Category Archives: Procurement Damnation

Environmental & Sustainability Damnation 17: Greenpeace

Yes, you read that right — procurement damnation #17 is Greenpeace. While it’s important that someone provide the voice of sustainability when your average organization can’t see beyond the Wall Street proclamation that the almighty dollar must come first, and must come as soon as possible unless you want your rating downgraded and your corporate brand value wiped out, this is a case where that someone has inadvertently done as much harm as good.

While Greenpeace is not an eco-terrorist organization, there’s a reason that the (US) FBI (Federal Bureau of Investigation) coined the term eco-terrorism and a reason that the FBI once called radical environmental activists the number one domestic terror threat, and, at SI we’re very sad to say that the reason is Greenpeace. Unfortunately, a large number of radical environmentalists take Greenpeace’s message too far and use, or threaten the use of, violence and sabotage of a criminal nature in an effort to get their responsibility and sustainability messages across. (This, of course, weakens their cause, but they still do it.)

Moreover, its fight to end the use of nuclear power, coal, and oil can be so crippling to a developing economy that still depends on those technologies (and that needs time to convert over to more environmentally friendly alternatives such as solar, wind, and water power) that Greenpeace actually poses a threat to economic security and India even barred international funding for the local branch of Greenpeace (while freezing its seven bank accounts) in April of this year (and, to date, Greenpeace India has only regained access to its two main domestic bank accounts and 25% of the funds in its foreign contribution accounts).

And when it gets a company in its sight, that company loses money. For example, Greenpeace demonstrators regularly put up blockades that prevent companies from clearing land, drilling for oil or mining for minerals, or ships from leaving ports (with a recent example being the blockage of a Shell drilling vessel from leaving port). Renting, maintaining, and staffing heavy construction equipment and ships costs a lot of money and everyday the equipment sits idle can cost a company tens or hundreds of thousands of dollars. This drives up the cost of the raw materials mined or harvested, and hits all our pocket books to the point that the tax credits we get in countries where Greenpeace is seen as a charitable organization is often less than what they cost us.

And if your organization ever gets in Greenpeace’s sights, the reason why it is one of only two organizations to be included on our Procurement Damnation list will become crystal clear.

Technological Damnation 80: The Cloud

Where to begin with this one? How about a review of just about everything Sourcing Innovation has written to date on the subject:

Software was good. Hosted ASP was better. True Multi-tenant SaaS was better still. And “Cloud” is the one step back that follows the two-steps forward. (And unless you want to be a frog in a well, you’d best steer clear of it.)

The Cloud is not a white fluffy cloud full of day dreams, it is a gathering storm cloud that will soon erupt and flood your operation while the hail pummels you to a bloody pulp.

Not only, as per the linked posts, will you:

  • lose your mail, and all the confidential IP it contains, then
  • lose your data when you find out your Cloud provider put your data in a data center with no backup, then
  • lose your platform, when the FBI or NSA confiscates the servers in the data center that was powering the Cloud, and
  • lose your customers, when your loyalty program fails and they take their loyalty elsewhere.

But you will also

  • lose your supply chain visibility, and your ability to assure supply, when the Cloud explodes,
  • lose your revenue stream, when you can no longer book those customer orders and process payments, and
  • lose your bank accounts, when the (class action) lawsuits hit.

So next time a provider offers to take you on a trip through the Cloud, SI recommends you take them for a walk out the door.

Organizational Damnation 53: Engineering

So far in our series, we’ve addressed Marketing, Legal, Logistics, and Human Resources. However, as you might have guessed, these are just a few of the organizational damnations Sourcing has to deal with on a daily basis.

Today we add Engineering to the list of organizational damnations that Sourcing has to deal with on a daily basis.

Why Engineering? Why is a department staffed by Engineers and Scientists who, unlike Sales and Marketing aren’t inclined to stretch the truth beyond all recognition; unlike Legal, are inclined to speak plain English; and, unlike HR, are not inclined to find new and innovative ways to suck the life force out of you, a source of eternal Procurement damnation?

Engineers are rigid stubborn perfectionists.

Let’s break this down.

Each engineer has a process, a design, a set of approved raw materials, and that is the process, the design, and the set of approved raw materials. Trying to convince them that there is another process, an alternate design, or other raw materials that might be usable is like trying to force molasses to flow up a glacier. Like doctors, who only want a specific operating tool from a specific supplier, they are rigid.

This is because they are also stubborn. In order to accept new processes, new designs, or alternative raw materials, they would have to accept that there are better processes, better designs, and better raw materials, and that they exist today. If they believe that they are at the top of their game, they will believe that better processes, better designs, and better raw materials have not been discovered yet and even if they are discoverable today, it won’t be by Procurement or the supplier Procurement is bringing for joint innovation, at least not without a lot of time and effort on their part — that they don’t have. Don’t read this to imply that they are arrogant, because they don’t mean to be (unlike ivory tower PhDs), it’s just that good engineers and scientists invest the majority of their time keeping up with their field and honestly believe that they have a much better idea than you, and they are usually right in that assumption. Since it’s not often that Procurement will actually stumble across a better way, and, moreover, since the past track record of Procurement and suppliers — before Procurement was seen as a strategic department and top talent brought in to staff the department — was poor, Engineering will naturally assume that Procurement’s zany idea of the day will be another dead end and will be stubbornly resistant to it.

And, finally, they are perfectionist. The cost model might say 98% reliability is good enough because, in practice, only 1% of units will break down before the warranty period expires and the cost of flat out replacement will have little impact on profit margin, but Engineering will say otherwise. They will insist on selecting the supplier with 99% reliability even though that will increase costs 30% and it makes no sense because it is a consumer electronic device which will cause no injury when it fails and which will have little negative impact beyond temporarily inconveniencing the consumer who will have to call in, get a replacement shipped, and send back the defective unit in the box that arrives. An Engineer takes pride in producing the best quality product possible, even if that would bankrupt the organization in the process.

Their insistence on being the best will be one of the worst damnations Procurement has to face. After all, how can you fault someone for wanting the best? And you can’t even dislike them because, unlike some departments, Engineering is not filled with blood-sucking leeches, sociopaths who figured out how to screw people legally, or evil creatures that take pleasure in your pain. But yet they will cause you anguish in every sourcing project you undertake.

As each and every post in this series explains, Procurement is truly corporate damnation.

For those of you new to the profession, welcome to hell. (And enjoy the archive knowing that we’re only halfway through our journey.)

Only Supply Management Has a Future

In yesterday’s post we said that Procurement is Doomed, Entombed, and Marooned and we meant it.

No employee is going to send a paper request for authorization to Procurement to purchase a new phone when his dies, to authorize a laptop repair when his breaks, or to detail his need to purchase a few cases of paper when an emergency print run has to be done in house because the delivery from the printer got lost. They’re going to go online to Amazon or Office Depot or Apple and just order the product or schedule the service they need, and schedule the (same-day) delivery when they need it.

No analyst is going to wait for the quarterly market report from the old-school analyst firm when up-to-date online indices with past, current, and projected trends are instantly available at the click of a button. Another p-Card charge and it’s in their hands.

When demand increases rapidly, Sales isn’t going to wait for Procurement to negotiate a better logistics rate with a current carrier, they’re going to phone up the supplier and ask for expedited delivery on as many units as they can get their hands on.

And if a critical project requires additional contingent labour to be completed, HR is going to phone up the trustiest supplier in their rolodex (even if it is the most expensive) or go online to talent marketplaces to find talent for deliverables that can be outsourced and just get it done.

And so on. Procurement is doomed, entombed, and marooned.

But Supply Management is not. (And that’s why Sourcing Innovation is all about Next Generation Supply Management — the doctor saw the beginning of the end for traditional Procurement long ago and has been working hard, year after year after year, to educate you on what you need to do to transform your organization into an industry leading Supply Management organization that will not only survive, but thrive and get its seat at the table).

You see, while Procurement is focussed on buying for the organization, Supply Management is focussed on helping the organization buy. While Procurement is focussed on supply, Supply Management is focussed on supply assurance. While Procurement is focussed on supplier management, Supply Management is focussed on supplier development. And while this may sound the same, as the differences appear subtle at first glance, nothing could be further from the truth. Let’s take them one by one.

Before the age of the internet where an employee could go online, do a few searches, and not only quickly find the product she needed (and get it delivered next day), but find it at a good price too, it was difficult to research suppliers, research market pricing, cut a purchase order, and get the product in a timely manner. Without up-to-date knowledge on the supply market, market pricing, and delivery options, buying something was quite a hassle and many employees and departments were happy to hand off as much as they could to Procurement. But not anymore. People believe they can do it faster, better, and cheaper if they do it themselves — and a Procurement organization that tries to say otherwise is not looked upon very lovingly. However, a Supply Management department that realizes this and instead looks for ways to empower employees to do their own buying in a way that allows them to increase compliance is appreciated. A Supply Management department that finds a single platform that can integrate the marketplaces employees normally buy from with preferred vendor platforms, organizational pricing, and push on-contract and preferred products to the top of the search results is appreciated. Employees want one-stop-shops to buy their office supplies, software, electronics, and incidental needs just like they want one-stop-shops to book their air travel, shuttles, and hotels on a business trip. A Supply Management organization that enables that is cheered.

Moreover, a Supply Management organization that walks into Marketing and offers to teach them how to disaggregate creative spend with editing and print services so that each can be managed appropriately, which allows savings in non-critical categories identified and applied to new projects or top creative talent to insure better results, is welcomed compared to a Procurement organization that just wants to put the spend up to auction or consolidate it for discount leverage.

In addition, as SI has been stressing for weeks now, while supplier (relationship) management is important, supplier development is even more so. Having a supplier that comes to you at the first sign of trouble and works with you to resolve the issue before a delay or disruption occurs is good, but having a supplier that is able to constantly identify potential issues in its supply chain and work with its suppliers to prevent them is even better. Having a supplier that can implement any design for a custom manufactured component that you throw at it is good, but having a supplier that can provide suggestions on design improvements that will allow for lower cost materials and cheaper manufacturing processes without sacrificing quality is better. And so on.

In other words, while Procurement is focussed on cost reduction and control, Supply Management is focussed on value generation, of which cost is just a tiny component. And that’s why Supply Management has a future while traditional Procurement is doomed, entombed, and marooned.

Procurement is Doomed! Entombed! Marooned!

Apparently the recent Procurement Pub Debate, summarized in a recent post from Mr. Smith on “procurement pub debate arguments from the doomed side”, ended up with a win for the pro side. But the harsh reality, is that Procurement, at least as we know it, is doomed, ready to be entombed, and marooned on a desert Island. The pro side can be as blindly optimistic as they want to be, but it doesn’t change Procurement’s future.

As the supporters of the doomed side note, with modern web platforms:

  • it’s easy to buy what you want, when you want, for the price you want,
  • up-to-date market information lets you know how the price compares to other offerings on the market, and
  • peer reviews and opinion crowd sourcing lets you know how likely it is to fit your needs.

In other words, from an average employee’s point of view, who needs Procurement?

Furthermore,

  • inflation is back, so Procurement is not going to be able to negotiate significant cost reductions, or do much better than a market auction across a sufficient supply base,
  • risk is increasing, and organizations’ think it’s more important to focus on Risk Management in the Supply Base than Procurement, and
  • the market is becoming more digitized by the day and the organization would rather focus on expanding sales through the largest sales channel out there than worry about cost control as they see increased revenue as the quickest path to greater profit in a time of inflation.

So, despite the continued need of an average organization to insure that the organization can continue to acquire the supply necessary to meet customer demand, Procurement is increasingly being seen to be of secondary importance in an average organization and this trend is only going to continue. As it stands now, Procurement has peaked well below the level it should have reached. There is no future for Procurement. Unless, of course, it evolves. How? Stay tuned!