Author Archives: thedoctor

Provider Damnation 67: Tier 2

Suppliers. You can’t always deal with them, but you cannot survive without them. The same goes for your Tier 1 suppliers. They can’t always deal with their suppliers, but they cannot survive without them. Your suppliers don’t have a magic replicator that your products just materialize out of. They have to manufacture these products from components and raw materials that come from their suppliers. And their suppliers are their problem, right? Wrong.

If Tier 2 Suppliers are late with shipments to your Tier 1 suppliers, you don’t get your product on time.

And, most importantly, while you might get some insight from your tier 1 supplier that a shipment they were expecting is late (and your shipment is going to be late) if you have a great, and very well managed, supplier relationship, you’re never going to get insight from a tier 2 supplier that a shipment is (going to be) late (because there was a delay in their raw material shipment or a production line broke down).

If your Tier 2 Suppliers ship sub-standard materials, your Tier 1 supplier ships sub-standard products.

And there’s no guarantee that your tier 1 suppliers are going to notice that the grade 5 bolts for the transport vehicles were only grade 4, that the dysprosium foil supposed to be 99.99% pure is only 99%, or that the milk powder isn’t tainted by melamine powder to bulk up the weight.

If your Tier 2 Suppliers use forced labour, you get brought up on criminal charges under the emerging anti-trafficking acts and modern slavery acts (California, UK, etc.)

Don’t think that just because you visited the primary factory locations of your supplier and your supplier’s supplier and did an audit that all is clear. Your supplier’s supplier might have five different locations, and while the main location is clean, safe, not overcrowded, and complete with paperwork on all workers demonstrating minimum age and fair wage, the additional locations might be dirty, full of safety hazards, over crowded, and use hordes of undocumented workers, including underage, underpaid, and even forced workers brought in by the local “contractor” to make sure the line runs 24/7 to get those orders out and more currency in. But your supplier’s supplier, operating in a relatively lawless zone compared to the zone your headquarters is in, does this with impunity as it knows that, with the right bribe here and there, the most it will get is a slap on the wrist for its transgressions while your officers could be facing criminal charges.

Damnation exists throughout the supply chain, not just with the immediate supplier and the immediate customer.

Damnation, you left a happy job
Damnation, and now your head throbs
Damnation, now you’re in too deep
It’s a Procurement Damnation
and it makes you wanna weep

The Island of IT, Part I


Today’s guest post is from Torey Guingrich, a Project Manager at Source One Management Services, LLC who focuses on helping global companies drive greater value from their indirect expenditures, such as IT and Telecommunications investments.

Even some of the most mature Strategic Sourcing departments tend to struggle with IT. IT spend is off limits or out of reach for traditional sourcing and procurement efforts. Let’s look at a few excuses that tend to pop over why IT can, and needs, to act independently, how to bridge that gap, and what value can ultimately be delivered by Procurement.

HURDLE #1: IT IS TOO COMPLEX

Often Procurement professionals can feel intimidated by the technical aspects of IT initiatives which results in IT departments tending to make decisions in a silo. Consider other “highly complex” categories that sourcing takes on (e.g., chemicals, raw materials, assemblies). While these may seem complex to those who have not worked with them in the past, with experience, training, and research these categories fit very well into the core competency of Procurement departments.

Overcome the “complexity” hurdle: It is vital to partner with stakeholders for sourcing and spend management within all categories. Devoting time and energy to gain a basic understanding of the IT software and services being purchased comes with the territory of working in Procurement. Begin reviewing past contracts, SOWs, and the structure of IT-related initiatives to become familiar with different components of these projects. By simply reviewing what has been done in the past, you can begin to see the patterns in the way these services are provisioned and priced. Also, utilize the knowledge of IT counterparts; more than likely they will be very open to explaining the purpose and goals of the services needed and impart critical knowledge to help you get up to speed within the category.

HURDLE #2: IT SPEND IS ALWAYS SOW AND/OR LICENSE DRIVEN.

While this may seem the case more often than not, SOWs and licensing agreements can be improved when reviewed from a sourcing perspective and should still be under Procurement’s scope.

Overcome the “SOW and license” hurdle: First, for those projects that are truly unique, by defining deliverables and tracking the details of an SOW within spend management tools, Procurement and IT will gain real visibility into the spend figures within the organization. Secondly, there are plenty of components of IT that tend to be more standard or follow a relatively simple pricing structure (equipment, telecommunications, etc.). You can use these inherently simpler areas as a starting point for review of categories within IT. Look at an IT need and try to breakdown the components for a better understanding. For example, software contracts typically have the same components (license fee, maintenance, support, and fees for any customization/unique support) and these can be looked at as separate components to gain a full understanding of the software and services being provided.

HURDLE #3: IT CAN’T BE STANDARDIZED.

While IT services and products are less likely to be standard, there are portions of spend and pricing methodologies that can be standardized within an agreement. It is Procurement’s role to seek out these standard components and get past the sales-speak that suppliers may present to end users.

Overcome the “non-standard” hurdle: Similar to the “SOW and license” hurdle, it is important to seek out the portions of project that are, or can be made, standard. Armed with the market intelligence and past contracting experience that Procurement brings to the table, suppliers are more likely to work on defining rates for specific roles, the number of trouble tickets/service calls included, license discount bands, and other components where Procurement can push for standardization. As we discussed above, you can work with IT suppliers to unravel the bundled components of spend to first understand the components and then determine what is actually standard. You will find that while a supplier may claim that an entire solution is custom, there are large portions of that solution that are very standard and should be treated as such.

Once Procurement has overcome the hurdles, the next step is to deliver the value. We’ll discuss this in Part II.


Thanks, Torey.

Authoritative Damnation 62: Shareholders

You saw this one coming too, didn’t you. Authoritative Damnation 63 was the Board of Directors, your best friend on a rare day and your worst enemy most of the time. But the Board is not some random group of people, they are a specific group of people that are elected by, you guessed it, Shareholders.

Shareholders are a damnation because they, collectively, control the company. Yes the company answers to the CEO and yes the CEO answers to the Board but the Board answers to the shareholders because if they don’t do what the majority of shareholders feel is in the best interest of the company, the Board won’t be around after the next annual general meeting.

Most shareholders are minority shareholders and most are not very active when it comes to day to day affairs, most not even following day to day affairs because, if the company doesn’t perform, they’ll just withdraw their small investment and put it elsewhere or wait for the overall portfolio to balance out. But some are active, very active, to the point of being activist and if they also have a percentage of the company, and the ear of other shareholders that have a percentage of the company (and not a fraction of a percent), they can be trouble. Big trouble. So much trouble that Big Trouble in Little China looks like a minor inconvenience.

Why? If they decide that your organization is off track, possibly because they perceive that the organization is failing to be as sustainable or responsible as it should be, and they decide they are going to do something about it, they might go all out and bring the wrath of PETA or Greenpeace down upon you.

Or, if a small group of activist shareholders believe that the strategy of only using recycled content and only focussing on buying from EcoCertified suppliers is costing the company too much in terms of increased expenses and decreased marketshare (as it is, in their view, only attractive to yuppies), they might decide to force an AGM and replace the entire Board with those sympathetic to their ear, a Board that will do a 180 on company strategy, which might work, and might not. But either way, Procurement will have to do a 180 as well — find new suppliers, try to get out of iron-clad contracts with current suppliers, and support a new strategy — overnight.

Or, they might elect themselves to the Board and become the latest Board Members from Hell. Are you ready? Probably not … but they are coming for you anyway!

State of Flux Has the Treatment for Your SRM Ailments: Part VII The SRM Platform Continued

As per our last post, so far in this series we have discussed the need for SRM (Part I), Chicago and a foundation for your SRM effort (Part II), tips and tricks for foundational success (Part III), the importance of good supplier relationships and State of Flux’s latest research report The Business of Supplier Relationships (Part IV), the six pillars of supplier relationships and their importance (Part V), and a review of the coverage of the State of Flux Statess SRM platform to date (Part VI), known as Statess.

The State of Flux platform has been under heavy, active development since our coverage early this year and considerable progress has been made on four fronts:

  • Prospective Suppliers
  • Accreditation and Compliance Tracking
  • Contract Management Enhancements
  • KPI Templates and Dynamic Drillable Scorecards

Prospective Suppliers

State of Flux has been actively developing a supplier self-registration system that allows a supplier to go through a dynamic question-based workflow-driven system that captures all of the information required for the supplier management team to verify, and qualify, a supplier for organization RFXs and innovation challenges. Depending on the industry, geography, and products or services being offered by the supplier, the amount of information required can vary from a few pages to a few dozen pages and the questions required may or may not need to cover environmental, ethical, financial, corruption, sustainability, or related areas of corporate social responsibility and the depth will depend on where the supplier is, what products the supplier is offering, where the products will be sold, and who the supplier is dealing with.

Accreditation and Compliance Tracking

State of Flux has been actively extending their ability to track and manage accreditations, compliance requirements, and compliance incidents. In addition to supporting detailed tracking down to a component level if need be, the system also supports integration with Sedex Global and Ecovadis which contain detailed sustainability and compliance audit data for tens of thousands of suppliers. This makes sustainability and compliance tracking a breeze.

Contract Management Enhancements

State of Flux has also considerably enhanced their contract management solution which can not only store all contracts associated with a supplier, but all historical versions and be used as the system of record during and after contract negotiations. It tracks extensive meta-data, which can be defined by the organization upon implementation, and makes it really easy to identify relevant contracts, track milestones and deliverables, detect termination and auto-renew dates, and tie contracts to KPIs, innovation efforts, and related projects. It is so powerful that a number of their Global 3000 clients are abandoning their e-Sourcing and e-Procurement CLM solutions in favour of the State of Flux solution because a contract is only as good as its execution, and execution has to be managed for success.

KPI Templates and Dynamic Drillable Scorecards

In the brand new release, available now, State of Flux has considerably enhanced the performance module that (now) supports the definition of KPIs, and templates, that can be applied across the supply base, defined down 4 levels, and used in dynamically created drill-down scorecards that show the user exactly what she wants to see with respect to a product line, geography, and/or supplier. In addition, the platform now comes with a number of pre-defined templates for standard KPIs across different performance categories that will make initial scorecard definition easy for the average organization. The user can also define when KPIs and scorecards should be automatically updated and create a dashboard with key (roll-up) scorecards that the user needs to track on a daily basis.

The user interface for Statess has been enhanced and usability is very straightforward. Plus, State of Flux is planning to attack the Master Data Management issue in 2016 and make it easy for an organization to also use the solution as a Supplier MDM tool since it is capable of tracking, and integrating, all supplier related information. It’s really just a formal definition, open schema, and API away from meeting this need.