Category Archives: Procurement Damnation

Organizational Damnation 55: Sales

You may have thought we reached the pinnacle of organizational damnations when we discussed damnation 54: Marketing, and while Marketing can be bad when they stretch the truth, promise products months before they can be developed even if everything were to go absolutely perfect (which it won’t), and create a hype that the organization may never be able to live up to, but it’s nothing compared to sales. It’s one thing to sell an expectation, especially when one can always weasel one’s way out with an “it’s all a misinterpretation” argument, but it’s another to sign a contract knowing that there is no way the organization can possibly deliver. That’s why the Sales damnation often trumps the Marketing damnation (even though the two are often intertwined).

Why is Sales so bad?

They often live by the mantra that the customer gets what the customer wants.

Regardless of reality, sanity, or the huge loss that could ensue when the product is not delivered, a penalty clause kicks in, and a large lawsuit is filed for incidental damages when the customer finds out that the organization(‘s salesperson) made a promise with the full understanding that it could not keep the promise (because the salesperson wanted to make a quota to get a year-end bonus).

Moreover, the customer gets what they want when they want it.

Sometimes sales will actually limit themselves to selling a product or service the organization actually has today, but promise unrealistic delivery times. For example, Sales might promise 100,000 units of the new motherboard next Monday, when they haven’t even been produced yet by the Factory in China which can only produce 10,000 a day working double shifts and requires 72 hours to air-freight a rush order when you add in packaging, customs clearance, and ground-transportation time.

Even if what the customer asks for is not what they really need.

Not satisfied selling deep freezes to Eskimos, or heat lamps to Colombians, some salesmen have to one-up their peers and sell complex products and services they don’t need to gullible CXO’s who, after seeing the success their peer organization’s supposedly achieved with the same service, acquire a “me-too” mentality. For example, BPO for invoice and payment processing when the organization is a staff augmentation operation and needs deep insight into it’s T&E cost in order to accurately bill and price it’s resources under different cost models. Or lean workshops when all the organization does is joint product design with strategic suppliers and the bottleneck is not the design process, but the suppliers with inefficient plant floor setups. Or customized web-based order entry screens for the sales-team to input orders when in fact the real bottleneck is inventory visibility and availability – not the time to enter an order. Or, even worse, a new ERP to support that new Procurement platform when, in fact, the current ERP is just fine and the data migration effort is monumental.

And more horror stories than you care to count. As long as compensation is immediate on signed deals, instead of long term based on customer retention (for example, instead of 30% of deal value, 10% of annual revenue for as long as the organization is a customer, even if the sales person leaves the organization or retires), Sales will do whatever it takes to line their pockets, even if it means promising the impossible (which will, in the end, come back to bite Procurement in the rear end when they have to source additional product or service support that just may not exist). So keep an eye on Sales, and be prepared to step over their head if need be before deals are signed that Procurement cannot possibly deliver on.

Environmental Damnation 21: Climate Change

We’ve hinted at this in our damnation posts on natural disasters, water, and food shortages but this source environmental damnation is one that has repercussions across the damnation categories. While we won’t discuss all of the ripple effects of the shockwaves it is producing, we’ll discuss some of the biggest ones from the primary effects.

Hotter Summers

Everyone associates climate change with global warming, and the summers are definitely warming up, as this is one aspect of climate change. As a result of hotter average summertime temperatures, we are experiencing a global change in weather patterns that is bringing more droughts and wildfires, which is resulting in an increase in lost crops at a time when food reserves are hovering near the all time lows that arrived in 2011 (and at a time when the US no longer has any strategic grain reserves). This means that spiking commodity prices are going to keep spiking, assuming that you can even get enough of the commodity. If your organization is not your supplier’s preferred customer, and 30% of the global crop gets wiped out, is your order getting filled?

Colder Winters

Global warming is not just global warming, it’s global climate change year round. While the summers get hotter, the winters get colder and more severe and bring more severe storms with record setting snowfalls that can bury your average personal automobile, massive ice storms (that can bring down entire power grids), and fast moving ice, even in the US. (Source: Raw Video) As a result transportation routes are shutting down, which doesn’t matter because your factories cannot run without power, and your people can not get to work in temperatures that can inflict frostbite in less than sixty seconds.

More Regulations

Climate change is a result of global warming and global warming is at least partially a result of our industrialization and all of the carbon and particulates that we pump into the atmosphere that would not get there naturally. The smarter countries realize this, and are creating regulations to prevent (over) pollution that is damaging our planet and threatening our very existence. And while this is a good thing in theory, the fact that these regulations are not only popping up faster than Fibonacci’s rabbits but that every clean air, water, etc. regulation around the globe has not only different restrictions on pollutant output, but on quality control and reporting, it’s a paperwork nightmare. When one considers all the trees that are being cut down to support the creation of these regulations, one has to wonder if more harm is being done than good sometimes.

In short, climate change is another eternal damnation that plays havoc in the direct manners specified above, and in more indirect manners when one considers the impact it has on transportation infrastructure (as extreme cold and rapid freezing and thawing is very hard on our man made structures), our providers (who are forced to claim force majeure on a more regular basis), and us (when we just cannot handle extreme weather conditions we never evolved for).

Societal Damnation 39: Brand

Joan Jett may not give a damn ’bout her bad reputation, because when you’re a rock star (or a bad girl movie star), that’s actually a good thing, but when you are a consumer-driven corporation, these days, that’s about the worst damnation that can be thrust upon you. Brand disasters can far outweigh the average 10%+ decrease in shareholder value found by Hendricks & Singhal back in 2003. As per a recent study by CIRANO on Corporate Reputation, not only is there an 80% chance of a company losing at least 20% of its value at least once during a five year period, a major incident that significantly impacts the brand can wipe out over half of a company’s value overnight! Just look at what happened to BP after the Deepwater Horizon disaster. BP’s share price experienced a 52% drop in 50 days. Brand has went from that crazy ethereal concept unnecessarily promulgated by marketing mad men to that very real, critical, corporate requirement that must be maintained at all costs. Why?

Bad press results in backlash and consumer boycotts.

Any indication that your corporation is not the most sustainable, ethical, and corporately responsible organization on the planet can land your organization in the news. A minor supply chain infraction will result in a back page story that will be picked up and circulated by bloggers and activists until every concerned customer notices it and decides to write you angry letters and stop buying your products, resulting in that 10% decrease in sales and value found by Hendricks & Singhal while major supply chain oversights such as using suppliers who experienced preventable (man-made) disasters such as the factory collapse in Bangladesh (which should have not only been condemned but demolished) or the Philippines factory fire (in an overcrowded factory with no fire exit) that resulted in large death tolls will get your organization in front page headlines. This will result in significant backlash and widespread consumer boycott. If consumers will boycott a franchise for its beliefs (such as the boycott of Chick-fil-A for its beliefs on same sex marriage, as opposed to an actual refusal to serve the LGBT community), imagine the backlash and widespread boycotts your organization is going to get if child labour, slave labour, or human trafficking is found in your supply chain as a result of lack of oversight.

Bad decisions result in NGO and governmental investigations, fines, and seizures.

If your company gets caught holding the bag when someone finds melamine in the milk, diethylene glycol in the toothpaste, or BPA in the baby bottle plastic, it’s going to have every governmental agency with authority investigating, watching, and looking for ways to fine it even if it was a supplier two tiers down in the supply chain that did the dirty deed. And every NGO in the sustainability and Corporate Social Responsibility space doing a 360-degree supply chain review to find out what other skeletons are hiding in your closet and what snakes are lurking in your supply chain. So, not only will the government seize any products it finds that violate any environmental laws and fine you as much as it can under environmental, supply chain, and human rights / trafficking legislation, but the NGOs will be feeding the media that will in turn be feeding the consumer backlash and consumer boycotts. Losses will multiply quickly.

And both result in lost investor confidence and severe value drops!

As soon as something goes wrong, even if Procurement had absolutely nothing to do with it because a decision was made, or forced on it, by another department and/or it followed organizational protocol in supplier evaluation and selection, it is going to be blamed by the Investors and the Board who are going to be quite perturbed at the egg on the company’s, and their, face, and want someone else to point the blame at. Procurement’s going to be hung out to dry and if the situation is perceived to be bad enough, someone is going to be made a scapegoat that will be sacrificed in efforts to appease the masses.

It’s extreme damnation, and any Procurement department that wants even the slightest hope of being able to deflect the blame is going to have to go well above and beyond the call of duty in supplier evaluation, selection, monitoring, development, and, if all else fails, dismissal if it wants to survive any attack on the corporate brand intact.

Economic Damnation 01: Fiscal Crisis

Bank Failure, which can be a result of fiscal crisis, is pretty bad, but the fiscal crisis that precedes it is often much worse. This is due to the fact that while a bank failure only affects the handful of companies that are using, and relying, on the bank, the fiscal crisis affects every company equally. No company is safe from a fiscal crisis — every company that does business in a country affected by the crisis is a company that is going to experience considerable supply chain impacts. Why?

Letters of credit become worthless

A letter of credit, which is a document from a bank guaranteeing that a seller will receive payment in full as long as certain delivery conditions have been met, is worthless in a fiscal crisis as sellers understand that the guarantee is only good as long as the bank is stable. But in a fiscal crisis, even apparently stable banks can become unstable so quick that a guarantee today might be worthless in a week when the bank, that over-insured buyers who are in danger of bankruptcy and in financial default, becomes unable to honour the letters of credit. As a result, no seller will be willing to take on additional letters.

Lending halts

As more and more companies begin to experience financial duress and become late, or default, on payments, banks will become very reluctant to lend additional funds as they will be short on cash and fearful of additional loss. As a result, companies that depend on that cash for payroll and day to day operations as they wait for customer payments will enter severe financial hardship, and their situation will worsen. These companies will then be unable to support their suppliers who will then be unable to deliver the products on time that the customers require before payment can be made, creating financial turmoil up and down the supply chain.

Corporations go into cash hoarding mode

As a result of the financial crisis that will result from the lending halts and the bank’s unwillingness to issue letters of credit, those corporations with cash will go into hoarding mode. Supplier payment cycles will be extended to 90, 120, and even 180 days and those companies that rely on the cash to survive, especially with few options, will be under even more undue hardship. So even if your company is okay, and doesn’t hoard cash and pays its suppliers on time, your suppliers could still be suffering as a result of most of their payments being delayed, and the actions of others puts your supply chain in jeopardy.

Consumers panic and stop spending

Eventually, when the fiscal crisis starts to enter panic mode, a large number of consumers, fearful for their jobs (as fiscal crisis almost always result in layoffs from cash-strapped or cash-hoarding corporations, take your pick), stop all unnecessary spending. As a result, any product line that your corporation makes that is considered unnecessary by a segment of consumers sees a drop in sales and all those nice rebates and discounts you negotiated based upon an expected volume commitment go out the window.

And since fiscal crises cannot be predicted, it’s another damnation that will drive you mad.

Societal Damnation 46: Mass Hysteria

While mass hysteria is a term that typically refers to collective delusions of threats to society that spread rapidly through rumours and fears, it also means unmanageable emotional excesses on a large scale, and both can be damning to your supply chain. Each of the following situations can significantly impact your supply chain in a negative way.

Fear of Your Product

If a rumour gets out that your product is dangerous to use, it can lead to mass boycotts and an immediate drop in sales whether the rumour is true or not. For example, let’s say someone claims that your bottles are laced with BPA that leaches at room temperature, your cell phones are not properly shielded and increase a person’s risk of brain cancer by 20%, or your toddler toys regularly break into plastic pieces with sharp edges that can be swallowed and cut and choke the toddlers playing with them and the rumour spreads across the internet at today’s internet speed. True or not, that could be thousands of lost sales in minutes.

Fear of Your Processes

Just ask the oil industry how well their operations progress when they want to start drilling, or even worse, fracking. And while the former can be quite safe with today’s technology, and the latter reasonably safe with the right geological conditions (with no nearby ground water reservoirs for the chemicals used in fracking to leak into, no underground caves that can rupture and cause sinkholes, etc.), many people, understandably, don’t like these processes and many more are just outright fearful. And they don’t stop at boycotts of your product. They hold protests and do everything legally, and sometimes, illegally possible to stop your progress.

So, if they fear that you are using a process that creates an unsafe product, that puts people, or animals, at risk, or that is polluting any part of the environment (air, water, or ground), they will speak out. And they will verbally, and sometimes physically, attack your supply chain (and the people who run it).

Fear of Your Ethics

Sometimes people will think you’re just out to make a quick buck, no matter what the cost, and you don’t care who gets hurt, or, more precisely, used, abused, and financially bankrupted along the way. Now, this may be true of your psychopathic CEO (who is, statistically, the most likely person in your organization to be a psychopath, even more so than the corporate lawyer as per our post on societal damnation #48: worker’s rights), but this is likely not true of you.

This poses a real problem during a strike or walk-out, legal or not, when the instigators, who may be delusional (and see themselves as the re-incarnation of Cesar Chavez) or may not, believe that you are going to displace and dispel them at any cost, possibly with force, and believe that their only option is to counter with force. This, of course, not only puts your supply chain at risk but your workforce at risk as well.

Craze for Your New Product

Sometimes hysteria swings in the other direction and instead of fearing your ethics, processes, or products, for whatever reason, everyone has to have your product — now. And we get what is now typically known as Black Friday Madness where people literally trample each other to death trying to get one of your products before the local retail establishment sells out. Now, you’re probably saying, how does this affect Procurement? Isn’t it the job of the retail establishment or sales and marketing to properly forecast demand and make sure there is enough and the public relations personnel to insure the message gets out that there is enough units to satisfy demand and no on needs to panic? Well, yes, but if there are not enough units by the release date, that’s Procurement’s fault and Procurement should know that when it comes to demand planning, the models typically go over the heads of most people in the organization and only Procurement, with its advanced modelling skills (that it applies daily in its Sourcing projects), is fit to check the model and make sure everything is as accurate and reliable as it can be. Procurement’s fault or not, we have the ethical responsibility to do our best to make sure no one else screws up on behalf of the company in a manner that puts people’s lives at risk (or the company’s brand reputation at risk either — we depend on that too).

Hysteria is very real, and since people not only run our supply chains, but provide the reason(s) that they keep running, hysteria is a very real damnation that we have to be prepared for.