activity

In Busch-Lamoureux Exact Purchasing, you define KPIs based upon success factors, NOT activity factors. You’re concerned with savings against market (i.e. cost avoidance), not historical budgets. If market prices went up 15%, you’re not saving over last year in any managed category. But if market prices went down 10%, you shouldn’t count any decrease in spend against last year’s spend of less than 10% as savings, because if you didn’t reduce spend by 10%, you’re doing a lousy job. It’s not resolved issues, it’s straight through processing. And so on. With Busch-Lamoureux Exact Purchasing, you don’t have worthless KPIs in the first place.

The only process/setup it doesn’t eliminate is tolerating underperformance. That’s entirely a people issue, and if you have people that tolerate underperformance, they need to go. No process can fix that. Only your willingness to take action can.

* as a certain Western society does everything it can to pretend climate change doesn’t exist while its greatest ally does everything it can to bomb us to the next great flood as it unleashes over 2 million metric tons of carbon dioxide (tCO₂e) a month with the bombs it uses in a single conflict — a measurable level of emission equal to 0.05% of total monthly (tCO₂e) global emissions

It’s Never Good News for the Oompa Loompas

Last year, when we asked but what about the Oompa Loompas, we noted that Hershey was undertaking a mega-project to modernize its supply chain with the hopes that its $250 Million supply chain would generate a savings of $300 Million going forward on an annual basis.

Which sounds great in theory, but if it’s not bringing jobs back for the Oompa Loompas, it’s not great in practice because, as you should all know by now, the Oompa Loompas have been suffering for at least the past 20 years (which is the length of time we’ve been covering their plight, which included the layoffs they saw at Hershey back in 2007).

Especially since the bad news never ends. Two weeks ago, artisan chocolate maker Kate Weiser Chocolate announced they were shutting down completely and putting all those Oompa Loompas out of work again. Hopefully they Oompa Loompas get some good news soon before the art of true chocolatiering is lost forever!