Category Archives: Procurement Innovation

Procurement Trend Expose: An Epilogue

When we started this series to expose Procurement Trends back in October, we noted that most Supply Management ‘futurists‘ were still stuck in the past, and if we were lucky, it was the recent past (as some of them are feeding us trends that are literally thousands of years old as these trends have been around since trade began)! We asked why, and the best we could come up with was that either they had no knowledge (which we’re sure is true in a few cases), they had no vision (which is obviously true in a lot of cases), and/or they see too many organizations still stuck in the past (and believe that they can still sell these organization’s last decade’s snake oil).

Now, some organizations have a valid reason for being behind. They have no resources, no support from the C-Suite, and the organization, because of these backwards views, hasn’t yet attracted a CPO with a strong vision for the future. However, this does not give the futurists a valid reason for continuing to preach last decade’s trends as future trends if all of the best-in-class organizations are already doing it and the average organization is already starting down the road to addressing the trend with new processes or technology. They might be current trends for some organizations, but they are not future. A future trend is what an organization needs to start preparing for so that it is ready when the trend emerges, not what the organization should already be doing.

Even if an organization is not ready for a given trend, it still has the right to know where that trend sits on the Supply Management timeline and whether it is a trend the organization should already be addressing, one it should have addressed five years ago, or one it will not need to address for another two or three years. Without proper knowledge, the organization cannot build the proper transformation roadmap or know what the organization should be working towards. If the organization still thinks centralization and outsourcing are emerging trends, it will be in a bit of a shock when it overdoes centralization and outsources too much because it wasn’t working towards a balanced centre of excellence (or control tower) and a near-sourcing plan to allow it to bring production closer to home once global transportation costs got too high (and near-source providers advanced their automation capabilities).

That’s why we had to bust each of the “old news” and “ongoing blues” trends one by one so that an organization which lacked proper resources to get a proper education wouldn’t be fooled by these snake-oil salesmen and understand what is old, what is current, and what is coming. Moreover, we didn’t just stop with exposing the audacity of the claims, but we explained why the futurists thought they could slip a quick one by you, what the situation meant, and where you needed to look for guidance and inspiration if your organization was behind the curve with respect to the trend in question and what your starting points were.

It was a good start to your education, but more education is still needed. For example, while we made it clear with respect to what you needed to do to get ahead of the competition with respect to many of the trends in question, we didn’t do a deep dive into how. Nor did we address how to put together an integrated plan that would address multiple trends simultaneously with common processes or technology. (This will be covered in one or more future blog series once we give poor LOLCat a break. We certainly don’t want LOLCat to start drinking again.) Nor did we point out the top trends that you have to get a handle on now, either because they are about to hit you or just starting to be addressed by the leaders (which means that, to be a leader, your organization needs to start addressing them too). In this case, for those of you wanting to skip ahead, if you haven’t already, you should download SI’s recent white-paper, sponsored by BravoSolution, on the Top Ten Trends for 2015.

Do you have anything to add, LOLCat?

LOLCats unite and keep the futurists off the keyboards!

Can You Solve the Compliance Challenge?

Regulatory compliance is usually defined by an organization’s adherence to laws, regulations, guidelines and specifications relevant to its business.

There are two primary categories:

  • Internal compliance that focusses on the policies and procedures of the organization (which must be followed to insure SOX compliance) and is focussed on personnel and procurement
  • External compliance that focusses on the (government) legislation and agreements that govern the operation of the organization and falls into the categories of:
    • financial/operational
    • import/export
    • environmental
    • private data / worker’s rights
    • insurance / liability

Non-compliance can be a very costly situation for an organization to find itself in as it can cost an organization hundreds of millions of dollars in some cases. Consider the following costs of external non-compliance:

Financial

  • SOX violations can cost up to 5M per violation; even Deloitte, known for its audits, had to pay 2 Million for a SOX violation
  • Anti-bribery violations have no ceiling; Aon paying £ 5.25 M in 2009, Wills Limited paying £ 6.9 M in 2011, and Macmillan Publishers paying £ 11.26 M in 2011
  • FCPA violations don’t have a ceiling either; Weatherford International paid $152.6 M in 2013, Alcoa paid $384 M in 2014, and Siemens paid $800 M in 2008

Import/Export

Meggitt paid 25 M in 2013 to settle charges of AECA & ITAR violations, Standard Chartered Bank paid 132 M in 2012 to settle charges of OFAC sanction violations, and ING Bank N.V. recently paid 619 M to settle charges of several OFAC sanction violations

Insurance

In 2012, Wal-Mart paid $8M to settle a workers’ compensation class action settlement, and in 2010 a jury awarded $82.5 in a workplace death lawsuit

Lack of compliance costs. Dearly. Why is there a lack of compliance in most organizations? Lack of knowledge, policy, visibility, analysis, and procurement technology. Knowledge can be addressed with training. Policy can be fixed with planning. But visibility, analysis, and procurement fixes require technology.

What kind of technology?

Supply Chain Visibility, Spend Analytics, and a Procurement Marketplace that captures, tracks, and maintains an audit trail of all of the relevant data to insure SOX and FCPA are not violated, import and export restrictions and requirements are adhered to, and that suppliers comply with insurance and regulatory compliance.

To find out how a Procurement Marketplace helps your organization solve the compliance challenge, reduce maverick spending, and enable organizational growth, download Sourcing Innovation’s latest white-paper on The Procurement Marketplace and The Power of Compliance (registration required), sponsored by Vinimaya.

LogicSource OneMarket – An Interesting Solution for Sourcing Projects

LogicSource OneMarket, which grew out of a unique automated procure-to-play platform to enable buyers and suppliers to more effectively address the complexities of print management, is a unique platform for sourcing “projects”. Marketing and advertising projects, capital equipment and leasehold acquisition projects, temporary labour projects to meet the holiday rush, etc. The developers — having recognized how the pre-cursor complex category platform they developed to specifically handle complex categories such as direct mail promotions, marketing collateral, promotional items, and packaging was being used across a wide range of industries — also recognized that what made these categories complex was the project-based nature of the categories, and focussed on extending that.

A few years later and they have a distinct platform that, while not specific to marketing, capital acquisitions, or labour projects, is well suited for those types of one-off sourcing events. While the platform has four components — the main e-Procurement (Sourcing) Engine, the Analytics Platform (designed for Finance), Digital Asset Management (designed for Marketing), and Visual Merchandising Management (designed for Operations) — we’re only going to discuss the e-Procurement / Sourcing component in this post.

The module is built around “campaign” management, and that’s why it is effective in special projects that are essentially campaigns to get something specific, and special, accomplished like managing a print advertising campaign for a new product, acquiring a new office building that meets everyone’s needs*, or quickly hiring 100 new workers to staff the warehouse to get all the packages out on time for the holiday rush.

Campaigns are much more challenging than regular commodity/product/service sourcing projects where you can just send out a bid for a group of SKUs, ask carriers to quote on lanes, and request standard rate cards for well defined service roles, as you need to develop customize requirements and RFIs, allow for and handle highly variable RFPs depending on the solution proposed by each vendor, compare bids at different levels of granularity, support complex review and sign-off chains, and capture the data required for detailed Statement-of-Work addendums to the contracts that can be used to generate the appropriate POs for whatever billing framework and schedule is agreed to.

To support this type of special project, each campaign starts with a specification where the buyer defines what they are looking for to the best of their ability, defines the workflow, selects the initial suppliers, includes any known products they need (quoted) from the built-in catalog capability, and/or defines any services they need (quoted) and attaches the rate cards they need filled out. The buyer can also choose to automatically populate the RFPs sent to suppliers with known or historical prices for known product or service needs, which then requires the supplier to only provide updates where necessary and fill in prices for products or services not known to the buyer.

Special projects can have multiple RFX rounds and the product logs all steps and changes for historical audit purposes. When the project is complete, an award can be created and, if necessary, split across multiple suppliers at different levels of project granularity. For example, if it was an advertising campaign project, one supplier might get a region (southern), another might get a state (California), and another might simply get a city (such as New York) because of distinct consumer preferences in a large target marketplace.

Once the award is made, the tool can be used to track project progress and handle the traditional billing and payment cycles (which you would expect as it evolved from an e-Procurement platform). In addition, it can track all change orders and everything related to project management is integrated, logged, and audited. In addition, suppliers can generate invoices within the supplier portal against work orders at agreed upon payment schedules for milestone driven projects, which makes it a lot easier for payment review and approval then when a supplier sends AP an invoice for “Services Delivered Against Campaign X” and the accounts payable clerk has no clue if the milestone has been hit or not.

LogicSource OneMarket is a fairly unique solution that is worth checking out if your organization does a lot of campaign-based projects across disciplines and your standard sourcing suite doesn’t suit the purpose. Keep it in mind the next time you hit a brick wall with respect to campaign management in your previous-generation sourcing suite.

*but not everyone’s wants — because, as poor Dilbert found out in the “Tower of Babel”, Episode 7 of Season 1 of the animated TV Show, if you try to satisfy everyone, you satisfy no one.

The Procurement Marketplace and the Power of Compliance

When it comes to Procurement, compliance is very important.

  • Non-Compliance with contracts is the biggest reason that 30% to 40% of negotiated savings never materializes.
  • Non-Compliance with standards and regulations often results in poor product quality, unusable inventory, or, even worse, seizure of goods by customs.
  • Non-Compliance with insurance and financial regulations could leave you on the hook for million dollar lawsuits and your CEO and CFO on the hook for criminal charges.

Compliance is also very hard to enforce in the average organization because your resources, time, and visibility is limited and it’s easy for anyone and everyone to fly under the radar whenever and however they want to.

But there is something you can do about it.

The Power of Compliance To find out, join Sourcing Innovation and Vinimaya at 13:30 PDT / 16:30 EDT / 20:30 BST this Thursday, October 16 for our webinar on The Procurement Marketplace and the Power of Compliance, hosted by Don Carrington and the doctor, where we will fill you in on how you can go about improving your organizational compliance.

Attendees will be the first to receive Sourcing Innovation’s New White Paper on The Procurement Marketplace and the Power of Compliance. Register now for The Procurement Marketplace and the Power of Compliance and get a leg up on your competition!

Procurement Trend #33: Governmental Regulations

As we indicated last week in our posts that attempted to explain why the “futurists” are still stuck in the past where Procurement is concerned, and why we needed to spend thirty posts on the subject, we are going to discuss in detail each and every “future” trend that we debunked in our Future of Procurement series on old-blues and ongoing news. By the end of this series, you will not only understand why the historians are still talking about these trends, but why they are still relevant to many Procurement organizations that are stuck in the past with the historians and what you need to do to prevent staying there with your organizational “peers”.

As per our original series, government regulations have been enabling and restricting trade since trade between nations began. It’s always been an issue, it always is an issue, and always will be. It’s going to be an issue until the end of humanity, but is not a future trend as it’s been an issue since the dawn of humanity.

So why do so many historians keep pegging it as a future trend? There are a number of reason, but the top three today are:

  • Environmental Regulations
    Regulations like WEEE, REACH, and RoHS are coming fast and furious around the globe and are limiting what you can produce, export, import, and sell. And, in some cases, tying you to the product from cradle to grave (as sometimes you are required to take the product back at end of life and safely recycle or dispose of hazardous materials).
  • Free Trade Regulations / Free Trade Zones
    Preferential Trade Agreements such as NAFTA make certain types of trade more profitable or less costly than other types of trade and free trade zones can delay taxation until sale time or even eliminate the unnecessary collection and reclamation cycle (which is timely and costly) for goods passing through to another destination country, but only if you know how to use them to your advantage.
  • Trade Security Regulations
    Regulations like 10+2, part of the US CBP ISF, that require 24 hour advance notice of manifests can cause significant delays for companies that are non-compliant and even result in seizure and forfeiture of goods.

So what does this mean for your organization? How do you blast out of the past and into the present in preparation for planning for the future?

Environmental Regulations

You need to be current on the regulations that affect all of the products you are producing, importing, or exporting. This requires bill of materials (BoM) level visibility into each product produced and detailed lists of each material regulated by one or more regulations that your organization has to adhere to as well as software that can automatically match BoM raw materials to regulatory material lists and alerts you to a potential conflict before the product is produced and becomes useless to your organization because it contains a raw material that prevents it from being imported into the target market.

Free Trade Regulations / Free Trade Zones

You need to identify all of the regulations that impact your global trade, index them by product, and use them to your best advantage. In addition, you have to cross index your product categories against the HTS Codes to produce the best products for importation into the target country at the best locations to get the lowest rates. For example, “gloves” can be found under codes 3926.20.40, 4014.19.50, and 4203.21.60 and the tariff rates are 6.5%, 14%, 5.5%, or, if the good is coming from a country with a preferential trade agreement, 0%.

You also need to identify all of the free trade zones in each country you plan to import/export into/out of and make sure that your global trade routes flow through them when appropriate. Having to pay tariffs weeks, or months, before the product is sold poses a serious hit to your cash-flow, especially if the tariff is on a good destined for re-export, as it could be a year or more before you are able to reclaim the tariff the organization is exempt from! So you need to use the Free Trade Zones whenever you can.

Trade Security Regulations

You need to put systems in place that not only ensure that all documents are filed that need to be filed, but that all information required is automatically collected and all documents that need to be filed are automatically produced and filed with this information whenever possible. Furthermore, when information is missing, an appropriate person needs to be immediately alerted so that the documents get in on-time every time.

And that, dear reader, is why this issue stays on the “futurists” lists and what you need to do about it to make sure you don’t join your competition in the past they are all stuck in.