Category Archives: Market Intelligence

Primary ProcureTech Concern: CSR/ESG/Sustainability

Today we start our coverage on the primary concerns of Procurement leaders, starting with CSR, ESG, and Sustainability. We will discuss the why, the impact potential, the major challenges and risks, and leave you with some final words of insight.

Why?

Corporate Social Responsibility is becoming paramount because many consumers are becoming conscious of their spending impact and spending power and don’t want to buy from companies that don’t take care of their workers, corporations that pollute the requirements, brands managed by executives who endorse fascist authoritarian regimes, and so on. Unless your corporation has a (local) monopoly, being a bad brand can be harmful to your bottom line. That’s the last thing any executive response, even a psychopathic sociopathic one (because a boycott inflicts major damage to the bank account).

Environmental and Social Governance is becoming top of mind because, in most first world countries, laws have been continually introduced to protect the environment over the last three decades. Moreover, you have to comply with those laws while simultaneously pretending not to give a rat’s ass about the environment in the United States which, as we pointed out in our post on how in the corporate world, sustainability/ESG is not a priority, is attempting to roll environmental regulation back to the Early Modern Era (i.e. pre-World War II), and any corporation not on board with that mission gets on the administration’s bad side.

Finally, sustainability is becoming important because many organizations are reliant on diminishing natural resources; crops are increasingly being wiped out by natural/climate disasters; and consistent, large, energy and water requirements necessitate sustainability to stay in business. Even if they don’t really care about CSR or ESG, they still need sustainability.

Impact Potential

Let’s face it.

  • We’re in an age where boycotts can cost Billions — and that’s exactly what could happen if your brand is perceived to be particularly heinous with respect to human rights in the supply chain, egregious with respect to its environmental damage, spine-chilling with respect to its sustainability, or reprehensible with respect to its far-right organizational ties.
  • Violating one of the many regulations, especially in the EU, can be quite costly. There can be massive fines, seizure and destruction of goods, and if you attempt to import hazardous or banned substances, even criminal charges.
  • Not minimizing energy, fresh water, or non-renewable material requirements can greatly increase costs and decrease supply assurance — neither is good for profit.

Major Challenges/Risks

Regulations: There are dozens of major regulations in Europe alone that you need to be aware of. Violating any single one of them can be disastrous, as per our regulatory compliance risk post.

Investment Requirements: Sustainable, affordable, clean energy and water often requires a lot of up front investment if there are no renewable energy plants or water desalination plants in the area. It also costs a lot of money to upgrade designs to use less non-renewable materials or alternative requirements, especially if there are a lot of redesign and testing iteration cycles that will need to be undertaken.

Supply Assurance: while you attempt to transition to a more socially responsible and environmentally aware organization. This is a top barrier for a reason!

Final Words

Whether or not you believe in climate change is irrelevant. Natural disasters have increased five fold over the last five decades, a pace that has not been equalled in recorded history. We’re running out of fresh water and struggling to produce enough energy, especially in the age of AI where a single model requires a multi-billion dollar centre to support it! Even without natural disasters, some regions struggle to produce enough food. Thus, sustainability is a major concern because the sustainability of the business is at stake.

Primary Concerns for Procurement Leaders

In our last two series we noted that Deloitte recently released their annual latest and greatest CPO Survey with the help of Spend Matters, that was designed to highlight, among other things, the latest and greatest “observations, challenges, and trends” in Procurement, but that, in reality, just highlights the same problems, priorities, and barriers it found in the past 9 editions, just like every other annual survey in Procurement.

There’s no embellishment here. We mean every other study that has come before for years because:

  1. the doctor has been reading them.
  2. the doctor went back through 15 studies in detail that were released in the past five years and a few other related papers published in the same timeframe.

As part of this in-depth review, the doctor pulled out, for each of these 20 papers (which included papers from the usual suspects like Kearney, CapGemini, E&Y, PWC, and Everest), the

After doing so, the results were that, for the Deloitte study, analyzing the:

  • top barriers, of the 10 quoted in 2 or more of the papers, 7 are in the Deloitte study,
  • major procurement risks, of the 7 quoted in 2 or more of the papers, 5 are in the Deloitte study, and
  • primary concerns, of the 13 quoted in 2 or more of the papers, 8 are in the Deloitte study.

Moreover, if we were to abstract the barriers, risks, and concerns one level and start looking at the underlying systems or processes that would need to be addressed, the similarities would be even more significant.

More importantly, they aren’t changing much year to year, and aren’t going to change much for the next decade at least.

A year ago I penned a post where I pointed out that before you get all excited to learn about trends for fall conference season, with the exception of:

  • Gen-AI being the new fluffy magic cloud
  • Fake-take (sorry, intake) being the new dangerous and dysfunctional dashboards

the majority of trends that have been discussed for the past year are the same trends that were discussed ten years ago (and SI has the blog history to prove it, especially since it doesn’t purge over half of the blog history on a site upgrade and/or migration).

This is because the core purpose, and thus the core priorities, challenges, and risks, of Procurement haven’t changed in decades. The systems have evolved, the processes have become more complicated, and the global supply challenges haven’t been this bad since the nineties, but the core HAS NOT changed (and, to be fair, has NOT changed since the first manual was published in 1887 and has NOT changed much since cross-continental trade began thousands [and thousands] of years ago).

Which means we don’t need any more annual surveys on these issues (every 5 years would be more than enough, and even then you might find that the only movement is related to the hot tech of today vs. the hot tech 5 years ago, as SI did when it did its trend analysis last year).

In our last two series, we also noted that we weren’t going to bore you by digging up two decades of studies and showing the same issue lists again and again, because that’s not the problem. The real problem is that these core issues still aren’t adequately addressed after decades of these “studies” being published, even though it’s the same issues again and again that come back year after year after year, sometimes with a vengeance when an unexpected natural disaster or pandemic strikes, a war breaks out, or a fan of the Gilded Age believes that tariffs are the cure-all and starts global trade wars.

However, before you can solve these problems, or anyone can put forth a solution, you need to understand what these issues are, why they keep coming back, and acquire some insight into how you might deal with them once and for all and finally move the needle forward.

In our last two series we focussed on the barriers to success and the risks. This time we are going to focus on the thirteen (13) concerns that consistently stay front and center in these surveys and reports, of which eight of them are among the top concerns in the Deloitte survey.

  • CSR/ESG/Sustainability ([01], [03], [04], [06], [08], [09], [16], [17], [19])
  • Cost Control ([01], [08], [10], [11], [16], [17], [19])
  • Talent Acquisition/Upskilling ([00], [01], [03], [08], [10], [16], [17])
  • Compliance ([01], [04], [06], [12], [19])
  • High Inflation Pressure ([00], [04], [11], [19])
  • Supplier/Supply Chain Resiliency/Continuity ([00], [04], [08], [11])
  • Tech Transformation Delays/Obsolescence ([12], [16], [17], [19])
  • Geopolitical Uncertainty ([00], [12], [19])
  • Economic Downturn & Deflation/Recession ([00], [12], [19])
  • Managing Digital Fragmentation / Digital Transformation ([00], [01], [11])
  • Tightening Credit Conditions ([00], [12], [19])
  • (Gen-)AI Integration/Impact ([03], [04], [19])
  • Weakness & Volatility in Emerging Markets / Trade Wars ([00], [12])

It is hoped that you enjoy the continuing coverage!

Finally, remember to review our article on why You Don’t Need To Read Another State of Procurement Study for the Next 5 Years! if you want to dig up the referenced papers.

Breaking Down the Risks: Corruption/Fraud

Since we have had corporations, we have had corruption. This is another risk that’s not going away. Plus, fraud is rising rapidly!

Expounding the Pounding

There’s a huge amount of potential corruption and fraud that you need to worry about. It’s not something that anyone wants to talk about but it is something that needs to be talked about a lot more than it is considering that global corporate losses to fraud were estimated at 5 Trillion in 2024, or about 5% of global revenue! Fraud, for now, is the only risk more costly than natural and climate disasters.

When it comes to corruption and fraud, there are three places it can come from: inside (corruption), outside (fraud), and, the hardest to detect, internal and external partnerships (collusion).

Internally, you need to worry about situations like the following:

  • disguised procurements to bypass processes (such as split purchases)
  • false evaluations / awards
  • false expense claims

Externally, you need to worry about situations like:

  • supplier impersonation / false supplier
  • partial delivery (but full invoice)
  • bid rigging and collusion

And when you have parties on the inside and outside collaborating, you might get:

  • conflicts of interest
  • credit card / p-card fraud
  • kickbacks and bribery

And, we’re sad to say, this is just scratching the surface. The reality is that there are at least 15 major types of fraud you need to worry about in Procurement, and some are pretty hard to catch. Properly documenting these and the proper steps you can take to minimize your chances of falling victim isn’t an article, it’s a white paper. I know, I wrote an unpublished one a year ago. But we will give you a few tidbits to get you thinking in the right directions.

Reducing the Risk

In order to truly minimize the risks and reduce your fraud losses to minimal, vs the more-or-less industry average of 5% of revenue, you need to take a lot of precautions. Some of the most important ones are:

TP(C/R)M:Third Party Compliance/Relationship Management and Vetting
You need to ensure that all suppliers, carriers, and other third parties you plan to do business with are real, legitimate, vetted entities and that you have also vetted their owners/directors and vetted with the owners/directors the people you are signing the contracts with and accepting payment instructions from are employees.

CyberSecurity & CyberTracking
You need to install and maintain state of the art cybersecurity and cybetracking and make sure the source of every electronic communication is traced back to its source and the originating domain ALWAYS confirmed. Very smart cybercriminals can not only mask from and reply to fields on emails requesting a change in payment details, but they will register / hack and steal domains that are extremely similar to the company being impersonated. If the company is McDonalds.com, then, guess what, they will acquire (control of) MacDonalds.com and a quick scan of the email headers might be enough to convince even a moderately astute individual the request is genuine.

e-Procurement/Invoice-to-Pay/Accounts Payable
With mandatory minimum 3-way match before ANY payment is approved – NO EXCEPTIONS. The purchase order must match the goods receipt which must match the invoice.

There’s more that must be done, but this is where you start. It will prevent a lot of the common and easily prevented fraud.

Breaking Down the Risks: Regulatory compliance issues

There will always be a need to comply with local laws and regulations. Always. So let’s get to it.

Expounding the Pounding

Regulations abound (especially in Europe), and the products/services you sell and buy need to conform to all of them. These regulations relate to the materials, production methods, human resources, carbon and waste production, storage and transport, packaging, and even labelling.

And the severity of non-compliance can be severe. For each violation, your punishment for violations can range from fines to seizure to criminal charges! Even for the most innocuous aspect of product management: labelling. If the labels are incomplete, you can be fined. If the labels are not in the required language, your products can be seized and held indefinitely or destroyed. And if the labels are intentionally inaccurate, because you are trying to skirt regulatory requirements by not reformulating your production to exclude banned materials or meet the maximums for potentially dangerous materials, you can be criminally charged.

Moreover, regulations and requirements can be different in every single country you source from, ship through, and ship to and your organization needs to be aware of all of them so a “gotcha” doesn’t put your organization in a difficult situation without supply but with regulators breathing down your neck and threatening large fines, product destruction, and/or criminal charges.

Reducing the Risk

There’s no easy, or even, complete answer here, but what you need to build is:

Compliance 360.

You need a solution that

  1. tracks all of the relevant human resources, health & safety, production/(hazardous) material utilization, carbon/GHG production, packaging, labelling, and transport regulations for each country you build in, ship through, and sell in that can also
  2. match that regulation to each product/component/material you buy so that you can ensure that your supplier, carrier, or risk management department is aware of, and conforms to, the regulations as appropriate

This is much easier said than done. This requires

  1. providers who track the appropriate regulations in each country and how they translate into specific requirements that companies need to meet
  2. the capability to merge all of this regulatory insight into a common framework
    (often through a specialized platform)
  3. the capability to match these regulatory requirements to specific products … and this requires a system that maintains complete harmonized product (and product related) information from design and manufacturing through packaging and labelling to transport and storage along with countries of production/transport/sales to match to the regulations. Guess what? Unless you’ve harmonized all of this data into a common, integrated data model for multi-level planning (as you would if you integrated direct sourcing with supply chain and logistics, as per the series the doctor and Bob Ferrari did on why Direct Sourcing needs to be integrated with Supply Chain, summarized in Part 7), your chances of matching requirements to products are quite low. Not good!

This is one of the most extensive, and most involved risks, because there can be dozens to hundreds of requirements you need to adhere to in each region in which you do business, depending on the product (line) in question, but it is one you need to get a good grip on or supply assurance is going to become significantly harder as time goes on.

Breaking Down the Risks: Supply shortages/constraints / Competitive alternatives

Supply will never be assured. You have to be ready for that! Let’s again begin by expounding the pounding and then give a few tips on reducing the risks.

Expounding the Pounding

In some ways, this is one of the key risks contributing to the rising cost/spend pressure risk that we discussed in our last article, because even if an organization doesn’t see it, their tier 1 (and tier 2) suppliers will!

However, it is definitely its own category as there might be a surplus of supply, but current constraints make it inaccessible. For example, in the rare earths category in particular, the majority of global supply might be from one or two countries. If those countries become inaccessible due to a sanction, border closing due to a war or geopolitical unrest, or a logistics (cost) nightmare, then you effectively have a shortage even if there are theoretically stockpiles in a warehouse waiting for someone.

Plus, you don’t just have constraints around production, you have them around logistics (how many pallets can fit in the truck, how many pallets in the container, how many containers you can have on the ship, etc.), intermediate storage, export and import (as there are quotas and limits and passing those can be costly), and so on. All of these constraints can impact your supply and cause chaos.

Reducing the Risk

The two generic answer(s) here are the same as two of the answers to the risk of rising costs in our last post. You need to ensure that you always have

  1. Alternate Supply Sources Always Active
  2. Alternative Product/Component/Material Pre-Defined

That’s it. If supply is not available from supplier A, you need to have a supplier B on retainer (low minimum contract) ready to go. If there is all of a sudden no significant source for a material (due to a disaster, border closing, or trade route interruption), then you need to have an alternate design that can use an alternate material and switch production.