16 Harsh Realities To Get Used To

There are some harsh realities in life and work that we just have to deal with. Here are some of the major ones.

Harsh Realities

For decades, our senior team and consultants at Boxchange have been studying the mechanics of business improvement – and how it can be best used in organisations to create significant and sustainable performance breakthroughs.

Along the way, we’ve learned a lot about achieving success that even the head down, hard at it kind of people don’t know about. There are some major realities that hold them and their organisations back.

I’d like to share what they are, and what to do about them.

Reality #1: The leadership style you needed during the recession is ineffective now.

Reality #2: It takes a lot of repetitions of behaviour to establish ingrained working habits.

Reality #3: More than half of people leave their boss, not the company – but they won’t tell you that.

Reality #4: Employee surveys tell you little about what’s really going on in your business or how your people feel.

Reality #5: Most of the money invested in learning and development in organisations is wasted.

Reality #6: Embedding new work habits or new ways of thinking doesn’t happen quickly just because you’ve got clever, or motivated people.

Reality #7: Just because people know what to do (because you keep telling them), it doesn’t automatically follow that they will do it.

Reality #8: Almost 70 per cent of change initiatives and new strategies fail to deliver the benefits promised because organisations fail to achieve real buy-in.

Reality #9: Many managers waste time and effort dealing with symptoms – not the causes.

Reality #10: Diversity and inclusion policies rarely translate into a diverse and inclusive workforce.

Reality #11: Department heads convince you they’re on track, but overall the company is behind plan.

Reality #12: The person you thought you hired isn’t always the one that turns up for work.

Reality #13: Recruitment companies can negatively impact your ability to attract the best quality talent.

Reality #14: It’s hard to create performance breakthroughs on your own.

Reality #15: Organisations that have “innovation” as one of their values or pillars rarely achieve it.

Reality #16: Many organisations embark on new initiatives and strategies without first assessing their capability to deliver it.

If some of the above are familiar to you it’s almost certain your organisation, department or team is not performing to the best of its ability.

If you need help to change some of the current realities I’d be happy to share some of our insights into what you and your team can do about them if you contact me.

Boxchange Limited has created a “one-stop-shop” for business change, transformation and improvement with their core services including consulting, leadership, diversity & inclusion, behavioural assessment, recruitment and interim placements.

A Seat at the Table, or Procurement to Go?

‘Procurement to Go’ is about building a fast, reliable and flexible function that’s always one step ahead of changing business needs.

Procurement to go

In her recent article, PASA’s Jeni Christensen shared her concern about the region’s “shocking” lack of Professional Procurement. The target, Christensen writes, is to have a CPO at every boardroom table, and she shares a series of very valid steps about how to get there. New-York based Justin Hughes (PA Consulting Group) has also recently written an article about how a seat at the top table is “something procurement has to earn”.

But is board membership really the answer? I’d like to present an alternative view.

You don’t need a seat at the table if you have the right level of influence

Let’s face it – getting a seat at the boardroom table has been a recurring theme amongst procurement professionals for nearly a decade now. It’s a consequence of procurement’s historical back-room role, and a perceived fix for a host of procurement frustrations, including organisational compliance.

Chris Lynch, Global CFO of Rio Tinto, told delegates at the 2015 Asia-Pacific CPO Forum that the focus on board representation wasn’t the answer: “Forget reporting lines – just put procurement in the ‘winners’ circle’”.

Getting into the winners’ circle is all about influence. According to The Faculty Roundtable member, and leading CPO, David Henchliffe, “Business leaders need to get the value good procurement practises can deliver, and be strong advocates for the function. It’s our job to make sure they get it.”

In Henchliffe’s opinion, the preoccupation with board or senior leadership team membership is misguided. Deliver value to the business and CPOs will be invited to join in broader business-level planning and decision making.

The situation may not be as dire as PASA and Christensen suggest. Procurement has made enormous progress from its formerly transactional, back-office position, to become strategic partners in the business, predominantly through strong performance and better communication of the value it brings to organisations.

According to The Faculty’s recent Benchmarking Review, procurement’s influence continues to grow, with managed spend at an average of 72 per cent this year, up from 68 per cent in the previous review. CPOs are regarded as “highly influential” by surveyed procurement teams, stakeholders and suppliers, again pointing to improved communication and articulation of value to the C-Level.

How to ensure board members and senior leadership team members “get” procurement

Relevance through flexibility and agility is key. Henchliffe has seen his own organisation shift dramatically from an emphasis on growth and delivery to a critical focus on reducing the total cost of the business.  Procurement’s role, therefore, is to always be in step with the business’s requirements and to make sure the function can rapidly respond to the constantly changing business environment.

To flesh out the “table” metaphor, the boardroom/senior leadership team menu itself never remains static. Procurement needs to position itself as an ultra-flexible function that’s always ready to deliver – at top speed – anything that is required. Think of it as ‘Procurement to Go’ – fast, reliable, flexible, and a world away from the old, glacial speed of delivery.

Ron Brown, a highly experienced CPO across the Resource and FMCG sectors, says that the importance of nurturing capability cannot be underestimated if you want to stay relevant. “Hiring for and building capability around flexibility, driving value and managing risks is now integral”, Brown says. “If you want procurement to remain relevant, focus on capability and relationship building to ensure you’re a key part of the business strategy and performance”.

In summary, CPOs should focus on staying relevant by offering the business ‘Procurement to Go’ through flexibility, adaptability and concentrating on ensuring board members “get” procurement. Once this is achieved, CPOs can use this influence to achieve their goals and enable the profession as a whole to move on from the unhelpful fixation on boardroom representation.

The Faculty Roundtable is an influential group of Australian procurement leaders, who gather to share their experiences and insights. In May, The Faculty will be hosting their ninth Asia-Pacific CPO Forum, the region’s premier procurement event dedicated to accelerating commercial leadership at the highest level.

For more information on The Faculty Roundtable or CPO Forum, contact Program Manager, Belinda Toohey.

Why Requisitioning Must Be Part of ERP Conversations

Requisitioning (or asking for what you need) is a key part of the procurement process. So why is it frequently sidelined in ERP discussions?

ERP Requisitioning

This article was first published on the Coupa Blog.

Having either implemented or worked with some of the major ERP systems on the market, I think I’m on safe ground when I say, nobody chooses to do requisitioning through their ERP system. They settle for it.

ERP systems are largely built for finance and the controllership. End users are often not taken into account. Their requisitioning modules are notoriously difficult to use, which is too bad because requisitioning is how most non-finance users — aka. everyone else in the company — will interact with the ERP system.

In fact, people putting in requisitions to get what they need to do their jobs represent a large segment of non-finance users feeding data into the ERP. If you burden them with a system they won’t use, or that they’ll use in a sloppy way, your ERP will have data quality issues. To avoid having to settle for ERP requisitioning, it’s to everyone’s benefit for procurement to be part of the ERP discussion, as a strong advocate for the end user.

Advocating for Procurement

I’m not saying that will be easy. As I’ve written previously, organisations need to think more broadly about their whole finance system, which comprises multiple interconnected processes, from sourcing to the point where something is paid for and entered into the record.

The ERP system addresses the back end, and it’s designed for finance to be able to do what they need to do regardless of how the data gets in there.

So, the discussion doesn’t usually extend to the front end—sourcing, contracts, approvals, requisitioning—which is where a lot of that data comes from, because the thinking doesn’t extend that far. It’s not easy to break down these silos.

In situations where I’ve been the advocate for the needs of procurement, I’ve had to fight pretty hard to get that perspective considered and I’ve often been the lone dissenter in the room.

  • Get Real

You need to be a realist. There are always resource constraints, and there’s a hierarchy of needs within finance, and user-friendly requisitioning is never going to be at the top of the list. But when requisitioning is ranked seventh out of six fundable implementation projects, the potential for settling becomes very real. Hello, heavy ERP requisitioning module.

  • Map it out

One way to avoid that mistake is to map out the whole process, because it’s not completely linear. Data flows from one process into one, or several, others. A lot of times an ERP decision is made before these processes are mapped out. But, when you map it all out, it becomes obvious that quality and consistency of requisitioning is critical for getting finance all the data they need to make the ERP system a single source of truth. 

  • Learn the language

The main requirement for a better-than-ERP experience is that the requisitioning system be user friendly. You can’t push a heavy ERP requisitioning system on a marketing associate fresh out of college, or on a seasonal retail worker.

But usability is one of those subjective, soft terms that may not always resonate with the finance audience. To advocate effectively, understand the needs of finance and speak their language. For example, if you’re talking to a controller who is a worldwide tax authority, framing it in terms of compliance and data quality is a much better approach.

  • Not Amazon-like

You also need to break down what you mean by user friendly. Every ERP vendor is going to say their requisitioning module is user friendly. If no one is looking out for non-finance users, that box just gets checked.

How user friendly does it need to be? You’re probably expecting me to say, “It should be as easy to use as Amazon.” I would personally love it if it could be so, but there are different requirements for business buying that for consumer buying. But, it can be much easier than most ERP requisitioning modules make it.

A good system approaches requisitioning broadly. It’s not just asking people to fill out purchase orders. It should really be a way for an employee to get anything they need to do their job. In fact, I’d rather they didn’t have to even use the words ‘purchase order’ or ‘requisition.’  We’re simply helping them buy things.

Ideally, they should be able to click a bookmark, get to a portal and then get in through a single sign-in. They land on a homepage where they see relevant buying policies and have visibility into all of their transactions

There should be smart search capabilities, tailored towards a user who is probably somewhat resistant to using the system. They can’t get irrelevant results, or come up empty. They have to be able to quickly find what they want, or find out how to get it.

If it’s a catalogue item, the actual policy pops up, which will guide them how to buy it. If they need a new computer monitor, maybe it comes back and says, “OK, you have to log a ticket for IT because they do provisioning.” Or if nothing is there, it will guide them towards making a free form request. But they don’t even need to know these terms. All they need to know is what they want.

Heavy and Cluttered

In contrast, the requisitioning modules of the major ERP systems are often heavy. The home page may be cluttered with lots of finance information that’s not relevant. The email notifications can be complex and confusing.

There are a lot of fields to fill in so finance can get all the codes and data it needs – provided the would-be requisitioner doesn’t take one look at it, decide it would be faster just to run down to their local Staples store, and expense the darn thing. That’s the kind of thing that happens when you settle.

There are good reasons why requisitioning is not the top priority in the ERP discussion, but neither is it right for it to have no presence or priority. The real impact of user-friendly requisitioning is better data and better compliance.

To make sure your company doesn’t settle, somebody needs to advocate for all the people who aren’t in the room, but are going to have to use the system, and convince finance to give it the proper priority.

The ideal situation is that requisitioners don’t have to think about finance at all—or procurement for that matter. The irony is that to accomplish that, the folks in finance have to get together with procurement and think hard about requisitioning.

National Women in Engineering Day – Raising Profiles

National Women in Engineering Day 2016 is all about raising profiles and showcasing why engineering is a great career for women.

NWED Raising Profiles

Thursday the 23rd of June isn’t just about the UK’s EU Referendum. In fact, there’s something happening on Thursday that it would be remiss of us to overlook, or let be completely overshadowed by the vote – National Women in Engineering Day 2016.

Building on Success

NWED 2016 is aiming to build on last year’s success, when over 400 organisations, including schools, colleges, universities and industry bodies, from across the world, got together to celebrate achievements of women engineers, and encourage more girls and women to consider a career in engineering.

But first, a bit of background. The first National Women in Engineering Day was set up by the Women’s Engineering Society (WES) as part of its 95th anniversary celebrations. The society wanted to highlight the opportunities available for women in engineering, at a time where the industry was suffering from a skills shortage.

The WES felt that by encouraging more girls and women into engineering, it would help to improve diversity, fill the skills gap and enable the  industry to cope better with future job requirements. NWED was created to support this aim, allowing organisations to set up their own events, and link together with others in order to maximise the impact of the message.

Importance of Raising Profiles

The sub-theme for this year’s NWED is ‘Raising Profiles’, something the organisers see as key to bringing more women into the profession.

Alongside the publication of the ‘Top 50 Women in Engineering‘ list in Thursday’s Daily Telegraph, institutions are being encourage to share the profiles of their female engineers, their stories and achievements.

Raising Profiles is also about changing the perceptions of engineering as a male-dominated, physical, dirty work, and showcasing the reality that not only are women just as capable as engineers as their male counterparts, but there are already examples of where women are succeeding at the top of the profession.

You can read about just a few great examples here.

Get Involved

While it might be a bit late to organise your own NWED 2016 event, there are still plenty of ways you can get involved:

  • Visit a local university to highlight engineering as a career
  • Make a plan to increase your corporate diversity and launch it today
  • Raise the profile and celebrate the achievements of your female engineers
  • Feature an article in your newsletter or on your website about your female engineers
  • Follow events, and help promote the cause, on social media at @NWED1919, and by using the hashtags #NWED2016 and #RaisingProfiles
Why Spread the Word?

You might be wondering why Procurious are profiling National Women in Engineering Day when we aren’t an engineering-related platform.

Well, besides it being a great campaign to get behind, it’s clear there is still work to be done. It’s estimated that the gender gap in engineering subjects has doubled in the past eight years.

Even with the awareness of NWED increasing, it can still fall victim to a lack of time for organisations to support it fully. As one female engineer at a global engineering organisation put it to us, “Personally I would love to see more support for it. I have supported the event in previous years and it is excellent. Unfortunately ‘business pressures’ tend to get in the way of greater support.”

We also firmly believe that procurement and supply chain could, and perhaps should, follow suit with similar events for this profession. After all, why should raising profiles be limited to engineering. We’ve talked previously about women in supply chain, and gender diversity, and NWED is a great example of getting a wide group of people involved in a common cause.

Isn’t it time to take a positive stance in procurement and supply chain? Procurious can provide the platform – can you provide the support?

5 Career Lessons From a 75-Year-Old London Cabbie

Inspiration can often come from an unusual source. And you should never be too closed off to learn career lessons from a wide variety of people!

Cab Career Lessons

On my way to the Productivity in Pharma meeting in London yesterday, as is often the case, my cab got stuck in traffic.

As we edged our way across Westminster Bridge, I got chatting to my taxi driver, and discovered that I was going to be his very last customer after a 45-year career as a London taxi driver.  His plan was to drop me off, return his cab to the depot, and catch a bus and train combination back to his wife in Surrey.

Not one to miss an opportunity to learn, I quickly thought through what this wonderful man’s life and career lessons could mean for procurement professionals.

A Quick Side Note!

But before I share my learnings, let me tell you how much I love London cabs! I’ve always wanted the opportunity to share my love in one of my blog articles, so I’m very happy to now have the chance! These unique, purpose-made vehicles can turn on a dime, and accommodate five passengers, as well as luggage. Amazing.

According to Wikipedia, many black cabs have a turning circle of only 25ft (8m). One reason for this is the configuration of the famed Savoy Hotel. The hotel entrance’s small roundabout meant that vehicles needed a small turning circle in order to navigate it.

That requirement became the legally required turning circle for all London cabs. Also, the custom of passengers sitting on the right, behind the driver, provided a reason for the right-hand traffic in Savoy Court, allowing hotel patrons to board and alight from the driver’s side. I love these types of London stories!

Back to Career Lessons

Anyway, back to the career lessons learned from my septuagenarian chauffeur.  Here’s what came to mind –

1. Don’t sweat a couple of hiccups early on in your career

Don’t worry if you have to go over a couple of speed bumps early in your career – my cabbie got fired twice early in his.

He had a lot of fun in his very first job, which was being the doorman at the very exclusive Dorchester Hotel. A highlight he shared was when Zsa Zsa Gabor dropped her towel and exposed herself as he made a delivery to the room. His photo also blessed the Daily Mail, when the famous Hollywood actress Jayne Mansfield rewarded his good work with a kiss. Maybe as a result of these heady experiences, one day he fell asleep on the job and was summarily dismissed.

He tried couple of other jobs, including being a bus conductor, but when he threw his supervisor off the bus, he realised he wasn’t really meant to work for others. Despite these small set-backs, this gentleman still enjoyed a 45-year career.

Which brings me to my next point…

2. Your career is a marathon, not a sprint

I know that during the first decade or two of my career, I was convinced that the faster and harder I worked, the faster my career would progress. To a certain degree, this may have been the case.  Even now, I am probably working at a slightly unsustainable pace, but I am learning that sometimes you have to slow down in order to go faster.

While chatting as we edged our way along, it dawned on me that this gent was someone who was in extremely good shape.  At 75 years of age, he still had a full head of hair, was highly animated and spoke lovingly about his children, grandchildren and wife of 52 years (“who kept him young”).

He was obviously a man who enjoyed good health and had a positive life. As much as we feed our self-esteem through career success, we need to remember that our health, happiness and support of our family and friends are really what will sustain us on the long haul.

3. Do what you love

People who have been successful in their career often say things like “I’ve been very lucky”. But what you normally find is that they have worked hard at a job they love.

Make sure you are passionate about what your career – it will reflect in everything you do and will help buoy your success. Being in procurement is a great head start, because you’re working in the most exciting profession in the world…right?!

4. Know your stuff

One of the defining characteristics of the London taxi drivers is their in-depth knowledge of London’s streets and their ability to navigate their way to the desired destination through the congestion and chaos London is so well known for! All without the help of a sat nav.

This is because London taxi drivers go through stringent training to obtain their licence. They need to pass “The Knowledge”, a test which is among the hardest to pass in the world. The drivers need to memorise every possible route through the 25,000 city streets, and know all 20,000 landmarks. Apparently, it takes the average person between 2 to 4 years to learn the knowledge. And it shows – these guys really know their stuff!

So no more complaining about studying for your MCIPS or ISM qualification! Knowledge will give you the credibility you need to achieve your career success.

5. Trust the universe

Amazingly, in his long career (which must have included literally tens of thousands of customer trips), he only had a handful of people not pay their fare. To me, this really reinforced that the universe is actually quite a good place.

There are more good people than bad and in the large majority of cases, people are honest and do the right thing. A cause for us all to remain optimistic!

Safe travels!

The Productivity in Pharma Think Tank brings together a conclave of senior procurement leaders from the Pharmaceutical industry, creating a unique, mini-MBA style environment, where the most pressing issues facing the function are explored in detail and, from which, key insights and applicable takeaways are derived.

You can find out more about this event at The Beyond Group website, and connect with the event hosts and facilitators Giles Breault (@GilesBreault) and Sammy Rashed (@RashedSammy) on social media.

Are Traditional Views Limiting Procurement Innovation?

Is a lack of competitiveness and a risk averse nature holding back the progress of procurement innovation? New research seems to suggest so.

Procurement Innovation

New research shows that procurement is innovating and wants to do so even more in the future. However, the function’s risk averse nature, non-competitive attitude, and the prioritisation of collaboration over leadership, may be holding back its progress.

While many procurement professionals and leaders are embracing procurement innovation, many appear to be innovating within a safe environment, sticking with the things they know about, such as the supply chain.

Procurement says its ability to innovate is stifled by what others think it’s there to do, but isn’t it time that procurement stopped worrying what others perceive it as and started focusing on realising its full potential?

Limiting Procurement Innovation

Wax Digital’s new Procurement Innovation Pathway research, which surveyed 100 of the UK’s senior procurement professionals, shows that 69 per cent considered themselves pivotal to business innovation today, with 80 per cent expecting to be so in the future.

On average, 76 per cent said that they are involved in a range of business innovations, but only 27 per cent are leading them. However, 86 per cent said they want to be a part of all ongoing product innovations and service developments in the future – not only those within the procurement function.

But procurement’s view of what makes a business innovative appears to be impacted by some of its traditional risk averse thinking. Having a clear business vision (42 per cent), reacting quickly to the market and customers (33 per cent) and reviewing and improving business processes (32 per cent) were procurement’s top cited factors associated with business innovation.

Other characteristics traditionally more innovation related, however, are at the bottom of their list. Only 20 per cent cited a willingness to take risks, and 19 per cent a high investment in R&D, for example.

Procurement Innovation Barriers

Procurement identifies a number of factors stopping it innovating, most frequently other departmental views (40 per cent), lack of required skills (33 per cent) and time consuming processes (31 per cent).

And while these factors clearly play a part, there seem to be attitudinal setbacks with procurement’s own mind-set. Only 10 per cent, for example, are focused on challenging business objectives; just 14 per cent prioritise competitiveness and 18 per cent leadership as skills within their team – which they also say are declining traits.

Commenting on the research’s finding, Daniel Ball, director at Wax Digital said: “It’s fair to say that the average procurement function today is a vastly different place to what it once was. Procurement is innovating – of that there’s no doubt. But are they heading in the right direction or truly prepared to break the mould? Clear indicators of some discomfort with taking risks and really leading and driving innovation suggest it’s not yet realising its full potential in this area.

“To become real innovators, procurement professionals must overcome these issues while fostering the right business relationships, nurturing the correct new skills and seeking to break ground in their approach to technology.”

The Innovation 2016 research was conducted by Morar Consulting in March 2016, involving 100 interviews to canvass the opinions of UK senior procurement professionals working in small to large UK enterprises.

You can find out more about the research, and download the report, by visiting the Wax Digital website.

12 Ethical Questions to Ask in Supplier Pre-Approval

In procurement, ethical practice is the key to a positive organisational image. Knowing the right ethical questions to ask can make a real difference.

Ethical Questions

Increasingly the corporate world is focusing on social issues in supply chains such as slavery, forced labour and human trafficking, typically referred to as “modern slavery”. Procurement professionals have an important role to play, by sourcing in a manner that enables and rewards suppliers for good ethical practices.

Local governments and consumers are increasingly aware of such issues and are supporting, if not demanding, that businesses act to implement ethical standards in their procurement processes. Organisations will suffer reputational damage if they are found to be sourcing from suppliers using exploitative labour.

Companies may also face legal sanctions if suppliers are found to be involved in corruption or bribery. Organisations naturally want to avoid negative impact.

The issue of modern slavery has highlighted issues in countries where:

  • Workers have fewer or no protections.
  • There are high levels of poverty.
  • There is widespread use of migrant workers.
  • Because of the industry and use of raw materials, there are high risks.
  • The supply chain is labour intensive, because the end product is cheap. 

Codes of Conduct

Many companies have a Code of Conduct. This is a great way to start out, but can seem ‘non-actionable’ when on its own. So instead, a company can also introduce initiatives such as:

  • Collecting and providing all parties with the information they need to plan more effectively (for instance by sharing audit reports).
  • Creating processes which ensure efficient communications and formalised, streamlined buying and production processes.
  • Empowering procurement professionals to reward good practice and leadership amongst suppliers.
  • Encouraging buyers and suppliers to collaborate with organisations who have expertise in addressing systematic problems within the supply chain.
  • Enable the supplier to collaborate with others who are purchasing from the same supplier.

Your Role as a Procurement Professional

Typically, a procurement organisation will establish some firm processes to ensure the ethical practices. In addition, you can, as a procurement professional, also make yourself aware of some of the most essential ethical questions that you can ask during a sourcing activity, within the supplier pre-approval part of the process.

I would recommend that you, as part of your pre-approval process, get inspired to use some of the following ethical questions and observations in your process:

You want the supplier to have good labour standards, a positive impact in the community, and actively work to improve standards.

You should be looking for:

  • Staff turnover at production sites
  • Good human resource management systems
  • Good labour standards audit results
  • Sharing of good practice with other suppliers
  • Willingness to discuss issues such as pressures on working hours and pay
  • Retrospective comparison of planned vs. actual timings and volume outputs, measured against overtime worked at site

You want the supplier to demonstrate improved working conditions at all times.

You should be looking for:

  • Sites with initiatives such as active trade union representation
  • An existing recognition agreement and collective bargaining agreement
  • Number of workers with long term agreements
  • Analysis of working hours

You want the supplier to demonstrate stable relationships with own suppliers and subcontractors.

You should be looking for:

  • Average length of relationship with individual production sites
  • The dialogue they have with their suppliers/subcontractors on labour conditions

The Key Role of Procurement in Risk Mitigation

As average spend with suppliers increases, procurement must be more active with the management of risk mitigation in the supply chain.

Risk Mitigation

Increasingly companies have a higher percentage of their cost base with suppliers, frequently as much as 50-70 per cent. Typically half of this is indirect spend on functions such as Marketing and Human Resources.

It is clear that as the cost spend increases with these suppliers, procurement is playing a key role as a broker and helping to drive the revenue line. However, if the majority of cost base is outside of the company’s walls, this presents a major business risk.

This is particularly alarming in industries such as financial services and pharma, where the regulatory and reputational landscape is complex. How can procurement help with risk mitigation, and also help senior executives have greater confidence that their supply chain is in order?

Mitigation & Segmentation

According to Jon Kirby and Paul Birch, from Business Process Transformation consultancy Genpact, organisations must institute better and more sophisticated risk segmentation, dividing the procurement supplier base into distinct risk tiers.

This does not necessarily mean that the largest suppliers in terms of spend will pose the largest risk. Companies should also be continually re-assessing supplier risk and asking questions, such as:

  • Are any of your suppliers at risk of bankruptcy?
  • Are there any global or geopolitical issues in your supply chain that could disrupt it?
  • Do you have systems and processes in place to regularly evaluate and monitor your most important suppliers?
  • Have you embedded risk evaluation into the on-boarding of new suppliers?

Creating stronger links between the lines of business and the procurement function can also ensure that the risk profile is in line with business priorities.

Procurement’s Role

There are a number of factors procurement professionals can keep an eye on when tasked with supplier risk mitigation. Sandeep Singh, Vice President – Procurement and Supply Chain Services at Genpact, shares his experience across these factors.

  • What are the signs that procurement needs to watch out for when assessing suppliers’ bankruptcy risk?

Assessing the financial health of a supplier should be a critical part of selection, as well as the ongoing relationship management process. Financial failures in today’s economy are not uncommon and can cause disruption to companies business.

Procurement professionals should pay close attention to the following aspects of business when assessing a supplier’s financial condition or bankruptcy risk:

  • Financial information – including profitability or margins; revenue growth; liquidity; negative cash flow.
  • Law suits such as where supplier is being sued for collection matters.
  • Managerial and employee related events such as resignation of key members of management, or abnormal turnover of employees.
  • Poor quality of product or services, or long term order delinquencies.
  • Inability to produce timely and accurate financial information.
  • Delay and penalties due to outstanding tax and statutory issues.
  • Request for special payment arrangements, such as changing terms of shipment to Cash on Delivery, or request for advance payment
  • Declining relationship with their bank or frequent change in their banks.

However, applying various signs and parameters to assess a suppliers financial condition can be a huge challenge for procurement, for the following reasons:

  • Financial assessment needs to be a continuous process, and doing it only during selection process may not be sufficient.
  • How priorities are given (i.e. which supplier to cover and which supplier to exclude).
  • Large supplier base can run into the thousands.
  • Multiple early warning signs and financial parameters.

To overcome the above challenges, leading global companies are leveraging Lean Digital solutions, which combine digital technologies with design thinking. This results in procurement being able to segment their supplier base with minimal effort, and being able to prioritise multiple early warning signs and financial parameters.

The adoption of the Lean Digital approach also provides companies with the ability to conduct ongoing financial risk assessments on their suppliers as opposed to doing it only during the selection process.

So what else can procurement do to assist with risk mitigation in the supply chain? For this you’ll need to come back for the second article in this series.

Genpact offers a number of procurement services that can be tailored to specific client needs, including end-to-end Source to Pay (S2P) services for both direct and indirect materials. Find out more by visiting their website.

Resistance is Futile…Or is it?

Is resistance to automation of procurement processes futile? Or are we missing the benefits that automation will ultimately bring to the profession?

AI Resistance

You can download the latest GEP white paper on the drive to an automated world, and why resistance is unnecessary, here.

The cannon of science fiction is full of tales of the battle between liberty, exemplified by human free will (including the freedom to screw everything up royally) and tyranny, portrayed as submission to an overwhelming force.

In many cases the “assimilation into the collective” or whatever, is not an unconditionally negative prospect. The promise of an end to suffering and provision of all human needs is often conveyed as the ‘upside’ of the deal to subjugate humanity to forces beyond our understanding.

Automation – The Dark Side?

From Childhood’s End to The Matrix, there’s a definite cost-benefit analysis to be carried out by the protagonists during their struggles to overcome the supposedly overwhelming power of the dark side of the story.

In fact, in the latter, the movie’s clichéd traitor – they even named the character “Cypher” – sells out the heroes on the promise of a return to the simulated ‘real’ world with the words, “Ignorance is bliss.”  And when asked by the agent of evil, “Then we have a deal?”, he replies, “I don’t wanna remember nothing.  Nothing! You understand?”

There is even a branch of anthropic philosophy than contends that our reality is likely to be a simulation run by an advanced post-human intelligence. As coherent and convincing as some of that reasoning appears to be, the fact remains that there is no possible way this hypothesis can be proved or disproved.

Like all matters of faith, this notion is utterly irrelevant when we attempt to construct a set of rules that will let us predict what will happen in (what certainly appears to be) the real world.

Rise of the Machines?

Recently it has been suggested at some of the procurement industry’s leading conferences that business is beginning to enter a phase that will be dominated by artificial intelligence and robotic process automation, and lead to the eventual replacement of the humans in the process.

Dissenting voices are heard to cry “nonsense,” or more colloquial versions of the same, but the arguments are nonetheless compelling. Only this time, they have a certain amount of evidence to back them up.

It is true. The technology exists today, in varying states of maturity, which – if synthesised into a single entity – could effectively do away with human involvement in the supply chain. From AI-run decision making, to automated manufacture and delivery, to fuzzy logic-based distribution of spend across a supply base, the characteristics of today’s procurement activity could, quite readily, be encoded and turned over to a software overlord.

Other sci-fi classics, the likes of the movie ‘Logan’s Run’, and the book ‘The Caves of Steel’, deal with the machine-run production of goods and services in equal measure to the imposing of external force on human freedom. And as life imitates art, there will naturally be greater degrees of this emerging.  Today’s 3D printer is surely tomorrow’s Star Trek Replicator.

The End for Procurement?

But, whatever the generations of the future will accept as everyday technology, the idea that we’re approaching a defining moment, beyond which procurement professionals will be irrelevant, must be viewed with a good degree of scepticism.

There’s no doubt automation works really, really well when it comes to replacing easily mapped and understood processes, from assembling a car from a standard kit of parts, to processing a contract-compliant purchase order through to invoice payment.

But the simple fact is we just don’t understand enough about the world, human behaviour, the markets, the climate, indeed any part of the future, to be able to encapsulate all our business rules into a single algorithm that the machine can follow to manage supply and demand for the rest of time.

The landscape in which our largest corporations operate is truly chaotic, in a mathematical sense, and deriving a simple set of rules to automate demand and supply across such organisations is, I think, beyond us today.

One of the very drivers of modern prosperity is the ability to “make a buck” and any kind of completely automated process necessarily eliminates margin at source. Negotiation between buyer and supplier AIs will not only be mind-bogglingly rapid, but likely to end in stalemate – and the same stalemate as the last time.

If we lose negotiation, then it seems to me that we will lose innovation, motivation and the result will be stagnation.

Resistance is Unnecessary

The future will be radically different to the present.  It always has been and always will be, and all predictions as to what it will look like are inevitably wrong. Including this one.

But with that uncertainty comes opportunity. Automation in procurement will certainly be a big thing in the future, but it will be complex, it will be messy and it will need human brains to make it work, and not just to write the code.

The human brains that work in procurement today are those that will guide the whole world of supply forward into a brave new world. Reports of procurement’s demise have been overstated, naturally, but we can still take control and make the machines work for us.

Resistance isn’t futile. It’s unnecessary.

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Automation doesn’t mean the end for procurement, and the benefits of automating processes vastly outweigh the drawbacks, say GEP. For more on this, download the latest white paper research.

For more information on high-performing procurement software, visit the Smart by GEP website.

The EU Referendum – Supply Chain Trade at Stake?

No matter where you are in the world, you’ll have heard about Thursday’s referendum in the UK about its EU membership. Have both sides overlooked a critical point in the debate?

EU Referendum

This article was written for Procurious by Chris Cliffe.

Procurious is a global platform, but wherever you are, you’ll have heard about this week’s referendum in the UK.  Will the UK #RemainIn or #brexit the EU this week?

Far from being specific to the EU, I think it’s a global issue. And one I find myself thinking about sitting on a train…

Referendum & the Supply Chain

No one can agree on the exact figure (£350m-£380m per day), but the UK is a ‘net contributor’ to the EU. In fact, the UK is one of the biggest net contributors along with France and Germany. But what about taking this issue in (very) simple supply chain terms?

Customers pay suppliers for products. Suppliers make profit from product sales. Therefore we can view customers as ‘net contributors’ to suppliers, much like the UK to the EU. What would happen if a supplier were to lose one of its biggest customers?

The loss of that customer’s revenue needs to be mitigated.  Replacing that customer with new business of equivalent size will be difficult, or at least take a long time. Whilst costs may have gone down through no longer servicing that customer, cost reduction is not proportionate to the lost business, leaving an increased cost to be recovered from remaining customers.

What are the options? The supplier can: take the hit; make efficiency savings; increase prices for other customers; or pass on the cost to the supply chain.

So, if the EU loses a large net contribution, other member states will either see a reduction in EU funding, as there is less money to share out, or they will have to renegotiate their contributions to the EU to make up for the shortfall.

Contributions are proportionate, so all member states will either see their contribution increase, or their share of the funding reduced. France and Germany would likely be most affected.

Shifting Issues

The UK might view this as the EU’s problem. However, all that will have happened is the ‘problem’ has just changed.

Assuming France and Germany – two of the UK’s largest trading partners – did pay more into the EU to cover the loss of the UK’s contribution, how will they take the hit? More austerity? Or will they pass on the cost to their customers – particularly if the customer caused their cost increase!

The UK will want to continue to trade with the EU member states.  That will be possible, and the member states will want to trade.  However, having left and caused those very same member states to see higher costs as a result, I’m struggling to see why we aren’t more concerned about potential ‘tariffs’ which may be applied.

The risk is that the EU will want to recover the ‘cost’ it suffers from a Brexit. Furthermore, the EU will debate and agree their stance on this. And guess what – the UK won’t be at that table.

Supplier Perspective

From a supplier perspective, losing a large customer simply to find that customer still wants your product, but just didn’t want to pay for it is frustrating enough. But what example would you set to your other customers if you actually agreed?

Of course, suppliers will be happy to supply those products, and even though the commercials of the deal might change, you’ll inevitably be charged the same (or more as the deal is no longer standard and will have introduced complexity, risk and cost). Other customers will be watching you.

But the UK isn’t just a customer, it’s a supplier too. Exiting the EU may mean higher costs for the UK’s customers, meaning they have less money to spend. They may want to trade, but could buy less, or need lower prices to compensate.

Let’s consider Framework Agreements. Frameworks are really useful commercial vehicles (a separate debate!) to access products and services without complex, lengthy advertised procedures.

Typically, a set of suppliers are appointed to a Framework for a fixed period. Suppliers who are not appointed to the framework cannot trade through it, and consequently find it more of a challenge to trade with the public sector, who want to use the ‘easy’ route.

Think of the EU as a framework, and the member states as the suppliers appointed. The UK could be about to give up its hard fought position on the framework. In doing so, the UK will be making itself more difficult to trade with, and it will be natural for current EU customers to look at other, less complex, sourcing options.

So, if the referendum goes for #Brexit, does the UK become just a country geographically in Europe, but in the ‘no longer free to trade’ area? Is the UK’s slice of the EU trade pie more at risk than either campaign have realised?

Well, I conclude that…my train has arrived on-time! Don’t forget to  vote if you’re eligible!

Want something to take your mind off the referendum? Here are the week’s procurement and supply chain headlines…

Starbucks Names New Supply Chain Chief

  • Hans Melotte, former Johnson & Johnson CPO, and current Chairman of the ISM Board of Directors, has been appointed by Starbucks as its new Executive Vice President of Global Supply Chain.  
  • Starbucks has approximately 16,000 suppliers and operates in over 70 countries and has recently announced plans to open a 20,000 square-foot roastery in New York.
  • Mr Melotte will oversee supplier relationships, distribution, transportation and store delivery, and is expected to transform stores’ distribution channels in line with company expansion.
  • Mr. Melotte also featured in Procurious’ recent article on the use of the term ‘strategic’ in the profession.

Read more at the Wall Street Journal

World Day Against Child Labour

  • The ILO’s World Day Against Child Labour took place on Sunday 12th June, with this years’ focus on child labour in supply chains.
  • An estimated 168 million children are found in supply chains across the world, in every sector and region.
  • “The time for excuses is over”, said ILO Director General Guy Ryder. “With redoubled from governments, employers, workers organisations and enterprises, child labour in supply chains can be stopped.”
  • The ILO has developed a new app designed to help business managers and auditors to create checklists that will help ensure a child labour-free operation.

Read more at the International Labour Organisation

M&S Unveils New Supply Chain Mapping Technology

  • M&S released its first online supplier map alongside its inaugural human rights report last week, showing 1,231 factories in 53 countries.
  • The interactive map has the capability to zoom in on individual facilities to see the address, number of workers on site, and gender of those workers.
  • The data for the map comes from supplier-reported information and third-party audits.
  • The mapping technology is expected to greatly improve supply chain visibility, and can be tailored to include more data.

Read more at Green Biz