Category Archives: Supplier Management

Playing With Fire: Hidden Risks Lurking in Your Supply Chain

Modern supply chains are fraught with risk that can result in volatility and increased operational costs, large and sometimes devastating losses, and long term damage to the corporate reputation. These risks can be organized into four major categories, but non-compliance risks alone, the first category, should be more than enough to scare you.

Of the four major categories of risk, the costs of non-compliance risk is often the easiest to quantify, and the corresponding price tag of regulatory violations alone can be enough to halt a supply chain in its tracks as the bank account is bled dry.

Corresponding costs can range from the $3.0M, $3.19M, and $4.95M fines from the recent settlements by Washakie Renewable Energy, ExxonMobil, and Noble Energy for violations of the energy policy, clean water, and clean air acts, respectively through the 13.2M settlement by Lumber Liquidators for violating the Lacey Act to the $81.6M in fines that Wal-Mart had to pay in 2013 for the mishandling of products that became damaged or were returned and became hazardous waste, of which $60M was a result of violations to the Clean Water Act and $14M was a result of Federal Insecticide, Fungicide and Rodenticide (FIFRA) violations.

But environmental acts aren’t the only acts that can result in large fines. There are also worker’s rights acts, where even simple filing errors can cost over 1M, as Abercrombie & Fitch found out when they were fined $1,047,110 for numerous technology-related deficiencies in the company’s electronic I-9 system.

And while most violations of worker’s rights law or filing requirements are rather small, the violations could increase now that anti human-trafficking and modern slavery laws are popping up that can hold your organization responsible for any violation of these laws anywhere in your supply chain, even if the infraction is caused by the supplier to the supplier of your supplier.

But these fines will still likely dwarf the fines being levied by the US Department of Justice for violations of the FCPA – Foreign Corrupt Practices Act. In 2014, the average fine for a violation was $156.6 Million, and this included a $772 Million penalty to Alstom, the second largest penalty in history.

But this is just one set of risks with an associated cost that can bleed the bank account dry and effectively cripple a global supply chain. If you would like to know what the others are, watch for Sourcing Innovation’s latest paper on Playing With Fire — 4 Hidden Risks Lurking in Your Supply Chain (coming soon), sponsored by Ecovadis.

LeanLinking: The Newest Contender in the SRM Arena

LeanLinking is a three year old Denmark company in the SRM space that you haven’t heard much about but should be aware of, especially if you are a smaller mid-market company, as this SaaS company has been rapidly developing their Best-of-Breed SRM solution since day one and it is now a very solid offering for a mid-market company desperate for supplier relationship management capability at a price-point they can afford (and this solution starts at a price point everyone can afford, but more on this later).

It’s certainly no competitor to HICX or State of Flux (both of which have been reviewed on this blog and both of which will soon see deep joint coverage by the doctor and the prophet over on Spend Matters Pro, more on this later) at this point, but when you compare it to the plethora of older-generation SIM solutions on the market, it’s the goose-that-laid-the-golden-egg for many smaller mid-market organizations that need something but have no real budget.

While the LeanLinking tool is essentially designed to help buyers build supplier report cards in preparation for supplier performance review, corrective action, and development meetings, monitor these scorecards over time, and track relevant aspects of supplier interaction, it’s built in such a way that encourages social interaction (which Generation Y likes and which the millennials like even more, which means it is something that is likely to get adopted). It also supports easy file-based data import (and can create complete data format descriptions for IT), which is very helpful to the mid-market, which keeps most of its data in Excel anyway (even though Excel is a damnation that should have already been exercised from the organization long ago). It also has a number of other basic capabilities you’d expect in a SRM system, including compliance tracking, contact management, and so on, but this is not the reason to take note of it.

The reason to take note of LeanLinking is that they realize that it’s hard for Procurement in most mid-size organizations to get any software budget (without a proven ROI, which, of course, can’t be proved until Procurement has the software — the never-ending catch-22) and have decided to bypass Finance (and IT) entirely by offering a consumer (buyer) subscription option starting at just £19 a month for a single buyer. This allows a buyer to expense the platform on his monthly expense report and bury the license cost until he has shown ROI (and then use that as an argument to get a department license, which will be a lot more valuable as the entire team will be able to share data, reduce duplication of effort, get funding to link in feeds from the ERP through the API, etc.).

It’s a novel concept and a novel platform. For more information, see the SM post by the doctor and the prophet as well as our in-depth Pro Analysis (membership required).

Two MUST READS on SpendMatters UK!

Today’s post is being pre-empted with a request to go and check out two great posts published yesterday over on SpendMatters UK that:

  • echo a point that SI has been screaming for years and
  • echo another point that has been pointing out for years to anyone who would ask


Post 1: The True Cost of Screwing Your Supplier

In “The True Cost of Delayed Supplier Payments” on Spend Matters UK, Nancy clearly explains just how much money you will save by extending supplier payments by 30 days on £1.2M annual spend against how much opportunity cost you will lose. An organization might think it will save a very pretty penny on the cost of capital by doing this, but the reality is that all it will save are a few copper pennies that the average CFO wouldn’t even bother to bend over and pick up if they were all dropped in front of him in a platinum-lined wicker basket.

The post works through the savings calculation in detail and the net result (with a cost of capital of 5%) is a whopping annual savings of £417! That’s right, over the course of a year you won’t even save enough to pay the consultant who forced this hare-brained scheme upon you. (Heck, you won’t even have enough to cover the executive lunches where the consultant pitched this hare-brained scheme upon you.) On the other hand, the organization loses a £60,000 benefit they could have gained from SRM (as well as any benefits they were getting as a customer-of-choice, as you’re no longer a customer-of-choice once you screw a supplier like this for no reason).


Post 2: “Made in X” – Legalized Piracy!

In ‘”Made in Nigeria” Public Procurement Policy Will Simply Lead to More Corruption’ on Spend Matters, Peter clearly explains how this new “anti-corruption” policy is just going to lead to more piracy at home (as if there isn’t enough piracy on the seas and over the internet as it is). You see, with the insistence that the government must buy local, and especially where there’s only a handful of suppliers, you’re just going to see cartels forming among the local suppliers for the purposes of colluding to double and even triple prices.

And this is the problem with any “Made in X” public procurement policy that insists that the government always buy local – for any category where the supply base is small enough, unless the product is a commodity that is sold in a local office supplies chain or store where public pricing can be easily tracked and monitored AND the government has a law that says the public sector cannot be charged more than the private sector MSRP or something similar, the public sector price is going to be significantly more than the price on the open market.

SI strongly recommends you check both of these posts out as both of these posts were, literally, between the posts.

 

The 8 Laws of Successful Supplier Transitions: Part II


Today’s guest post is from Brian Seipel, an information technology and marketing project analyst at Source One Management Services, a leading procurement services provider with over two decades of experience delivering procurement success.

In our last post we noted that there are plenty of reasons your organization may choose to switch suppliers. Perhaps your incumbent’s quality is slipping, or their prices aren’t as competitive as they once were. As you’ve grown, perhaps your incumbent supplier isn’t able to scale with your organization or keep up in emerging areas of your business.

However, switching isn’t always easy because transitioning to a new supplier is a scary thing, especially as there are plenty of risks. In our last post we noted that the first step managing risk is identifying risk, which we covered, and the next step is developing a strategy to manage the transition, which is the subject of this post.

Managing the Transition

Here are 8 basic commandments to follow if you want to avoid running into the risks above:

  • Before Committing, make sure your prenup is up to par.
    Nobody thinks about ending a relationship before it begins, but foresight here is crucial. Exiting incumbents can make life very hard if agreements don’t have favorable termination, survivability, and exclusivity clauses or if they fail to specify transition support owed to you in case of a breakup. Bake these items into your new agreement and all future contracts.
  • At all times, stay in the driver’s seat.
    Too often, organizations are happy to let suppliers control the implementation process. Don’t let this happen: Losing this control removes much of the supplier’s accountability, and is a leading cause for transition timelines dragging or derailing.
  • Start strong by bringing the team back to the table.
    Every new project we start with a client begins with a kickoff meeting, where all key stakeholders on both sides of the table meet. This meeting helps ensure roles are clearly defined and sets expectations for the level and frequency of communication moving forward.
  • … There is a “team,” right?
    The key corollary to the point above is — there needs to be a dedicated team. Part time committee members will always place more importance on their own day-to-day tasks, leaving implementation in the hands of the supplier (refer back to commandment #2). Put a dedicated team together, and make sure it includes members of upper management.
  • Consider the timing and scale of the transition.
    Identify the best time to make the switch based on your team’s workloads, inventory cut-in or service termination dates, and major events on your company’s horizon. Also consider whether a phased implementation may be appropriate — this will stretch your time line, but would allow more flexibility among resources.
  • Don’t jump immediately to transformation.
    Focusing first on transitioning to a familiar model and incrementally adding additional services of a new supplier can help keep a transition on track.
  • Establish an implementation calendar.
    This calendar should be accessible by all stakeholders and act as checklist of important events and timelines. Develop the calendar with suppliers to ensure they understand and can meet deadlines. For less business-critical elements of the implementation, allowing for greater stretches of time can avoid mistakes and start off a better relationship
  • Continue Communicating throughout the process.
    Remind internal stakeholders that the relationship will be most tested during implementation, and that focus needs to remain on the transition. Communicate externally to ensure the supplier keeps the full scope of work and related SLAs in mind throughout implementation and adheres to each milestone as it approaches.

Adhere to these commandments and your transition will be much smoother. Ignore them and you may find yourself dealing with some major headaches.

And If A Transition is Still Set to Fail

If you find your transition going off the rails, several speedy and decisive actions can bring it back on track:

  • Reevaluate the project plan and timelines for the transition
    At what point did the process go south, what can be done to correct, and how will the timeline need to be revamped to accommodate for a fix?
  • Changing out key players on both sides of the table managing the transition
    this may add to short term delays, but long term success. Hurt feelings always get trumped by botched implementations.
  • Reengage senior managers who quietly slipped away
    after the contract was signed and get them involved again.

Supplier transitions can be painful — but they don’t have to be.

The key takeaway is to never lose focus on a new deal just because a new contract was signed — all hands need to be on deck to ensure your transition to a new supplier lives up to the potential promised during the sourcing and contracting phases. This can seem painful, but strategizing the transition can take care of headaches before they crop up. Taking the right steps early on lessens the risks and moves the process into an opportunity to improve supplier performance and quality, streamline processes, and ultimately save money.

Thanks, Brian.

The 8 Laws of Successful Supplier Transitions: Part I


Today’s guest post is from Brian Seipel, an information technology and marketing project analyst at Source One Management Services, a leading procurement services provider with over two decades of experience delivering procurement success.

There are plenty of reasons your organization may choose to switch suppliers. Perhaps your incumbent’s quality is slipping, or their prices aren’t as competitive as they once were. As you’ve grown, perhaps your incumbent supplier isn’t able to scale with your organization or keep up in emerging areas of your business.

Compelling signs to switch, however, aren’t always enough convince the top brass to move. Why not? Because transitioning to a new supplier is a scary thing, especially if the incumbent is a key supplier.

Finding potentially huge savings and better capabilities during an RFP is all peaches and cream — until you get to the home stretch. The process of transitioning away from your comfortable, “known-quantity” incumbent becomes real and, if not managed properly, could end up costing you time and money.

Transition Risks

Plus, there are plenty of risks. We’ll start by putting a name and face to the organization’s fears. Any number of things can go wrong during a transition, with the major pitfalls being:

  • Business Disruptions
    Poorly managing transition resources takes time away from daily business activities. This can bleed into other departments if IT, finance, or legal personnel are brought in.
  • Poor Knowledge Transfer
    Dropping the ball here could set implementation back if the new supplier has to reinvent the wheel.
  • Resistance to Change
    End users are accustomed to your current supplier — they don’t know (and won’t automatically trust) that they’ll get better service or support somewhere else. The only certainty they see is that their workflow will be disrupted.
  • Missing Production or Implementation Milestone Targets
    Understaffed new suppliers growing into your business, misunderstandings about transfer roles and responsibilities, poor understanding of scopes, and other miscommunications can delay transitions or cause poor performance.
  • Waning Interest
    Upper management may be highly involved on both sides while hammering out a deal. This often changes once the ink dries, leading to stretched timelines and missed milestones.

Now, we’re not saying that any of these things are going to wrong, because every organization’s mileage may vary, and the threats your organization may face could be entirely different. But outlining the risks is the first step in managing them — building a strategy to mitigate them comes next. That’s the subject of our next post.

Thanks, Brian.