Category Archives: rants

3 More Terrible Reasons NOT to Use e-Procurement

Over on Procurement.World, the procurement dynamo gives us 3 Terrible Reasons NOT to Use e-Procurement, which, sadly, are still used by many organizations in the bottom 40% to 60%, to fight the implementation and adoption of e-Procurement systems.

If the reasons given in the procurement dynamo‘s post were the only reasons, that would be bad enough. But these are just a few of the reasons that Procurement organizations don’t use e-Procurement. In this post we are going to discuss other reasons, and, in particular, reasons that are a bit more believable — which are the worst kind of reasons.

1. Our Processes are Not Supported in the New System

While it’s true that the processes used by organizations that are still operating like it’s the last century are not supported out of the box, modern procurement platforms come with adjustable workflows that can be tailored to support just about any process the organization needs, good or bad. This may have been an excuse with first generation systems with fixed rules and workflows, but it’s not an excuse anymore.

2. The system won’t work with our current ERP or AP system

Most organizations require that all POs get in the ERP, all invoices in the AP, and all goods receipts in the inventory system. Because no recommended e-Procurement system will integrate with these systems out of the box, anyone against the implementation of such a system will insist it won’t work. And, again, wile this may have been an excuse with first generation systems that were almost impossible to integrate with anything, it’s not an excuse anymore when most e-Procurement vendors realize that their systems have to integrate with other systems and have published data models, open APIs, and middleware that enables the easy integration with such systems.

3. We don’t need Supply Management System X, we need Supply Management System Y.

Sometimes, knowing that a system they don’t want is inevitable, an opposing employee will suggest that a system is needed, but the system under consideration is not the right one and a totally different system is needed. For example, you are looking at a P2P and they will insist that a S2C is needed, or vice versa. Or they will insist that the ERP needs an upgrade. Or so on. But it will all be a distraction.

Systems will always be opposed, but when they are needed, they need to get implemented. The key is to select the right one. But with proper homework (and many posts on this blog will tell you how to do it), the right one can be selected.

London Bridge is Falling Down

But this time, it’s not the vikings*, it’s the procurement. And this is not a good thing. Bridges need to be built, not put on indefinite hold while enquiries are made into funding proposals. But then again, why does a foot bridge cost £185M?

As per a recent post by the public defender over on Spend Matters UK on how “Procurement and Funding [is] To Be Reviewed”, while a previous internal review by Transport for London did not find any evidence that would suggest that the final recommendations did not provide value for money from the winning bidders, the report did find major breaches of good procurement process. From allowing a supplier to submit a bid after the formal deadline, to a lack of documentation, to changing the evaluation process once bids were received, to treating suppliers differently – as we said, if any unsuccessful bidder had challenged in court there is no doubt that they would have won their case.

While this is bad, and provides a solid reason to put everything on hold for further examination and inquiry, this situation should never have happened in the first place. With so many resources on good public procurement available from the EU, the OECD, and private government oversight organizations, there’s no excuse, and no call, for any government procurement body in any advanced country to conduct an event like this — especially when there are good public procurement platforms (including, but not limited to Intenda, Causeway, Perfect Commerce, and others) to prevent situations like this from happening (and some are custom built for big procurement projects). Modern platforms block late submissions, allow evaluation criteria to be locked down before the bid goes out, allow initial submissions to be reviewed blind, and so on.

So, we beg you, before any more bridges fall down (or literally fall down because the funding to fix them has to be put on indefinite hold while the Procurement process is reviewed), learn the rules, follow the best practices, and put good platforms in place that prevent bad processes from ever happening in the first place.

* While the popular rhyme has to do with London Bridge falling down, the reality is that the rhyme might be the result of the destruction of (a) London bridge by Olaf the II of Norway somewhere between 1009 and 1014.

Platforms are Needed to Accelerate Procurement Agility – But Don’t Overlook the Offline Contributions

Over on Spend Matters UK, the public defender wrote a great post on “Why Platforms are Needed to Accelerate Procurement Agility” and discussed how the digitization of our everyday lives through cloud-based services served up over the internet is arguably the single greatest consumer trend of the modern era. In this post, he noted that the digitization trend has also worked its way upstream into B2B value chains and since businesses don’t want to be “digitally disrupted” by others they are searching for new supplier capabilities they can serve up as new customer-facing services.

This is a great use of digitization capability where it makes sense, but it’s not just online agility that is needed, it’s offline too. And this is where modern platforms can make the most impact.

Consider the NPD/NPI lifecycle. Right now, what typically happens is engineering works in their own little world designing a product, and when it’s mostly done, they contact procurement to help them find sources of supply and qualify their preferred manufacturing houses. This is typically done in CAD/CAM software, disconnected from everything, and can be a slow process.

Initial design might have to be slow, but the fact that its disconnected can really slowdown the NPI cycle. If design is not plugged in to the rest of the enterprise, and Procurement cannot be involved from day one, the engineers might choose discontinued parts, work with unfavourable suppliers, or even work on features that are not desired by the majority of current customers.

Then there is sourcing. Without advanced knowledge, Sourcing will not only need ramp up time to identify sources of supply, but might be stuck trying to source materials in limited supply that have a locked in price higher than the organization can afford if it wants to meet cost targets. Early involvement can help Engineering understand where the cost is and select the right design options when it has a choice.

Then there is inventory and manufacturing planning. Procurement needs to be plugged into marketing and sales to accurately estimate demand, and have to be in tune with supplier production capacities and shipment times to make sure orders are placed on time and stock-outs can be addressed quickly in times of demand surge.

The only way NPD/NPI time can be minimized is if the process goes smoothly. The only way this can happen is if Procurement is involved from the beginning and can connect with each impacted department in the organization at the right time and can communicate with suppliers quickly and consistently. This can only be done with a modern platform and illustrates why platforms are truly needed for Procurement agility.

Procurement is Still the Rodney Dangerfield of the Organization and Land of Confusion Is Its Theme Song

Why else would we need an egalitarian Procurement Revolution where we must work collectively to shape and drive change?

But in all seriousness, the numbers don’t lie. If you check out “Five Imperatives for Creating Greater Procurement Agility”, which was recently (and still may be) temporarily free from The Hackett Group, you see that the average Procurement Function Operating Budget is forecasted to increase a mere 1.1% this year. Now, that’s better than last year where it was forecasted to increase a mere 0.7%, but when you consider the average annual US inflation rate from 2000 to 2015 was 2.25% (which you can verify on a number of sites), relatively speaking, Procurement is still getting further and further behind every year!

This is despite the fact that world-class procurement (which needs to be properly funded), has an average payback that is twice that of the Procurement peer group. And, as far as the doctor is concerned, the argument that, since world-class procurement organizations have 18% lower operating costs than the peer group, Procurement doesn’t need as much money, doesn’t pass muster because “operating” costs are different from “capital” costs and might or might not include “training” costs or “travel” costs.

If the organization is doing a lot of outsourcing, then a lot of travel is needed by procurement, engineering, etc. for relationship and quality control site visits, and if all of this has to come out of the Procurement budget, as opposed to the operations budget, that’s not fair. If Procurement is not allowed to spend “capital” to acquire a new system, but must instead use a SaaS solution so it can be expensed monthly under the “operating” budget, while manufacturing and warehousing gets a budget that does not include the ERP upkeep, that’s not fair. If Procurement is subject to the across-the-board training ban, because people should know their jobs when they are hired, and are deprived of the ability to advance their skills, not only is that not fair, but that can be costing the organization millions of dollars as sometimes a better informed and prepared procurement professional can shave an extra percentage point off of a hundred million dollar buy, which makes the 10K it cost to send the person to a 3 day workshop paltry in comparison.

Plus, when sales has to increase revenue by $10 to equal the same savings that Procurement often makes by taking $1 off of the bottom line, it should, logically, make sense to throw money at Procurement instead of the marketing mad men or the house of lies consulting firm. But it doesn’t, proving that most board rooms are still cemented in the land of confusion and Procurement is still the Rodney Dangerfield that don’t get no respect with a kick-me sign on its back.

Navegador Nightmares? It’s Your Own Damn Fault!

In the midst of the recent receivership of Hanjin shipping, the seventh largest shipping line by overall capacity, there are a lot of trepidations, fears, and worries by companies that use it for shipping, and in particular, companies that already have cargo on its ships. (As noted by Bob Ferrari over on Supply Chain Matters in The Financial Shot Heard Across the Globe, many global ports will not accept nor export cargo on the carrier’s vessels because of uncertainties as to whom we pay charges or more importantly, whether specific vessels will be seized by creditors as captured assets, meaning that not only can vessels on the water not be loaded, but they can’t be unloaded.)

Now, if you happen to be working in one of the organizations relying on this carrier, directly or indirectly, you’re probably screaming “how did they let this happen” (where “they” is, in your mind, poor management) and “what the hell do I do now” (and the answer is easy, what you should have done in the first place, and we’ll get to that) and that would be fine, if you were focussed on the right “they” and were simply choosing among your different (pre-planned) disaster recovery options, but chances are it’s the wrong “they” you are focussed on and, as the organization never allowed Supply Management the time to do proper risk assessments and disaster recovery plans, there are no backup plans ready to go.

The short answer is unless you are including yourself in the “they”, as the “they” is all of the Procurement and Logistics managers who not only selected the carrier but encouraged the excessive growth, and unless you are acknowledging that your lack of a disaster recovery plan for this very predictable likelihood (as it’s easy to identify a supply chain choke point and what could go wrong – in this case, all your products in containers on the same ship and that ship all of a sudden going missing, and whether it sinks, gets captured by pirates, or seized by creditors is irrelevant from a recovery point of view), you’re not focussed on the right questions, what you should do about it, and what you should have done in the first place.

Maybe you had little option (as you were shipping from Korea and this was the only reasonable shipping deal you, or your 3PL, could cut), but you could still plan on a lost shipment, have a supplier with excess capacity (in overtime if necessary) that could replace the shipment quick, and a back-up (more expensive carrier) ready to activate if needed (along a different route). This would be okay and proper, especially if you really did need to outsource to Asia, but how many companies did it okay and proper? Judging by the number of articles and semi-widespread panic (and fears of more receiverships and bankruptcies because of the over-capacity, not too many).

But chances are you got yourself into the situation where you had little option, by far-sourcing something you didn’t need to far-source. You got caught up in the outsourcing craze in the 90’s, believed all the hype about lower costs (because of lower unit costs due to weaker Asian currencies, lower wages, etc.), and didn’t look at the full TCO, which also included transportation costs that could be 10X what you were paying when you were near-sourcing from Central America (from the US), skyrocketing T&E costs (because if you didn’t go on-site regularly, you didn’t get what you wanted), and phone-bills that looked like office building lease payments. And maybe if you were in electronics China and Korea had the better factories, but how hard would it have been to invest in new factories in Mexico and Brazil, relocate the necessary top-talent to get them going, and recoup the initial investment in orders of magnitude over a ten to twenty year time-span? Not hard.

Basically, by outsourcing everything you could identify faster than rabbits without any natural enemies can breed, you built up a need for a lot of capacity, which the industry responded to, but when you kept going, the shipping industry, not wanting to get caught with its pants down again, analyzed the trends and kept building. Then, when oil went through the roof, and the smarter companies realized that long-term strategic near-sourcing (and, when possible, home-sourcing) was actually the best option after all was said and done, and pulled back, there was glut capacity and the shippers, who overbuilt, were now stuck with capacity, overhead, and loans they couldn’t pay. This is all a result of poor long term planning on the part of Procurement, and your predecessors, which, in all honesty, you should have been endeavouring to fix as each and every outsourced category came up for re-sourcing (as you should only produce products in Asia for Asia if you can help it — even FoxConn has realized this and opened a Brazilian factory — slow ramp-up not withstanding).

So, whether you created the mess or not, you’re in the job now and it’s up to you to fix it, and the navegador nightmares, the doctor is sad to say, are your own.