Category Archives: Procurement Damnation

Organizational Sustentation 56: Legal

While Legal is often out of sight, out of mind, Legal can be quite the thorn in Procurement’s side, especially when Procurement wants to do something that Legal doesn’t think is a good idea. Chances are Procurement has done its research, and due to extenuating circumstances (a supply line went down, an operational centre was damaged by a natural disaster, etc.) knows that the organization might not have a choice, but that doesn’t mean that Legal is going to agree, or sign off.

But that is only one example of how Legal can be an Organizational Procurement Damnation. As per our original damnation post, Legal is run by the Chief Consul who reports to the CEO, a Chief Counsel who will order his organization to do what he believes the CEO wants done, even if that’s not what anyone else wants. If the CEO says to get standard contracts in place, the Chief Consul is going to order standard contract templates for all direct materials and services. If the CEO is worried about child or slave labour in the supply chain, Legal is going to order each and every supplier vetted, immediately.

And while this insistence on onerous clauses or tunnel vision can be bad, the minute you want to obtain a “Contract” Lifecycle Management solution, a whole new level of damnation emerges. Legal is going to immediately insist that “contracts” are their domain and they need to be the owners of the contract solution. And this is very bad from a Procurement perspective because all Legal typically cares about is contract creation (drafting, authoring, and signing), contract archival, and contract retrieval and their definition of a Contract Management solution is one with strong drafting and authoring capabilities, version control, audit trails, clause repositories, Microsoft Word integration, etc. This is only a very small part of the 3-phase CLM process that starts with a need identification and ends with a proper post-mortem, and a process that depends heavily on a successful sourcing exercise (to identify the right buy) and a successful supplier management process (to insure the right products and services are obtained at the right price at the right time at the right location in sufficient quantity and of sufficient quality). While a good contract is critical, as it must accurately capture everything leading up to the creation and spell out what will happen after signing, it is a very small part of the process and the best contract in the world is useless if you can’t execute. Plus, Legal can continue to use whatever they use now to create contracts, so it’s not like lack of a strong contract authoring solution is holding them back.

So what can you do to prevent Legal from being a thorn in your side?

1. Consult them early in a strategic project or one with urgent timelines.

Let them know what is being sourced, why, what the critical requirements are, and when the contract will be needed by. Ask them for their major concerns, standard organizational requirements, and any issues they will be looking out for. Some of the requirements Legal says it will insist on might be ridiculous and might require some internal negotiation, but the last thing you want to be is blindsided during what you believe will be a cursory review and signature from Legal. Get ahead of any issues and everything will go smoother.

2. Meet with them on at least an annual, if not quarterly, basis to identify operational or emerging concerns that they would like Procurement to be on top of, and get on top of them.

If they are worried about child and slave labour, potential payments to terrorist organizations, poor environmental reputation in the supply base, Procurement can present a solution (such as a CSR monitoring platform) and get them to help Procurement get the funding it needs to monitor such issues (and reduce operational risk). Which recommendation is going to carry more weight with the C-Suite when money is involved — the CPO’s, or the Chief Counsul’s?

3. Regardless of what the vendor calls it, you want a “Sourcing Execution Lifecycle Management with Strong Contract Support” solution.

Legal will still stick their nose in, especially since they will have to use the contract module, and try to sway you towards a solution of their choice, but a properly framed request will increase Procurement’s chance of obtaining the right solution. Make it clear that Procurement needs a solution to manage the Source to Pay lifecycle effectively, to ensure that it not only negotiates good deals but realizes them, and that Procurement would like that solution to revolve around the contract. Indicate that you have identified a few vendors with the key capabilities required for Procurement to identify, negotiate, and capture great deals, each of which appears to have a strong contract module, and ask Legal what they are looking for, indicating that their requirements will be included in the evaluation of the contract module and will influence the overall weighting, designed to bring the best value to the organizational overall. Also, if each affected organization is allowed to have one stakeholder representative review the components that affect them, and those reviews are averaged with Procurements, Procurement will have an easier time getting buy-in, as it will be able to say “if all things are equal, we will get the system with the contracts module better suited to Legal”. When the need, rationale for, and expected benefits of a solution are clearly communicated, it will be easier for all parties to work together, Procurement and Legal included.

Consumer Sustentation 74: Demand Planning

Demand Planning is a damnation. Why? As per our original damnation post,

  • traditional demand planning models require historical data
  • traditional demand planning models require market predictability
  • traditional demand planning models require market foresight
  • traditional demand planning requires knowledge of the expected price point

And how often in today’s constantly changing consumer marketplace, with new product releases coming faster and faster (to the point where your phone, laptop, and music device is out-of-date by a whole new release within a year), do you have good historical data, market predictability, and foresight? And how often can you be confident in the price-point, as a skunk-works product release by a competitor between sourcing and sale can force a price reduction to prevent inventory sitting on the shelves indefinitely.

So what can you do? (Besides burying your head in the sand like an ostrich?)

1. Get as much market data as you can.

Collect as much data as you can on your competitors imports, sales, and revenue using publicly accessible import data, analyst data, and company annual reports. It won’t be accurate, but with enough data you can often identify better trends than you could on the most similar product in your own inventory (which might not be similar, or recent, enough to be sufficiently relevant).

2. Have third parties conduct surveys on your behalf.

Sometimes the best way to gauge a market forecast is to actually conduct customer surveys and have a third party use the data to estimate demand for you. If you have no clue, the best thing you can do is admit it and get an expert to help you come up with a realistic demand forecast range.

3. Don’t focus a number, focus on a range and a potential rate of ramp-up or ramp-down.

If you know the demand is expected to be in the 100K to 200K units a month range, and the demand could double overnight, then you know that you need to contract for the low-end, but with a supplier that could ramp up to double production in a matter of weeks if necessary. And you have to negotiate a contract that allows orders to escalate, with pre-defined increases if the supplier is forced to work overtime (so you don’t get any billing surprises or animosity down the road).

4. Keep on top of sales data in real-time.

Be sure to get at least weekly PoS updates, and re-run the projections on a regular basis to detect an upswing or downswing early, so that you don’t get caught with your pants down, or, even worse, your pants off.

If you follow these tips, then you can get a reasonable grip on demand planning while your competitors flounder with the flounders.

Technology Sustentation 78: e-Privacy

Hot on the tails of data loss, comes the issue of e-Privacy. Privacy is a good thing, and e-Privacy is a better thing, but that doesn’t mean it’s not an eternal damnation to Procurement. Why?

As per our post on the technological damnation of data loss,

  • customers are always demanding more privacy rights,
  • oversight requirements are increasing as regulatory acts are multiplying, and
  • the technological sophistication required to achieve an acceptable level of security and privacy safeguards is now through the roof.

Add this to the customer fear combined with a lack of the technological understanding of the underlying security requirements to achieve e-Privacy, and it’s a very difficult damnation for Procurement to tackle. But that does not mean that e-Privacy is not capable of being tackled. Where do you start? First of all, prevent against data loss using the techniques in that post. Namely:

1. Identify the subset of data that needs to remain private.

Name, government identification number, medical record, etc.

2. Identify the systems necessary to process that data.

HR, Payroll, etc. Make sure the systems are secure, encrypt all the sensitive data stored in the application or the databases they access, and only decrypt the data for the properly authorized individuals.

3. Make sure all access to private data is logged and auditable.

And, most importantly, backed up in secure off-site backups.

4. Make sure that only the private data that is truly necessary is maintained in application systems.

Maybe you needed to do a full drug check, credit check, etc. on a potential employee as part of the hiring process, but besides “drug free” and “acceptable credit score”, does that data need to be maintained? No. Similarly, only a health practitioner needs full medical records.

5. Be sure to inform consumers of the measures you will take to protect their data.

A little education goes a long way.

Technological Sustentation 86: Template Mania

While template mania isn’t nearly as bad of a damnation as Big Data, Cyberattacks, Spreadsheets, Dashboards, and The Cloud, it’s a damnation nonetheless. Why?

Let’s start with the definition of a template. A template is defined using, well, any one of a dozen different definitions, including the following found on Wikipedia:

  • a pre-developed page layout in electronic or paper media used to make new pages with a similar design, pattern, or style;
  • a standardized non-executable file type used by computer software as a pre-formatted example on which to base other files, especially documents; and
  • a master page on which you can globally edit and format graphic elements and text common to each page of a document.

But none of these help Supply Management. Consider the definitions of templates commonly used by Supply Management vendors, which include, but are not limited to:

  • RFX templates to quick start sourcing projects for common or previously sourced categories
  • Strategic Souring Decision Optimization templates for pre-defining models
  • Data collection templates for analyzing surveys using BI tools
  • Scorecard templates for supplier performance monitoring
  • Workflow templates for setting up a sourcing project
  • Workflow templates for (automatically) approving invoices

And, by now, you should be thoroughly confused. And that’s the point. Extreme proliferation makes it hard to even identify what a template is. Even if we can define what a template is, it’s hard to know when it can be used. And even if we know when a template can be used, we don’t often know the right one. So how can we overcome this damnation and get through it.

1. Identify Where Templates Can Be Used

Templates can be used in spend analysis, sourcing events, contract creation, procurement monitoring, supplier monitoring, and related tasks. Start here.

2. Have Experts Identify the Right Templates for Each Instance

Have the experts in the organization identify the right templates for each area. For example, there are “canned reports” that can be used to jump-start any spend analysis effort, standard workflows / RFIs / lot structures for sourcing events that have been repeatedly found to work well, standard templates that legal starts with for templates, well known KPI-scorecards that effectively monitor Procurement progress, and best-practice supplier scorecards for strategic and tactical suppliers by vertical. Create and adopt these where needed.

3. Adopt Platforms that Embed the Templates into the Process

Now, considering that some platforms have customers with 1000+ spot-buy templates, 100+ category templates, and 200+ RFIs tied to verticals and supplier type and category, the number of templates the organization will have after step 2 will be overwhelming unless they are embedded into a platform that, using known data, guides the user to the rather small set of templates appropriate to the situation at hand, possibly by way of a few supplementary questions embedded in a wizard-guided workflow. The user should not have to search for a template, the platform should present the right template(s) based on the situation. Only then do templates become a blessing rather then the curse they have historically proven themselves to be.

Societal Damnation 41: Fraud & Corruption

As per our damnation post last year, fraud and corruption is everywhere and running havoc on your organization and your supply chain. A recent Kroll Global Fraud Report in late 2013 found that 70% of companies were affected by fraud in the prior 12 months, which represented an increase of 15% over the previous twelve months. In other words, at the time, 7 in 10 companies were hit by fraud in the previous year. But it gets worse. The Economist at the same time also found that fraud was on the rise and predicted that it would continue to rise. If the rate of increase remained steady, then 4 of 5 businesses got hit with fraud last year and 9 out of 10 business will get hit with fraud this year. Yowzers!

Procurement fraud can be particularly costly and damaging regardless of if you are in the public sector or the private sector. The UK public sector estimated that fraudulent purchasing on an annual basis cost it £ 2.3 Billion in 2012! Zoinks! And while it’s harder to find good numbers for the US, a 2011 report by Computer Evidence Specialists found that Fraud cost the US $1.32 Trillion in 2010, of which 733 Billion was Corporate (with 68% committed by corporations and 32% committed by employees). Hamana! Hamana!

If you are a large organization, whether you want to admit or not, there is a small percentage of employees, suppliers, and customers that are looking to rip you off for as much as they think they can get. Every day of the week, including Sunday. Not everyone, not by a longshot, but enough people to make your job miserable.

So what can you do? As per our damnation post, a good start is to

  • have an invoice policy that is strictly followed that only accepts invoices from approved suppliers, only for approved goods or received services, and only at contracted or publicly advertised rates
  • have strict spending limits and controls that enforce them which ensure that only people with authority can grant approvals for bypass, and that such approval is clearly logged in an auditable fashion
  • careful inspections of all goods received to make sure the organization gets what was ordered and what is paid for

But that’s just a start. The organization should also:

  • analyze all invoices or expenses without a PO very carefully to ensure they are not duplicate, that the goods or services were received, and that the prices billed are the prices the organization committed to pay
  • have strict policies on who is allowed to buy and what they can buy and have a policy that repeated or serious offences can, and will, result in immediate dismissal
  • have a standard contract rider that no invoices for off-contract goods or services will be accepted without a PO that all contracted suppliers must sign, as this will severely limit how many unexpected invoices show up
  • use data mining and machine learning to identify potential fraud as the same receipt submitted 3 times two months apart, or patterns of the same no-receipt charges, or duplicate billings for the same service months apart will be immediately identified as suspect, for example
  • keep up on fraudulent statistics and schemes and identify methods to enable the quick identification thereof before new fraud methods and attempts cost the organization too much money

But whatever you do, don’t target employees and treat them like criminals. If you treat them like criminals, they will become criminals. Create good procedures and processes for invoices and payments, install solutions where it is easier to follow the procedures and processes than ignore them, and make it about cost control, not fraud prevention, and you’ll find that fraud just isn’t as much of a concern. (Fraudsters choose easy targets.)