Category Archives: rants

Engaging Stakeholders – It’s as Easy as Corralling Cats!


Rant on blogger, rant on along
Rant on buddy till the day is through
Rant on brother, sister too
Rant on momma like I asked you to do
And rant on fellow blogger, rant on (Rant On!)

Today’s guest post is from Joe Payne, Vice President of Professional Services at Source One Management Services, LLC.

A few weeks ago I was giving a debrief to the Manager of Indirect Spend for one of our customers. The engagement was winding down, and I asked the manager if there were any other categories they needed help with that we hadn’t already looked at. “No” he said, “I think we’ve covered everything.”

Up to that point, I knew we hadn’t worked with their IT department at all, so I asked about potentially discussing telecom or managed services. “Oh, I stay away from that side of the building”, he exclaimed. “Those guys don’t even speak the same language.”

As more and more CFO’s and CEO’s realize the value in creating sourcing departments to control indirect spend, sourcing teams are finding more and more end user resistance to their involvement in the supplier selection and supplier relationship management process. In nearly every organization I’ve worked with, there are groups or divisions that don’t want help from sourcing and prefer to manage supplier relationships on their own. Getting stakeholders to engage can be difficult, but is it really as hard as corralling a cat? Well, let’s look at the similarities:

Cats don’t want to be corralled. Stakeholders do not want to be engaged.

“Sorry I missed your call, please leave a message…”

When you begin to corral a cat, their first instinct will be to cautiously avoid you – but they probably won’t run away. When you first attempt to engage a stakeholder, they will do the same.

“I’d love to meet to discuss my requirements; unfortunately I have a full plate this summer. How does next year look for you?”

When you show a cat you are not going to give up until they get corralled, they will become finicky and potentially aggressive. When you continue to pursue an end user, they will attack.

“What makes you think you can do a better job than I did? What do you even know about this subject matter?”

Lastly, just because you are successful in corralling the cat does not mean they are going to cooperate. Give them any opportunity, and they will escape. Once a stakeholder agrees to proceed (usually after being told to by their boss), you can expect:

“Sorry I missed your call, please leave a message…”

Which takes us full circle.

So, what is the value that sourcing can bring to stakeholders and end users, and why is it so difficult for them to recognize that value?

First you have to remember that practically no one in IT, Marketing, or HR was hired based on their ability to run an RFP, write a contract, or perform a negotiation. They were hired to ensure infrastructure uptime, get the company’s message out, or keep employees happy, respectively. They aren’t focused on cost and most of the time they don’t care about cost. There is no question that lack of training, lack of time, lack of market intelligence and lack of focus will lead to higher price – sourcing brings these tools to the table.

Second, stakeholders typically don’t properly manage vendors, track spend or validate compliance. Without a watchful eye, suppliers either get demotivated or greedy. This leads to either very upset or very rich suppliers. Sourcing offers a clear process and communication hierarchy, the ability for incumbent suppliers to expand services or solicit feedback, and spend consolidation and rationalization opportunities – it improves supplier relationships while keeping costs in check.

Third, even when a stakeholder is upset with a supplier, they will continue to use them. When speaking to end users, I am often surprised by how much they dislike an incumbent, but still continue to work with them. Sourcing brings an independent (and objective) third party to the table that can act as the “bad cop”, pushing a supplier to improve or else replacing them with someone better suited for the requirement.

So if sourcing can bring all this value to the table, why do stakeholders often fail to recognize it?

The answer to that question can be a little more complex, but for the most part it boils down to one thing – purchasing is a personal subject! Think about it – whether you are at home or at work, you want to get a good deal. When you buy a new car, you aren’t going to tell your friends and family how you got ripped off – you are going to tell them you got a great price, and you are going to hope that is true! The same can be said, and normally is exacerbated, in business. If you are responsible for managing a million dollar plus budget, the last thing you want is for people in the company to think you are paying more for goods and services than you should. Having a sourcing group come in and save 30% is the same as having your brother-in-law swing by the car dealer and get the same car for $5K less – it hurts.

Sourcing organizations now have a unique challenge. The thing they were hired to do – get savings – tends to be the easy part of their job. Competition always exists and technologies are always improving – finding a lower price is not difficult. The hard part is finding a stakeholder in the organization that recognizes sourcing is just as valid to them as any other support service, and has the wherewithal to use your group effectively.

To date, I’ve never seen it happen without a strong top down mandate, and it is costing companies millions every day.

Corralling Cats
Thanks, Joe!

How Not to Excel at Forecasting

Simply put, use Microsoft Excel. It’s appalling that a recent survey by ToolsGroup and the Global Market Development Centre (GDMC) found that even though two-thirds of companies in the consumer goods supply chain consider demand volatility and forecast accuracy a high businesses priority, half still rely on Excel spreadsheets for forecasting.

Relying on Excel for forecasting is like relying on:

  • a Longship to get you across the Atlantic
  • your first guess on Let’s Make a Deal to be the right one
  • a shareholder proxy getting on the ballot at a Fortune 500
  • Florida surviving a hurricane season without any major city suffering damage
  • the price of fuel going down and staying down for an upcoming series of spot buys
  • natural resource supply to be consistent and predictable year-over-year
  • a flip of a fair coin to come up heads seven times in a row

Now, it’s true that:

  • the Vikings did make it across the Atlantic in a Longship, but a single storm could sink it
  • the first door you pick, with one-in-three odds, could be the right one, but the odds are actually twice as good if you switch
  • an activist shareholder can sometimes get a proxy on the ballot if he or she has enough time and money, but as pointed out by John Gillespie and David Zweig in Money for Nothing (How the Failure of Corporate Boards is Ruining American Business and Costing Us Trillions), examples are few and far between
  • even though no storms made landfall in Florida in 2011, this is Not a common occurrence
  • gas prices did consistently drop in the USA between September 2008 and December 2008, but have been otherwise steadily rising for the last five years
  • in some years the rice, sugar, and corn crops are almost the same as in the previous year, but given the increase in hurricanes, tsunamis, droughts, and other natural disasters in recent years, this is not a common occurrence
  • yes, heads can come up seven times in a row when flipping a fair coin, but the chances of this happening are less than 1%

In other words, you can forecast with Microsoft Excel, but your chances of doing well, especially given that 90% of spreadsheets have non-trivial errors (and collectively cost enterprises billions, as Fidelity and Fannie Mae found out), are (vanishingly) small (as the complexity of the forecast increases). One has to remember that there’s no intelligence behind a spreadsheet and they are just a source of peril that can cost your organization millions without anyone noticing.

Sound, Conventional Financial Management is NOT Good for Supply Chains

And it’s not good from a cost of capital perspective either!

While skimming through Purchasing Insight’s recent white-paper on “Supply Chain Finance: A Procurement Strategy” (after stumbling upon their recent “Supply Chain Leakage” post that got them a Sourcing Innovation Thumbs Up, I stumbled on the following paragraph:


By extending payment terms to suppliers (paying them as late as possible) DPO is maximized and by being efficient at collecting from customers (getting the money in as soon as possible), DSO is minimized. This is sound, conventional financial management. It’s all about keeping hold of cash for as long as possible, minimizing the need to borrow and providing an opportunity to earn interest on cash deposits. Poor management of DPO and DSO increases the need to borrow and, in an economic environment where credit is scarcely available to some, borrowing can be very expensive indeed.

It may be sound conventional financial management, but, in reality, maximizing DPO is just another name for screwing your supplier, and all that does is increase your costs while decreasing the overall value you are able to extract from the relationship.

All I can say is that I’m glad the next section went on to say that:


For the procurement community, payment terms can be a double-edged sword. While it’s good to contribute to the reduced cost of working capital by extending payment terms, this doesn’t always support healthy supplier relationships and it can put an inordinate strain on the finances of the supplier, which is in the interests of neither party.

Finally, someone else who realizes that screwing suppliers is a bad thing! (I’ve lost count on how many times I’ve had to rant on this subject over the last six years.) Because, as the white paper goes on to state:


There is another, more compelling reason why the traditional approach to working capital management doesn’t make sense from a procurement point of view. It costs a fortune! The fact is that the traditional, siloed, adversarial approach adopted by most buying organizations toward their suppliers has a huge supply chain cost especially in the current economic climate.

Hear, hear! In order to extract a 0.1% return by holding on to your cash an extra 30 days, you’re risking a rise in costs of 1% to 3% as your supplier passes on their high cost of factoring to you!

However, when trying to improve your working capital practices in such a way that they benefit you and the supplier to take cost out of the entire supply chain, don’t limit yourself to early payment discounts as the sole tool at your disposal. It can be a great tool, as cash strapped suppliers get cash early and you get a better return, but it’s not the only tool. Another option could be to buy the raw materials or components on behalf of your supplier. You might have more leverage with a supplier that you are doing business with on another category and be able to get a better price. A third option, especially in this economy, could be to barter services for better prices. Maybe they need help with their back-office functions. Maybe you have a great relationship with a GPO that could help them and your weight could get them better pricing, or, your technical experts, who recently oversaw the implementation of good back-office accounting and P2P software in your firm could oversee the implementation of the same software in their firm in exchange for free value-added services from them. Be creative. There are many ways to win-win.

New Trend! Globalization!

Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement.

Over at a blog called pool4tool the company (apparently an Austrian company with large clients) alerts its readers of opportunities in globalizing. It also talks of the breakthrough concept of Total Cost of Ownership and holds “Boeing’s outsourcing of Dreamliner design and construction” (Supply Chain Digital) as a success story. Strange alternate universe over there in Austria.

Film at 11.

Rant on, Dick, Rant on! (Global Supply Training)

We Need More Corporate Ethics – Bring on the No-Maximum Mega Fines!

As noted in a recent article on Fine and Punishment, it has been a bumper summer for corporate fines and settlements. With firms in Britain and America agreeing to pay over 10 Billion in the past three months alone, there’s too much corporate wrong-doing these days. But the current fines are not enough. For example, a mere 5K for violating 10+2 is a CEO’s lunch money these days in most Global 3000’s. The only act close to defining a fine that will take a real chunk out of the corporate coffers of the guilty that the doctor knows of is the National Defense Authorization Act (NDAA) which allows 15 Million Dollar fines for first offenses and 30 Million Dollar fines for second offenses.

The reality is that a fine is only a deterrent if getting caught would mean a loss. Let’s say the fine for stock-fixing is 1 Million but an investor group could make 10 Million on the fix. Guess what’s going to happen? The stock is going to get fixed if the investor group has anything to do about it because, worst case, they only make 9 Million. The fine HAS to outweigh the reward, or corporate wrongdoing is going to continue to permeate both the financial sector, and the supply chain practices in industries where unlicensed knock-offs (especially in pharmaceuticals or electronics) can save a middle-man millions of dollars and push profits through the roof. As the Economist article stakes, given a risk-free opportunity to mis-sell a product, or form a cartel executives will grab it. To them, it’s all about the almighty dollar — and earning more than their peers to earn Wall Street’s favour and have something to boast about at the next charity dinner. (For a great Wall Street Perspective, you have to check out Randall Lane‘s The Zeroes: My Misadventures in the Decade Wall Street Went Insane [now at a bargain price for the hardcover edition on Amazon.com — you can’t go wrong]. Audiobook also available).

Unless the potential fines are crippling, wrong-doing will persist*, and so will cheapening out. And this is the biggest problem. Right now, we need sustainability in supply management, but initial investment in sustainability always costs more, so not only are executives not going to green light sustainable efforts, but if the organization has to look green or socially responsible, they are going to fund the lowest-cost “accredited” third parties that they can find to be “socially responsible”, and, in particular, likely fund those that use shady practices and cut corners everywhere possible. Because when the dollar rules, as long as you can buy the image, why create the real thing?

But if we force ethics back into the corporate world, then maybe we can force sustainability in as well. And when the only choice for gains is again long-term strategy, which is precisely where the economics of sustainability really make sense, maybe we’ll see improvement in ethics and corporate responsibility across the board. Or maybe it’s a pipe-dream. Either way, heftier fines would be a great start!


After all, remember what Randall Lane discovered when he did a Trader Monthly survey in the zeroes:
  If you received an illegal insider tip, a sure thing, and had a 50% chance of getting busted, would you use it? Only 7% would. What about only a 10% chance of getting caught? The numbers spiked to 28%. And what if you had a 0% chance of getting discovered? Suddenly, the number surged to 58%! To the majority of our readers, cheating wasn’t an ethical issue, it was simply a matter of whether they’d get caught.