Of course e-Auctions and Smart Procurement Can Help Beat the Current Chaos …

… and when the doctor saw yet another obvious headline that was something he would have expected to see two decades ago, he was quite tempted to click past it as he’s already seen forty plus regurgitations of the same message over the past two decades. However, the subheading was something new … “CIO’s should engage with their procurement colleagues to understand how they could benefit from more sophisticated IT purchasing“. Many an article touts the value of Procurement, especially in tough times, and many more tout the value of IT Procurement (with a modern emphasis on SaaS), but not many tout the importance of collaboration, especially in tough markets. So seeing this subheading at the top of a recent article on The Stack was welcome.

The reality is that if organizations want to get through these tough times, every department that has to buy needs to work with Procurement, and we mean work, not just use. It will require a mix of category expertise, market expertise, process expertise, and procurement platform expertise to be successful. Procurement can bring the procurement platform, process, and some of the generic market expertise, but it will need the category experts in the various parts of the business to bring the expertise on supplier capability and the category expertise it is missing.

IT Procurement is not easy. A modern organization has to procure:

  • SaaS solutions — where you have no idea what you should be paying (without a SaaS market specialist, who can only get you within a range)
  • cloud computing / rack-space — to run your back office, store your documents, build your custom cloud offerings — and you have little idea how much you should really be paying here either (without a specialist, as all you know is the public quotes)
  • office computing equipment (laptops, tablets, smartphones, etc.) — and while you get plenty of “market intelligence” on public sites like Amazon, Walmart, Best Buy, etc.), how accurate is it when you sometimes see $400 discounts on a $1000 machine … you need to know the specs, the warranty, etc. and how they compare to similar machines … and how much better an i7 is compared to an i5, and if you even need an i7 when all the machine is going to do is access SaaS solutions and run Microsoft Office

And IT is not the only category where the right mix of Procurement know-how and category expertise from the end-user is needed. Most categories in engineering, back-office, maintenance, pharma, etc. require a lot of specialist expertise.

But with the right expertise, success is guaranteed. Prices might go up (that’s what happens during inflationary times), but Procurement can keep those increases to a minimum, and at a point less than what the competition is seeing. And that’s the worst case. In the best case, inflation has not yet hit the category and good processes and practices actually reduce the cost. And in both cases, the supply will be stable, secure, and of at least standard quality. So use Procurement Processes and Practices. They can only help.

Sourcing and Supply Chain Jobs CAN NOT Be Automated

Raconteur recently published a great article that noted that the next big shortage to watch [is] supply chain skills, and they were entirely correct when they noted that it’s ironic that the profession struggles with its own supply of talent. They were even more on the money when they said walk into a meeting of supply chain managers and you might wonder whether you’ve stepped back in time several decades because the statistic published in 2021 by Logistics UK that 89% of people working in logistics and supply chain are men.

Furthermore, they scored the hat trick when they noted that employers are struggling to find talent, and that is because not enough talent is entering the industry. Why is this? That’s a good question, and unfortunately Raconteur stopped with the hat-trick because the rationale they gave for lack of new entrants is only part of the problem.

According to Raconteur, the reasons for the lack of recruits are:

  1. Procurement is high on the list of roles at risk of being automated to extinction
  2. The recent slew of media reports highlighting failures in important supply chains may be deterring potential new entrants away

And while constant claims of procurement automation and constant reports of failures are unattractive, it is not the core problem (but merely the manifestation of the problem).

The real problems are the continuing:

  1. Lack of Marketing by the Profession (and why a Procurement/Supply Chain Manager is someone who’s cool)
  2. Lack of Education in most/leading University programs

Corporations who value engineers do great advertising on how cool it is to be an engineer working for them (think Siemens). Oil & Gas and Mining industries who need geologists and specialists to find new deposits do great advertising on how cool it is to be an explorer in the modern world. SaaS / Social Media companies that need great software developers do great advertising on how it is super cool to be a techie. Have you ever seen any corporation ever make it super cool to be in Procurement or Supply Chain? Even Apple, which won on supply chain management, never advertised how cool it would be to be a supply chain manager for them. As a result, Procurement and Supply Chain only recently entered the general vocabulary, and most people only paid attention as a result of the massive failures that came to light under the pandemic*.

Most University programs, two decades after we needed courses on modern Procurement and Supply Chain Management, still only teach classical Operations Research and Logistics. Logistics is important, but the age of Logistics was two decades ago. As Will Smith told us back in 2002, no one wants to be in the old and busted driver’s seat (see the clip). They want to drive the new hotness, but all Universities want to teach them is how to drive the same old and busted processes and practices the Professors learned in the 1980s (which were taught to them by the Professors who invented them in the 1960s).

Since Universities aren’t modernizing, no one graduating understands what Procurement and Supply Chain really is, so when all they hear from the media is failure, why would they want to even look into a profession that is apparently as high stress and fraught with risk as a surgeon or a defense attorney? Furthermore, since companies aren’t even spending a dollar on promoting how cool it is, and how much they need these people, it’s not a stretch to believe that the companies aren’t promoting it because they plan to automate it.

But Procurement cannot be automated. Technology can automate tactical procurement tasks such as:

  • regular restock reorders
  • auto-PO generation and delivery
  • auto-invoice matching / auto-correction requests
  • third-party supplier data validation through APIs
  • auto-supplier discovery from third party networks
  • auto-supplier risk profiling from third party data feeds
  • etc.

because technology is good at the “thunking” — the semi-mindless processing of electronic paperwork to make sure the i’s dotted, the t’s crossed, and the request valid as per business rules. However, technology, especially technology powered by Automated Idiocy, is NOT good at the thinking. You need Procurement Professionals, Sourcing and Supply Chain Superstars for those tasks, which permeate the entire Source to Order and Order to Delivery supply chain cycles. For example, as a counter to the above, technology cannot

  • adequately adapt to highly dynamic demand changes (especially when it doesn’t know why)
  • determine when new products or services NOT in the system will need to be ordered to support one time projects, replace products that will not arrive on time due to supply chain disruptions, replace services where the provider loses the resource with the proper training and certifications, etc.
  • handle the negotiation on the 1% to 5% of invoices where the provider won’t correct the missing information or the pricing on an auto-request
  • be able to validate the API where a human has to call another human to get the necessary information
  • find new, innovative, suppliers NOT in the connected network
  • customize the risk-based vetting to the specific need and acceptable thresholds
  • etc.

So, yes, some of the accounts payable paper pushers are going to lose their jobs as the thunking takes over, but that’s NOT Procurement, and definitely NOT Strategic Sourcing and Supply Chain where a human IS desperately needed. And yes, you will need to be familiar with the best of modern technology as a new professional in our field, as the job will soon be impossible without it, and you will need the augmented intelligence it provides to be efficient, but the technology cannot replace you.

So join us. And run the modern world.

* Not brought on by the pandemic as it was bad supply chain design and management that resulted in the pandemic breaking supply chains. Had the supply chains been properly designed, all the pandemic would have done was slowed them down. So don’t blame the pandemic. In fact, if you want to place blame, remember it was the Big X and mid-sized consultancies which started the ridiculous outsourcing craze instead of helping us improve the home-source and near-source supply chains we had that were working great, and put us in the situation where we have to reconfigure global supply chains all over again, and then remember YOU agreed to it!

Yes, McKinsey This Is Generative AI’s break out year, BUT:

We should NOT be celebrating the fact that it broke out of the prison it should be contained in only to:

So, even if your Global Survey confirms the explosive growth of AI, you should not be celebrating Generative AI’s breakout year and hold off celebrating until someone manages to put this destructive brain-dead genie we’ve unleashed back into the bottle it was released from!

Three Critical Elements of a Good Procurement Contract

We’ve been seeing quite a few articles lately popping up randomly on LinkedIn, Procurement searches, newsletters, etc. around Procurement Contracting, and, as you’ve probably guessed, we’ve noticed that most of them aren’t great. Not to say they’re bad, they’re not, but usually they’re finely focussed on core clauses that should be in there to keep the lawyers happy, using standard templates for consistency, making sure you have Force Majeure or appropriate risk management clauses (which are important, but miss the point), or on particular specifications or appendices you need for services contracts, etc. Few are good across the board, and most miss the key points.

So, today, we’re going to overview key elements of a good procurement contract, be it for goods or services, that all buyers should be aware of. This is not intended to be a complete list, as every category is different, every company is different, and every scenario is different and no single generic checklist will cover everything that is needed, but one can distill a list of common requirements that will always be required regardless of the category, geography, company, or situation at hand. Logically speaking, these requirements will always be necessary, but may not always be sufficient.

1) As Dick Locke will tell you over and over again, if you want them to be good, then all of your contracts should be written in Plain English, not convoluted legalese, and should be comprehensible by someone with a high school education. Not all buyers will have a University education, or even a College education, and even if they do, it may not have been in English and/or English may not be their first language.

2) A good contract answers the 6Ws: who, what, when, where, why, and how.

a) what are the goods and services the organization is contracting for

b) who is the intended recipient of the goods or services (not just the company) who will be using the goods or services and signing off that they are fit for use

c) where are they needed (plant, warehouse, office, etc.) as this determines where they need to be delivered

d) why are they being used over another good or service, as this determines key features or functions or specifications that the organization needs to ensure are maintained

e) when are they needed, as this specifies delivery schedules that need to be met

f) how are the goods or services going to be used as this dictates what specifications must be met or certifications that must be possessed (and explicitly referenced in the contract)

3) A good contract addresses the actionable risk mitigations that are to be adhered to by both parties to minimize the chances of a risk event significantly impacting or disrupting the business, even if it’s just timely notifications of an event happening or not happening.

Shift happens, and then sh!t happens. It’s reality. Blaming someone doesn’t fix it. Nor does having an out when the supplier doesn’t deliver on time, because chances are, you still need the goods or services, by a certain time, or your business is going to end up in the sh!tter when you can’t deliver to your customers because you won’t get paid (best case), and might get sued (worst case). And even including a legal clause on damages that allows damages to be passed through is rather useless, because, chances are, your supplier is living order to order and couldn’t afford to pay your legal fees and/or any judgement against you, which still leaves you on the hook.

Furthermore, any Force Majeure that you include in your customer contracts won’t protect you if you didn’t make all reasonable efforts and/or only you were affected while your competitors served their customers with similar products and services just fine without interruption.

You need to understand not only what can go wrong, and if there’s anything the supplier can do to prevent it or deal with it when it does, but also how long it will take you to find another source of supply if the supplier can’t deliver and make sure you have enough notice to do so if that is the only option available to you.

For example, if you need a custom manufactured product where it takes a new supplier ten weeks to upgrade a production line because it takes six to eight weeks to get the equipment, install it, and then test it; and it would take you two weeks to go to the next best supplier, get a contract, and get started, then you need three months lead time if your current supplier can’t deliver. In this situation, you need your supplier to let you know of any potential delays as soon as they get foreknowledge, and then let you know as soon as they won’t be able to manufacturer. This means that you might need to specify in the contract that, as soon as one of the supplier’s key tier suppliers is a week late on notifying the supplier of a shipment, they notify you that they may not be receiving a critical part or raw material on time and may not be starting your production on time. This allows you to determine whether or not this could be a risky situation and whether or not you want follow up.

You’d also want a notification if production didn’t start within a certain period of time from the expected production date, as that will dictate a late shipment. And so on.

Same for services. If you need a consultant or contractor with a certain industry certification, and the supplier only has three, and all three on tied up on a contract where it is determined they won’t be finished by the due date and cannot be redeployed on the date they were initially promised to you, you want to know the day the service provider knows they will not be able to allocate those contractors or consultants to you, especially if you can’t wait to start your project. Then you can figure out how many resources you really need to start, and use the risk mitigation clauses to go find someone else from another provider.

Again, this is not everything a contract needs, but requirements that must be met by every contract.

Digging into Manufacturing Sustainability

In our article on Solving the Sustainability of the Supply Chain is Systematically Strenuous and Surprisingly Serpentine, we noted that while there are easy two-word answers for reconfiguring the global supply chain for greater supply chain assurance and more sustainability at the 30,000 foot level, when you dig into the details, it’s not so easy as you have dozens of facets to get right to truly optimize sustainability across:

  • Support
  • Sales
  • Logistics
  • Procurement
  • Manufacturing
  • Materials

Manufacturing sustainability is much more involved than just choosing sustainable materials and focussing on sustainable design. When you are manufacturing you have to think about all of the following:

  • Materials: are the materials renewable, reclaimable, recyclable, or compostable — if not, the materials are not sustainable
  • Design: is the design using as many sustainable materials as possible; minimizing the use of non-renewable materials in minimal supply; ensuring the product is designed so that non-renewable materials can be fully reclaimed / recycled; ensuring the product can be produced in a sustainable manner? etc.
  • Production: are the lines modern, minimizing energy and MRO material usage (fluids, parts that wear out, etc.), efficient, etc.
  • Waste: does the chosen production method minimize waste, i.e. if cutting, how much waste metal or wood, and can it be reused/reclaimed?
  • Energy all energy production and transmission has a Carbon cost, even solar, as there was an initial carbon production in producing the panels, thus, the production method should minimize energy utilization (especially if producing EVs … considering a battery pack can produce between 2.5 and 16 metric tonnes of carbon in its production, it’s critical all production be energy efficient)
  • Water for cooling and cleaning should be minimized as well, and, if directly reusable, reused, and then reclaimed for future reuse (through an energy efficient processing plant)
  • Workforce as there needs to be a sufficient workforce and training in place to make sure they are suitably skilled for, and efficient at, the job to minimize errors and the resulting waste that comes from every human error

Furthermore, how you think about many of these requirements differs for every type of product you are producing, and often requires extremely specialized expertise to address the design, materials, production process, and waste. Manufacturing sustainability is not easy, but if you can’t ensure your manufacturers are sustainable, then you definitely can’t claim to have sustainable Procurement.