Category Archives: Procurement Innovation

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.

Future of Procurement 2014 (Consolidated Links)

Savings Are Disappearing, Cost Are Risings, and Value is Vanishing. Is Your Procurement Infrastructure to Blame?

A recent 2013 CPO survey from Deloitte reported that only 61% of organizations are somewhat effective at delivering value for stakeholders. There are a number of explanations for this, but the most prevalent reason stated was a lack of business alignment.

In addition, 79% of CPOs consider cost reduction to be their primary goal. There are various reasons for this as well, but a common reason, cited in multiple studies, is a lack of focus around demand management.

Not only did Aberdeen echo this focus on cost in their recent publication on the Top Three Supply Chain Execution Priorities for 2014, but they also indicated that the most critical strategic action for Procurement is to improve internal cross-departmental systems, process collaboration and integration and to align the Procurement strategy with organizational goals.

If you put all of this together, it tells a story. The organization is still seeking cost savings because potential savings opportunities are not captured. There is a lack of compliance with contracts and purchasing policies. The potential cost savings are not captured because demand is not properly managed, despite best efforts. Users are not buying the right product, not buying from the right supplier, not buying at the right price, and/or not buying at the right time (and incurring extra costs by way of expedited shipping). There is a lack of visibility into true demand. This lack of demand management is partially due to the lack of an aligned Procurement strategy consistent with organizational goals — and the lack of alignment is largely due to a lack of actionable intelligence.

In other words, many Procurement organizations, including those with (relatively) modern eProcurement or eSourcing software solutions are blinded by a lack of visibility, hindered by the absence of a platform that supports actionable intelligence, and still challenged with achieving basic contract compliance.

A key part of the solution is missing. Specifically, it is the part that provides visibility into the organization’s real buying behaviour.

So how do you fill the gap? You acquire a Procurement Marketplace that provides users with visibility into policies, contracts, and goods and services readily available for consumption and purchase.

What does such a solution look like?

The Power of Compliance Join the doctor of Sourcing Innovation and Vinimaya at 13:30 PDT / 16:30 EDT / 20:30 BST one week from today on Thursday, October 16 for our webinar on The Procurement Marketplace and the Power of Compliance where we will discuss how a modern Procurement Marketplace can significantly reduce the 30% to 40% of negotiated savings that disappears every day when buyers buy off-contract and incorrect invoices are overpaid.

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!

Why Are We Going to Spend Thirty Posts Exposing Past Procurement “Trends”?

Is it because the doctor is just plain tired of 2nd rate analysts and consultants selling last century’s solutions instead of accepting that we are in the 14th year of the 21st century?

Is it because without a solid understanding of where Procurement comes from, where it is, and where it needs to be, you’ll never get to where you need to go?

Or is it because without this understanding, you’ll never select the right technology and continue to be among those organizations that select those procurement tools that collectively cost organizations in North America 1.5 Billion per year and waste more than 32 Million man-hours because the Procurement system fails to increase their productivity (and, in some cases, because the system is not aligned with organizational processes and needs, actually decreases productivity and hinders savings identification and realization)?

It’s a combination of all three.

Modern Supply Management tools are supposed to save the organization money, not cost it money, but as The Topline Strategy group discovered (as summarized in this article over on S&DC Exec (“only one quarter of procurement professionals believe their procurement system makes them much more productive”) and MarketWatch (“survey finds inefficient procurement systems cost north american businesses 15 billion annually”), only 28% (or one-quarter) of sourcing an procurement professionals believe that their procurement systems make them productive.

This is an abysmal statistic in an industry that spent over 1.4 Billion on Enterprise Software in 2013, software that is supposed to increase efficiency and, in the case of Supply Management, identify savings and add value to the process.

Why is the situation so bad?

The article gives a few hints, including:

  • convoluted user interfaces,
  • lack of critical features,
  • poor integration or implementation (with enterprise systems & IT infrastructure), and
  • lack of regular, often necessary, updates

But, in many cases, the real reason is lack of fit and key functionality.

UI, proper implementation, good integration, and regular updates are important, but the system has to fit the workflow and support organizational processes. Sometimes the organization’s processes will need to be updated, but there is a difference between updating to a more appropriate process, and changing to a completely different process unsuitable to the organization’s business just to force fit a square system into a round architectural hole.

And there’s no way you can select the right fit if you don’t know what the right process should be for your organization. And you can’t know the right process until you know what that process has to support, why, and how the process will need to evolve over time.

And that is fundamentally why we have to spend thirty posts diving into past procurement “trends” so you understand what the real requirements are and what is just hot air coming out of the mouth of another slick talking speaker (or vanishing ink from their specially made pens). It will take time, especially since we will have to take a few breaks to maintain our sanity, but we have to do it.

Don’t you agree, LOLCat?

Can U Wake Me When Its Over.

Yes, LOLCat, we’ll wake you when itz over. We don’t want to drive you to drink too! (Futurists have already driven this LOLCat to drink!)

So, Why Are “Futurists” Still Stuck in the Past?

And driving poor LOLCat to drink?

There are a few reasons.

  1. They Have No Knowledge as they come from different backgrounds which offer them no education or experience in Supply Management.
    Just because you can get high, have psychedelic visions, white them down, and spin a good yarn doesn’t mean you can be a futurist. A poet, sure, but not a futurist …
  2. They Have No Vision beyond what the rear view mirror (or the hydrocarbon gas from the bituminous limestone) offers them.
    When Meatloaf said “it was long ago and far away and it was so much better than it is today“, he was referring to newly discovered young love, not business processes identified 30 years ago …
  3. They See Too Many Organizations Stuck in the Past and a few organizations (in the Hackett top 8%) ahead of the pack and they think they can peddle these best practices as future vision.
    This is not 1914 (which was 12 years before the first transatlantic telephone call) where good ideas take years to spread (and the first person to bring a new idea or technology from a different continent can make millions on someone else’s work) and a career can be built on one single improvement — this is 2014 where it only takes a few seconds for a story to be spread around the world. But I guess if you can’t look beyond the rear-view mirror …

So, why are so many organizations still stuck in the past (and fuelling the flame that powers these fantasy futurists)? There’s a few reasons, and they include:

  • Lack of Education
    Many Supply Managers were simply thrust into the role, with no training or background for the role. And despite the fact that they have some competence or experience in other areas, they are so ill-equipped and ill-prepared for the role that they might as well have been dropped in The Lost World*.
  • Lack of Resources
    Most Supply Managers are overworked (and underpaid, but who isn’t these days) and resource-constrained, with no time for training and no budget even if they had the time (or would sacrifice their few remaining free hours to get better and more efficient so that maybe someday they can take a whole weekend off).
  • Lack of Clarity
    With no formal education, no training, and no resources to make sense of the barrage of BS being thrown at them by futurists and analysts alike, how can they differentiate between current and past processes and technologies and what they need to embark on a path that will ready them for what comes next?

And the third reason is the most crucial. Until they get some clarity, Supply Managers are going to continue to be taken in by modern con-men (who include 2nd rate analysts, consultants, and salesmen of outdated technology) selling them silicon snake oil when they just need modern sourcing and procurement tools that fit their workflow and daily needs.

So, to this end, now that we’ve explained why thirty (30) of the thirty-three (33) future-trends are, at best, last decade’s future trends, we’re going to explain why futurists (and the organizations they preach too) are still stuck in the past, what’s relevant, and what it means to you and your organization.

And we’re going to do it one trend at a time. Starting tomorrow, with “future” trend #33 on governmental regulations, we’re going to illuminate the old news and ongoing blues trends one by one until we’ve laid them all bare. It will take a while, but if you stick with it, it will be worth the effort.

What do you think, LOLCat?

"Futurists" Drive Me Bananas!"

Me too, LOLCat. Me too.

* I’m referring to the original here, so if you’re thinking Michael Crichton, then the problem is even bigger than you realize.