We’re continuing our foray into the top barriers to success that we outlined in our top barriers post that chronicles the barriers that keep coming up over and over again in every Procurement survey in our effort to ensure that you don’t have to read another state of procurement study for the next 5 years. Today our focus shifts to quality and supplier reliability and continuity.

A Brief History …

Back during the Industrial Revolution and the Gilded Age, most corporations were vertically integrated down to the raw material supply. It was one big operation from raw material to processing plant to distribution to end customer. If there was a quality issue, it was your operation, you went to the factory, you had a stern talk with the factory floor manager, actions were taken, and quality improved. If supply wasn’t steady, it was a problem with your mines or farms and the solution was the same. You went to the mine or the farm, had a problem solving session with whomever was in charge, and that was that.

While the railroads may have required supply from a lot of different corporations, which resulted in the first handbook for modern purchasing (Handbook of Railway Supplies, 1887), most operations didn’t and, moreover, the railroad tycoons often owned many of the companies they needed. However, with the introduction of the Ford Model T in 1908 and the invention of the first modern electric refrigerator, the Domelre, in 1913 we entered an age where appliances and automobiles and other modern conveniences started to required specialized parts. As a result, as time progressed forward, more and more businesses began to specialize in the production of chemicals and parts to support the increasingly complex manufacturing requirements that arose in the production of these modern conveniences.

Supply reliability and quality became an increasingly important concern as operations went from having to source a few chemicals and parts to having to source dozens (and then when the age of electronics began, hundreds and eventually thousands). If there was a quality issue, you could complain, but you couldn’t ensure it would be fixed in a timely fashion. Thus, reliability of supply started to become an issue if you didn’t have alternatives.

Then global outsourcing began to step up in the 1960s and explode in the 1980s, especially to Japan and then to Taiwan for electronics and then to China and the rest of Asia for everything else. Supply chains extended halfway around the world for everything we buy daily. Quality may or may not match the sample (where the production batch may or may not be produced in the same factory), and if it’s poor, there’s not much you can do about it except to find a new supplier and wait weeks or months for a new shipment. But that’s even assuming you can assure supply at all.

The Problem

Supply chains have gone from tight vertically integrated operations in single corporate monopolies to overly extended and overly complex behemoths that span the globe, consist of multiple tiers (that can easily be 6 to 8 levels deep on average), and often consist of 10,000 or more suppliers because of electronics that supply commodity wiring and connectors and chasis to one-of-a-kind custom manufactured processors. We’ve went from a point where the head of production knew every key component in the product; where it was mined, processed, and made; and who was responsible for or supplied it to the point where maybe one person can name all of the tier 1 suppliers currently being used to produce a single product in question, even if it happens to be one of the core products produced by the company. And that’s a big maybe if there’s more then 10 tier 1 suppliers involved.

An average large organization now has tens of thousands of “active” suppliers that supply everything from office supplies and MRO to products and services for resale to services, with over 80% of these suppliers being in the tail in terms of overall spend (and, usually, number of purchases, with some “active” suppliers only being used once or twice in a year, and some only being used for one year). That still leaves a few thousand core “active” suppliers in the top / strategic spend categories, and it’s impossible to keep an eye on every one and be certain that the next (critical) order is going to come in. Especially when it’s not just supplier solvency and performance, but geo-political, logistical, and regulatory issues that can get in the way, disasters that can bring operations to a stand still, and economic issues (like trade wars) that can upend a supplier overnight.

The Necessary Realization

Not only are modern supply chains are too complex to manage without software, but so is supply assurance. This goes well beyond supplier selection for an award to continuous supplier monitoring from a compliance, performance, and risk perspective to ensure supply keeps coming in and proactively detect and predict issues that may arise.

This is not something any human, or team, can do without a lot of technological help. You need solutions for:

TPRM — Third Party Relationship Management — i.e. Supplier/Vendor Management on Steroids where you can track all continuously active direct tier 1 suppliers who are in the top 80% of spend or supply a sole source critical component or service and maintain their regulatory, compliance, insurance, performance, and risk profile that can be accessed before sourcing events, during regular performance reviews, when issues are reported, and so on.

SCV — Supply Chain Visibility Solutions — that tracks and monitors your supply chain at least to tier 3, and further if possible. You’re going to have a tier 1 problem if your tier 2 supplier goes bankrupt, becomes inaccessible to the tier 1 supplier because of new sanctions or border closings (due to geopolitical tensions or uprising), or happens to be near the epicenter of a significant natural disaster that at the very least will cut off supply lines even if its plant wasn’t damaged. You need to be monitoring to the extent possible critical tier 2 and tier 3 suppliers that you know provide the majority of parts and raw materials that go into your products, especially if your tier 2 and tier 3 suppliers have limited options. And if there’s an issue, you need to know months in advance because chances are your tier 1 won’t realize an issue until your tier 2 is late, which could be way too late for you to find another source of supply.

And, more over, you need to be developing ready-to-go mitigation plans and processes to react the minute you realize there is a disruption anywhere in your critical chain or the products delivered don’t meet the quality requirements. Tagging and monitoring isn’t enough (even assuming you can get all the data in that you need to tag and monitor appropriately), you need to know how to pre-plan, react and adapt quickly to a completely unexpected situation, and execute efficiently.

This means you need a to understand not only your supply chain and production requirements, but also risk identification, risk mitigation, and risk plan execution. Moreover, you need to understand it beyond what an average risk manager in Risk Management (who are looking at more immediate Legal and Cyber risks understand it!)

The Technological Requirements

The technological requirements are considerable and require supply chain aware sourcing and sourcing aware supply chain and expertise from source to sink and back again on both sides.

A continuing reminder that if you want guidance in the short term, hope that your favourite provider reaches out to Bob Ferrari of Supply Chain Matters or the doctor and enables us to focus on writing the series (or in-depth e-book) explaining what modern Procurement and Supply Chain Tech needs to look like (and how it needs to be implemented) to address the challenges, reduce the risks, and address the priorities versus just dripping out tidbits as free time permits.

We’re continuing our foray into the top barriers to success that we outlined in our top barriers post that chronicles the barriers that keep coming up over and over again in every Procurement survey in our effort to ensure that you don’t have to read another state of procurement study for the next 5 years. Now it’s the barrier of organizational support and, specifically, technical support. (Most organizations just don’t have the IT Crowd they need!)

A Brief History …

As we discussed with the top barrier to success, siloed ways of working, with each successive innovation, business, and process improvement, became more complex and required more education and experience to perform. As a result, with each successive innovation, the available talent pool shrinks. Moreover, with the average large organization having eight (8) or more departments (Finance, Ops, HR, Legal, Sales, Marketing, IT, R&D, Manufacturing, Procurement, Supply Chain, Logistics, Risk Management, etc.), each department is always stretched and needs more organizational support. Plus, the number of IT systems both available and implemented in an average organization has skyrocketed from a handful (an accounting system, a MRP, and basic word processing) to, according to a recent Zylo survey, 660+ SaaS applications (on top of dozens of installed systems). (That’s average. Some organizations have more than 1,000 SaaS applications!) Despite this scary fact, there’s still only one understaffed IT department.

The Problem

In a nutshell, due to the proliferation of complex processes and their component tasks as well as the combinatorial explosion of systems and software to implement and, theoretically, support those tasks, there has been a similar, combinatorial, growth in the need for organizational and IT/Tech execution support in each enterprise department.

The Necessary Realization

The answer here is not easy. It’s not even easy to explain all of the factors you need to understand. But we will try.

First of all, as per an upcoming barrier to success, there is a talent gap in many areas. This is true even if there isn’t a shortage of available talent in the market since organizations have fixed budgets and can’t always hire all of the talent the organization could use, so there could still be a talent gap internally.

Secondly, even if the organization has talent capable of dealing with every support requirement, there’s only so many hours in a day and only so many individual support calls that an overworked (IT) support employee can take.

Thirdly, despite promises that technology would solve everything since the introduction of the first MRP (over 60 years ago), it hasn’t, and the technology project failure rates, which have never dropped below 66%, have been rapidly rising for the past 5 years or so and recently reached an all-time high of 88% (with some informal and formal indications, including a recent MIT study, that AI technology project failure rates are now as high as 95%). (See our article on two and a half decades of project failure.)

As a result, there is no perfect or simple solution to this one. However, there is a simply stated solution, and it is this:

Identify all of the tasks and processes that can be automated and automate them. (And, as per many, many articles on this site — this does NOT mean [Gen]-AI!)

However, this is easier said than done. It requires the classic people – process – technology approach which involves your best people identifying and documenting the right process, along with all of the exceptions, then figuring out what can be automated with technology, and finally taking the time to identify the right technology, define the implementation plan, oversee the implementation, do the testing and validation, and train all of the stakeholders who have to interact with it how to do so appropriately. In other words, as SI likes to say, it’s the modernized talent – transition – technology approach.

This has to be done for each process individually, and the time and effort required will vary. Especially when it comes time to identifying the right technology which, the majority of the time, will not be the tech-du-jour in the latest hype cycle. Sometimes it will be a 60 year old algorithm wrapped in 20 year old RPA. It’s not the tech, it’s the outcome … and whatever gets you there as quickly, efficiently, and free of unnecessary human effort as possible. (Remember, machines are great at thunking, as they can do trillions of calculations in the time it takes us to do 10, which is something we are not good at; but they are not great at thinking, as they are not intelligent, but that is something we are good at — but yet we spend 80%+ of our time doing tactical data processing best left to machines when we should be more focused on strategic decisions and the human element of business.)

It will take a lot of time, but if the organization as a whole follows the 80/20 rule, and focusses in on the processes that are taking the most time and deals with those first, one by one, and doesn’t fall for the vendor and consultancy hype and get misled down the wrong path, within a few years, they will start to make significant progress and within a decade will have all of the time consuming processes under control. (After all, the average journey to best in class by a committed organization is eight (8) years, as determined by the Hackett group in the 2000s.) In fact, within a couple of years of just automating one process at a time, you’ll will suddenly realize that you have made significant strides well beyond what the big consultancies will promise, but never deliver with big-bang AI projects that never end.)

The Technological Requirements

The technological requirements are considerable and require supply chain aware sourcing and sourcing aware supply chain and expertise from source to sink and back again on both sides.

A continuing reminder that if you want guidance in the short term, hope that your favourite provider reaches out to Bob Ferrari of Supply Chain Matters or the doctor and enables us to focus on writing the series (or in-depth e-book) explaining what modern Procurement and Supply Chain Tech needs to look like (and how it needs to be implemented) to address the challenges, reduce the risks, and address the priorities versus just dripping out tidbits as free time permits.

We’re continuing our foray into the top barriers to success that we outlined in our top barriers post that chronicles the barriers that keep coming up over and over again in every Procurement survey in our effort to ensure that you don’t have to read another state of procurement study for the next 5 years. Our barrier today is lack of funding.

A Brief History …

This ties into the barrier of insufficient business wide support which will be discussed in a future installment and it relates to the barrier of silos that we discussed in our first installment. The simple fact of the matter is that, as more and more departments were created, the piece of the pie each department received shank. Similarly, as system and process needs increased, the costs to operate increased. This double edge sword slashes budgets to the bone.

The Problem

As a result of the explosion in departments, and departmental needs, you have more departments fighting for more pie than actually exists. That’s the problem in a nutshell!

The Necessary Realization

Sadly there is no real solution here. Because, while theoretically, the solution is to:

• build realistic ROI models and
• prove the value incrementally with a staged implementation of the plan the ROI models were built on

every other department can do that as well, and why should you get more pie than they do?

Your only chance of getting your fair share of the pie, and getting it first, is to:

• Prove the value before the request goes in.

You will need to find a very low cost tool, pseudo-hack your own solution for RFX, Analytics, SXM, Invoice Automation, etc., and demonstrate a significant value over a significant period time, at least a quarter, and preferably two or three quarters or find a low cost mid-market sourcing execution provider that has a barebones offering you can put on the P-Card for your core team. Then, build a realistic ROI model that demonstrates the full value you could extract from your process if you could upgrade your solution to handle all activities of the type (which might require buying a mature for-purpose solution from a real Sourcing and/or Procurement vendor that has been in business for half a decade to a decade and has all the workflows and capabilities you need to replace the low-cost startup minimal tools you are using now or, if you just licensed the core module from a mini-suite provider for a small number of users, license the rest of the suite, equip the rest of the Procurement organization, and contract some services to customize the workflows and capabilities as needed). The reality is that most low cost solutions or start-ups are 60% solutions at best and moving up and scaling out to 80% or 90% solution will have a huge increase on ROI (as a result of a huge increase in efficiency).

The Technological Requirements

The technological requirements are considerable and require supply chain aware sourcing and sourcing aware supply chain and expertise from source to sink and back again on both sides.

A reminder that if you want to address the problem once and for all, you need the right technology with the right capabilities that support the right processes. If you want some guidance into what this is, hope that your favourite provider reaches out to Bob Ferrari of Supply Chain Matters or the doctor and enables us to focus on writing the not yet written series (or in-depth e-book) explaining what modern Procurement and Supply Chain Tech needs to look like (and how it needs to be implemented) to address the challenges, reduce the risks, and address the priorities. Since most of it has not yet been written, it’s a big effort that, for now, we will only be able to drip out as free time permits in the future.

We’re continuing our foray into the top barriers to success that we outlined in our top barriers post that chronicles the barriers that keep coming up over and over again in every Procurement survey in our effort to ensure that you don’t have to read another state of procurement study for the next 5 years. Today we tackle category and market complexity.

A Brief History …

Simply put, the explosion in innovation since the Gilded Age, coupled with the rampant rise in outsourcing since the information age began, has led to continual increases in product complexity, which has, logically, led to continual increases in category complexity. Category complexity combined with a rapid uptick in outsourcing since the internet age began has led to great increases in market complexity as well.

We’ve went from vertically integrated companies at the beginning of the Gilded Age one hundred and fifty (150) years ago, to companies that rely on supply chains of over 10,000 players to produce our extremely complex computing devices. Think about that. As you descend into the deep dark tiers of your supply chain beyond the few thousand tier 1 suppliers you rely on as a large organization, you go from thousands to tens of thousands to hundreds of thousands of suppliers who are all necessary to deliver your products, and if any single one of those produces a singularly unique component, part, or material that can’t be produced by any other supplier in the complex supply ecosystem (that Bob Ferrari and the doctor discussed in Part V of our Direct Sourcing & Supply Chain Series on how Supply Chains have become Ecosystems), it could put an end to an entire category of offerings and significantly impact, and maybe even bankrupt, your business.

That is why categories and markets are now so complex.

The Problem

There’s an old adage that you can’t manage what you don’t understand (and you really can’t, and that’s why we refer to fresh-faced MBAs who’ve never studied anything but business or done any work in the real world and try to run businesses off of spreadsheets Masters of Business Annihilation), and the corollary in Procurement is you can’t buy what you don’t understand. If you don’t fully understand not only what the product needs to do, but what specs it needs to meet for R&D, Manufacturing, or your client, you don’t always know when there are substitutes that these departments aren’t considering and when there aren’t.

In other words, you need to have a deep understanding of the product and department you’re buying for, and that understanding has to be as deep as your understanding of Procurement. There’s a reason that, in the old days, Procurement was the Island of Misfit Toys and consisted of employees who didn’t cut it elsewhere in the business (and couldn’t be fired due to nepotism) and employees nearing retirement in engineering, HR, etc. who were “rewarded” with an easier job. This is because part of purchasing, especially for indirect or cookie-cutter products, was just going through catalogs and negotiating bulk discounts and even the office dunce could do that okay. And the other part required really understanding what the R&D and manufacturing teams needed.

In other words, Procurement wasn’t ready for the complexity, couldn’t predict or deal with the volatility, and definitely couldn’t take advantage of market saturation when it did occur.

The Necessary Realization

Don’t hire graduates specializing in logistics, operations, and or procurement.

Seriously. Don’t! Hire mathematicians, manufacturing floor managers, and engineers and train them in Procurement to support logistics, R&D/Engineering/Manufacturing, and direct Supply Chain Management. Hire commercial lawyers who like to negotiate and train them on Procurement, vs Sales, best practices to support legal and commercial negotiations. For services, hire ex-consultants who used to perform the services. Don’t hire “Procurement” people who only know the theory. Just like it’s much easier to teach a mathematician accounting than to teach an accountant advanced mathematics, it’s much easier to teach Procurement to a highly trained engineer, lawyer, or consultant with real-world on-the-floor experience than to teach a fresh-faced inexperienced grad with no real world business experience on how a business actually operates.

If you bring back the training, which is a topic we’ll discuss in more depth in a future installment of this series, then you can bring in true experts in a category with the ability to manage the complexity, and the category complexity won’t be such a problem.

The Technological Requirements

The technological requirements are considerable and require supply chain aware sourcing and sourcing aware supply chain and expertise from source to sink and back again on both sides.

A reminder that if you want to address the problem once and for all, you need the right technology with the right capabilities that support the right processes. If you want some guidance into what this is, hope that your favourite provider reaches out to Bob Ferrari of Supply Chain Matters or the doctor and enables us to focus on writing the not yet written series (or in-depth e-book) explaining what modern Procurement and Supply Chain Tech needs to look like (and how it needs to be implemented) to address the challenges, reduce the risks, and address the priorities. Since most of it has not yet been written, it’s a big effort that, for now, we will only be able to drip out as free time permits in the future.