Do I need to understand how Blockchain works? Where does bitcoin fit in? And how long until this tech hits the mainstream? Your questions: answered!
When it comes to Blockchain procurement pros don’t know what or who to believe, when to expect its takeover or how to prepare.
What’s the difference between bitcoin and blockchain, are they one and the same?
Do you need to understand the ins and outs of how the technology works?
Ahead of today’s Procurious webinar on Blockchain , Jack Shaw, Co-Founder and Executive Director of the American Blockchain Council, clears up some of the Blockchain basics!
Blockchain and bitcoin
“There is a widely held misunderstanding that blockchain and bitcoin are one and the same or inextricably connected with one another.
“In fact blockchain is an underlying enabling technology. Bitcoin and other digital crypto currencies are one of the first effective applications of that technology.”
“Think of it as being similar to the situation in 1990s with the emergence of the internet as an underlying enabling technology platform of which email was one of the first successful applications of internet technology and one of very many ways the internet is being used.”
Why you don’t need to understand Blockchain
“Blockchain is so highly technical that only people with advanced degrees in cyber science could possibly understand it.
“Often we get down into the weaves of the technical details of how blockchain works. I’ve found it helpful for procurement pros to understand what it is that blockchain does.
“You don’t need to be able to build an engine to know how to drive a car similarly you don’t need to understand every technical detail of how blockchain works in order to understand what it can do for you…”
What can Blockchain do for you?
“Blockchains do four things that we haven’t been able to do previously…
Blockchains can create immutable signed and time stamped record of identity, ownership of assets, transactions or contractual commitments
They allow that information to be shared among multiple entities; either people or businesses or other organisations, governmental agencies, across the internet without any of those entities having to depend on any one of the others to be the so called master record keeper. And without having to pay a third party intermediary for that service, which can take tremendous costs and delays out of inter-enterprise business processes
They allow that information to be shared with complete transparency among all those authorised to see that information and the subset of those that are authorised to update it by adding new information
[Blockchains are] virtually unhackable in terms of preventing those not authorised to update that information from doing so or even being able to see it”
The combination of those four capabilities means Blockchain provides a tool for the use and sharing of information across business and social ecosystems that goes far beyond the ability to exchange value via currencies. It, in fact, gives it the potential to impact every aspect of our personal and organisational lives.
When will blockchain hit the mainstream?
“I’ve been around emerging technologies for so long that I’ve finally come to recognise these things do not simply suddenly switch on full-blown and ready for everyone in the world to use at once. [adoption] increases over time.
“Blockchain is coming along much more quickly than the internet. Widespread adoption of Blockchain technology will be in place within the next two or three years. Most of the major IT solution providers are already actively in the process of delivering blockchain enabled capabilities.”
The purpose of the American Blockchain Council is to help senior level executives understand the strategic business implications of blockchain.
Jack Shaw will be speaking on our latest webinar Blockchain: The Technology, the Myth, the… Legend? which goes live today at 11am EDT/ 4pm BST. Sign up here.
Procurement is going to have to do some extra work when it comes to evaluating private companies. Kelly Barner outlines the common pitfalls to be ready for…
Many procurement teams have been tasked with diversifying the supply base. This often means partnering with small, diverse, or locally-sourced suppliers.
One challenge that arises is that many of the companies that qualify for such programs are privately owned. The lack of information that usually accompanies private ownership is at odds with procurement’s transparent supplier evaluation frameworks. Add to this the fact that participating in an RFP process just to be ‘diversity fodder’ is onerous and potentially even harmful to small businesses, and we’re left with a paradox:
How can procurement stay true to our mandate while also finding mutually beneficial opportunities for small and diverse businesses?
Procurement will have to do some extra work when evaluating private companies. Here are some common pitfalls to be ready for:
1. Limited or no access to current financials
This begins in the opening section of an RFx: ‘Please attach your company’s most recent corporate financials here.’ To which the supplier responds, ‘N/A: we are a privately held company and as such do not publish our financial statements’. That may be true, but it does not eliminate the need for the supplier to demonstrate that they are financially sound enough to justify an award.
2. Inability to determine risk levels
Procurement has to determine if there are concerns about the supplier’s ability to stay in business. What does their revenue pipeline look like? What are their customer retention rates? Keep in mind that this is a challenge with all companies, not just privately held ones. Procurement has to ensure that private companies are not hiding behind their ‘privateness’.
3. Few customers able to serve as relevant references
While private companies are not always new or small, it is a common combination of characteristics. The customers of small, privately held companies may be as tight lipped as the company they buy from. In fact, some may view their relationship with the private supplier as a competitive advantage or not want to accept the risk associated with speaking for or against such a company in the customer reference checking process.
4. Missing rigor from the expectations of shareholders
Being privately held means drawing capital from angel investors, venture capitalists, and sometimes employees or ‘friends and family’ investors. Who can procurement look to when trying to ensure that the leadership team faces appropriate challenges to their decisions?
Part of this dynamic needs to come from the relationships between leadership team members. Hopefully they (if not their private investors) are willing to fight to ensure the company stays on track.
5. Looming prospect of acquisition
Most private companies are on a journey towards either IPO or acquisition. While both can be disruptive for customers, having a privately held supplier acquired by a larger company is perhaps the greater concern. What changes will be made to contracts or terms of service?
Will the relationship be valued in the same way? Not having the answers to these questions (in large part because the private company’s leadership team doesn’t have them either) can make it hard to commit to a long enough term contract that both parties realise the desired level of value from the arrangement.
Being a private company shouldn’t be the only reason not to consider an otherwise qualified supplier for a contract. The problem is a circular one: if procurement doesn’t have access to the same level of information we do with publicly traded suppliers, how can we determine if they are qualified or not? The answer is likely to be a combination of pushing for additional information and accepting that some of what we are looking for isn’t available. As with all strategic decisions, we can never be 100 per cent certain that our choice is the right one. All procurement can do is maximise the availability of facts to ensure that the decision to contract a private supplier – like all other procurement informed decisions – is based on analysis, not assumptions.
Blockchain technology is often criticised for its perceived limitations. But how much truth is there behind the accusations?
We’re told that Blockchain is overhyped, it’s no big deal, it has some serious limitations and, whilst it might be a pretty cool piece of technology, it’s certainly not the procurement disruptor that it’s hailed to be…
But Jack Shaw, Co-Founder and Executive Director of the American Blockchain Council disagrees…
“Blockchain technology is currently criticised for several different limitations:
One of the questions I most commonly get is ‘If blockchain is un-hackable, how is it that there are all these stories of people having their bitcoin stolen?’
The reason for this is that bitcoin and many other digital currencies are typically still stored online and not on blockchain itself. In nine years there has never been a successful hack of the oldest blockchain implementation, which is the bitcoin blockchain.
But people have lost money because they have stored there currencies on a more traditional centralised database.
A lot of criticism is aimed at the bitcoin blockchain and it’s important that people understand there are many different blockchains out there and there are many different ways of implementing these blockchains technically.
The Bitcoin blockchain is not only the oldest; it is the largest but also the slowest and the most unsustainable of the blockchains from an energy perspective. Figures indicate that supporting bitcoin blockchain requires approximately as much energy as the country of Peru. That is not something that is going to be scalable to many thousands of use cases across millions of organisations around the world.
It is becoming increasingly difficult for the bitcoin blockchain to keep up with the processing of transactions. Currently it processes 7 per second. by comparison visa processes something in excess of 50,000 per second. Clearly new approaches will be needed.
The same transparency that makes it easy to share information among authorised participants in the blockchain could, if not properly implemented, make it easy for those who are not authorised to view transactions to do so.
For example, if you’re participating in a supply chain ecosystem , the suppliers are not going to want their competitors to see the prices that they have quoted to you if they are offering you a significant discount.
How do you prevent that? By leveraging encryption technology and using blockchain to manage exchange of private keys to access that data.
How do we have multiple, different blockchains and how can those blockchains talk with each other? IBM have taken a strong leadership role in this area through their support of the open source hyper ledger platform for implementing blockchain. This is commonly used for permission blockchains, where only a limited and defined set of people and organisations can participate in the blockchain.
One of things that hyper ledger and a number of other blockchain inititiatves are actively working on is the issue of interoperability.
Procurement and Blockchain
This all seems very scary. And there is a tendency for procurement pros to think ‘Oh my gosh. We still have to work out all kinds of technical problems surrounding blockchain, maybe we should put this on the back burner for a while’
But that would be a serious mistake.
I had a fellow come up me after a presentation I did about 20 years ago on the World Wide Web and e-commerce. He explained to me ‘we don’t have the processing power, we don’t have the bandwidth and we certainly won’t ever have the security. This crazy notion you’re having of people being able to do electronic banking – it will never happen it just can’t be done.’
At that particular point in time, he was right – it couldn’t be done. But within 18 -24 months every major bank was rolling out online banking because the technical problems had been solved.
None of these problems are going to require us to violate the fundamental laws of physics in order to solve them.
They can all be solved as long as there is an economic incentive to do so.
A major IT services company identified that the three most common hurdles to blockchain adoption are
Understanding blockhain in use cases
Communicating blockchain to key decision makers
Evaluating cost benefits of use cases
None of these have to do with technical constraints. they are to do building awareness and understanding.
The purpose of the American Blockchain Council is to help senior level executives understand the strategic business implications of blockchain.
Jack Shaw will be speaking on our latest webinar Blockchain: The Technology, the Myth, the… Legend? which goes live on 7th August at 11am EDT/ 4pm BST. Sign up here.
The Hackett Group’s research shows that addressing the impact of digital transformation on business has become the most critical imperative for enterprises in every industry.
What exactly is digital transformation?
The Hackett Group defines enterprise digital transformation as: “the creation of business value by improving customer experiences, operational efficiency and agility by fundamentally changing the way organisations innovate, operate, deliver products and services, engage with stakeholders and execute work, using digital technologies as the enabler of holistic transformation.”
While implementing technology has always been a part of business strategy, adoption of emerging technologies in procurement is critical in a rapidly changing business environment marked by intensifying competition and disruptive innovation.
As the world of big data, robots, automation, and artificial intelligence takes shape, procurement is expected to provide more profound insights into supply relationships, including conventional cost structures, supply availability, lead times, and quality. Moreover, in this new digital landscape, business technology users are demanding consumer-like e-commerce interfaces from e-procurement systems to find the products or services they need quickly. Procurement in the digital age requires operational agility to prioritise customer service delivery while anticipating or even predicting new supply opportunities despite volatile market conditions.
How can we use digital transformation to drive new value in procurement?
Historically, The Hackett Group viewed valued creation in terms of the two “E”s: Efficiency and Effectiveness. However, with the changing technology landscape and increased importance of stakeholder satisfaction, it is time to expand how we define value. And that means the addition of a third “E”: Experience. This broader view of procurement-enabled value allows procurement organisations to capture their minimization of cost (Efficiency), maximisation of business value (Effectiveness), and now, optimisation of relationship and engagement value (Experience)
Measuring value in procurement is not just changing the way we define value, but also how we measure it. Metrics should be reinvented to focus on predictive qualities and customer-centricity. For example, instead of successful risk mitigation, true value comes from risk prevention. Or in terms of efficiency, procurement should be measuring time to serve customers, instead of total cycle time (Fig. 3). Successful value measurement in procurement is no longer solely focused on cost savings. Now, the key is in understanding the mindset of stakeholders and using complex data to measure value created for businesses and customers.
Defining and measuring procurement value in the digital age
In this complex landscape, where should I start in thinking about digital value?
While we consider procurement’s digital evolution, and which steps to take next, it is important to understand more broadly which standards procurement will be measured by. Here, we evaluate how the most common strategic value drivers for digital transformation currently align with the digital technologies that can address them.
Strategic value driver #1: Improve procurement’s business value contribution
Increasing procurement’s value contribution is the top-ranked strategic value driver among procurement organisations. Although procurement organisations successfully increased the amount of spend under management through first-generation e-sourcing and e-procurement technology, reduced resources and exponential growth in data make it difficult to achieve (or even measure) savings and efficiency targets. While emerging technologies promise unprecedented levels of automation to help with this challenge, many organisations want to consolidate their procurement solutions in cloud-based suites as a first phase of digital transformation before diving into new technologies that are not yet widely deployed. Adoption and accelerated rollout of cloud-based solutions has become a critical part of the digital transformation agenda. In fact, 88 per cent of respondents to The Hackett Group’s 2018 Key Issues Study expect to adopt one or more cloud-based/SaaS applications within the next two to three years.
Strategic value driver #2: Improve policy compliance and alignment with sourcing strategy
Organisations are using digital transformation to improve compliance and alignment with sourcing strategies. For example, procurement might leverage machine learning to refine methods for contract and compliance management. Given the amount of data held in unstructured contract documents that are often stored in disparate locations, managing against contracts may hold high degrees of risk and exposure associated with non-compliance. Many organisations have already established a contract repository, but today cannot link policy and compliance with broader sourcing, spend and supplier risk management efforts.
Strategic value driver #3: Improving speed and quality of procurement business decisions
Making the best choices depends on having suitable data and information on supplier, item and product masters. However, data availability and quality remain significant challenges for many organisations that want to improve the speed and reliability of decisions. Therefore, it is necessary to develop fit-for-purpose information architectures that adhere to data standards and align with enterprise needs. Master data management (MDM) is emerging as the solution for improving governance of structured data, but as part of digital transformation efforts, MDM should also be applied to unstructured data. While 73 per cent of respondents in the Digital Transformation Performance Study already have an MDM initiative underway, advances in MDM are driving renewed interest in the technology.
With digital technologies comes endless opportunities to improve how procurement operates, but it also brings a new level of complexity. The most successful organisations will start by looking at the big picture, developing a strategy, and then using digital technologies to support those objectives.
For more information on digital transformation, check out our upcoming webinar about unlocking digital value in procurement.
When spend analysis solutions have failed to solve the problem they were designed to fix, they leave their users wanting more. But there are always ways to salvage your investment….
At a high level, companies utilising spend analysis solutions are leveraging spend data for the purpose of gaining visibility into cost reduction, performance improvement, supply risk, compliance, and other value generation opportunities. Simply put, spend analysis, and the resulting spend visibility, are considered “table stakes” for any procurement organisation. No procurement function can make a claim to world-class status or even average performance if it lacks this entry-level capability. It should be the first and last step of the strategic sourcing process that both identifies the opportunity and measures the organisation’s achievement thereof.
While these solutions have existed for decades, many companies that utilise them continue to suffer from poor procurement data, if not downright unusable data. They are undone by noncompliance, data entry errors, fragmentation of data across multiple systems and general poor data discipline.
Many of these solutions encompass complex organisational schemas such as UNSPSC, which was designed for other purposes and applies a categorisation structure that reflects the way supply markets are organised. Furthermore, general ledger (GL) codes are simply not a trustworthy substitute for a true procurement and sourcing taxonomy, and were designed for people who write the checks.
Certainly some companies must have great procurement data, because so much money has been spent on these systems specially intended to solve this challenge. But in cases where those technologies fail to deliver on the promise of good data, they are typically suffering from a host of data issues due to:
Accounting-oriented data not aligned with procurement categorisation
Maverick and unmanaged spend not captured in the solution
Poor input discipline, or procurement-related data being entered by non-procurement resources
When these solutions have failed to solve the problem they were designed to fix, they leave their users wanting more. User adoption is low and many find that additional data manipulation is required, with many organisations dedicating internal resources to spend analytics, despite paying at third party to perform this for them. These tools are often clunky and difficult to use and fail to deliver the key insights procurement professionals need to drive value and impact the bottom line.
The market is calling for an end to this systemic problem impacting most procurement functions. After all, having access to quality data will always ensure procurement a seat at the table. Organisations should be able to rely on solution providers to provide them at a minimum with:
Fingertip access to ‘good” or even “great” data through a simple, easy to use interface
If you find you are not experiencing this with your solution provider, there are still ways to salvage your investment. Identify the desired changes and develop strategies with your vendor to overcome the visibility challenges. They should be ready and willing to restructure the underlying data/taxonomy to ensure you reap the benefits of the solution you implemented. Today, procurement professionals should be focusing on the strategic aspect of their roles and elevate beyond the frustrating and tactical world of data manipulation.
Eager to lead your procurement team through a digital transformation? We’ve got some advice from someone who knows the score… Grab a coffee and let illycaffè’s Procurement director talk you through the process…
We assume that everyone is at it behind closed doors.
But how are they doing it? What’s the process? Are they doing a better job than us? Or is everyone simply floundering in the dark? Sometimes, you need the inside scoop from someone who knows the score!
Last month, at Jaggaer’s REVInternational 2018 event in Munich, Diego Pedroli, Procurement and Logistics Director – illycaffè gave us an overview of the organisation’s ongoing digital transformation and how he made it happen.
“What I’ve learnt over these two days” he began, “is that we are actually at the beginning of our [digital transformation] journey, and it’s one that will never end. But at least we’ve started.”
illycaffè: A Brief History
illycaffè remains a family owned company with 1000+ employees, 100,000+ clients and B2B business in 140 countries.
Founded in Trieste, Italy, illycaffè prides itself on a century of innovation from launching the first high pressure espresso machine in 1935 to introducing the first single portion coffee pod in 1974.
Diego’s mission, as he sees it, is to uphold procurement excellence: continually advancing the procurement processes and supplier cycle management and managing the execution of the multi-year procurement programs.
The organisation’s digital transformation began back in December 2013 and has been evolving ever since.
Digital Transformation: The Beginning
Diego’s ultimate aim with leading illycaffè through this transformation was to streamline their processes organisation-wide, thus transitioning the procurement team from saving-hunters to value-hunters. “We wanted to try to digitalise the processes to add value and bring time for employees to actually look after the business.”
“At first it was all about developing and defining guidelines and procedures, changing the mindset of our people and the people working closely to us. We wanted to give procurement the responsibility to do procurement, not shopping!”
Between 2016 and 2017 Diego worked with illycaffè’s CEO and the board to approve the introduction of an SRM platform. After going through the bidding process and selecting Jaggaer they immediately kick-started the implementation.
Digital Transformation: The End Game
The hardest part of embarking on a digital transformation is often convincing key stakeholders, namely the CEO or CFO, of its necessity and potential value-add. Having a strong case to present and key objectives is crucial. As Diego explained, “we were able to convince our CEO to implement the SRM system because of these factors:”
Governance and Compliance
Allows for traceability of processes
Gives procurement professionals complete management of all suppliers, which greatly limits risk
Makes it easier to monitor suppliers and improve performance
Implementation of a culture of shared method
Standardisation of procedures makes the business more streamlined
Increases the speed of response to internal and external stakeholders
Allows for continuous improvement, partly through sharing best practices
Gives procurement greater accessibility and makes information easier to interpret
Having data in one place makes it simpler for everyone in the business to work and guarantees ethical practices and ethical processes
4. Economic Return
There are obvious economic benefits due to the workflow automation
Allows for a reduction of TCO in different purchasing categories
Diego’s parting words of advice? When it comes to digital transformation, “it is not enough to have the sponsorship of your CEO. And it is not enough to have a good tech partner. It’s important to have each and every person in your team on board.”
As organisations embark on digital transformations, they must also be prepared to trust in ‘new-ness’, adapt to the speed of change and take note of the 3D’s…
Last week the Procurious team hopped on a plane to Munich to attend Jaggaer’s REVInternational 2018 for two days of inspiring discussion on eProcurement innovations, digitisation, and the future of procurement.
One of the stand out sessions came from futurist Stefan Hyttfors who lectures on how innovation, disruptive technologies and behavioural change affects the worlds of business and social issues.
His mission? To inspire as many people as possible to embrace digital change.
Trust in “new-ness”
“I have a lot of friends working in tech and they often approach me to ask ‘What advice should I give to my peers?’
“And my frequent reply is ‘How come you believe you have any advice to give to your peers?’
“Because if we believe in the concept of disruptive tech then we must also be humble about the fact that experience and knowledge are a problem.”
The reality of the extreme pace of change hit Hyttfors hard last summer when his 20 year old son returned home from university for summer break.
As the family sat down for dinner one evening, Stefan took the opportunity to interrogate his son about his summer plans; would he be spending the break getting some work experience?
‘No I’m not going to work” he replied. “I value my time and I don’t want to sell it to anyone”
Instead of work he had conjured a number grand plans including a road trip around Norway and various other escapades.
Stefan’s line of questioning instantly transferred from ‘What are you going to do?’ to ‘How on earth are you going to afford it?!’
His answer, ‘Don’t worry dad, I have some bitcoin’
“This is the millennial perspective today,” Hyttfors asserts. “And money is a particularly interesting discussion, particularly across generations. Where I was sightly skeptical about how far cryptocurrency should be trusted, my son was offended at the mere suggestion and far more wary of our banking systems.”
“Strange things are happening in the world; things that we don’t understand, thing that we ridicule and laugh at. We are guilty of assuming that our kids need to know what we know”
But in actual fact, it’s a trust in ‘new-ness’ that is going to become one of the most crucial factors for organisations in tomorrow’s world. Money is a great technology and a great innovation; it makes transactions smooth and solves a whole world of problems.
But, as with all technology, it only works if you believe it works…
Pay attention to the speed of change
Disruptive technology is nothing new but the speed of change is ever-increasing. In the past, organisations had the luxury of time permitting them to be skeptical about and distrusting of new innovations, which took 50 years or more to catch on.
Nowadays we hear a buzzword for the first time and within a matter months it’s everywhere; “a unicorn company appears and usurps all the other companies in that space.”
“We talk about organisations like Kodak and Blockbuster as if they were stupid. But the problem isn’t that they were stupid. They were simply the best at doing something no one needs anymore.
“When you are very good at what you do you will not be the one to disrupt your own industry.”
There are examples of this happening in every industry. And it’s never because the old companies were poor. Someone simply found a new way to solve old problems
“The speed of change puts so much pressure on leaders. But if you focus on making current processes more efficient you cannnot disrupt at the same time.”
The 3D’s of Digitalisation
As your organisation prepares for, and embarks upon, digital transformation, take note of Stefan’s predictions for the future of digitalisation. It all comes down to the 3D’s…
As technology advances it figures that we will simply need less ‘stuff’.
As Stefan points out, “If you can solve a problem digitally you don’t need material things.
“Don’t tell your kid that an iphone is expensive – think of all the junk you used to have to buy in the past to do the same job [a single iPhone can do]. It solves so many problems. Nowadays everyone in the world can take pictures for free.”
Dematerialisation means that more people can afford to do what used to be expensive and exclusive.
Deflation, as Stefan sees it, means having “millions of micro transactions rather than thousands of major transactions.”
Take cars as an example. They are absolutely not efficient; often parked for 23 hours of the day and contributing to congestion and pollution in our cities.
Along came Uber, which offers ‘mobility as a service’ and suddenly transportation is transformed globally. Selling £50,000 cars is not an ideal model – mobility as a service is the future.
“We are a big world on a small planet and because of this sustainability will be the main leading strategy of the future.
“We need to make much more with much less.”
We all like to believe that we are part of the last uninformed generation; that we have all of the answers and all of the information. But, in Stefan’s opinion, that’s simply not the case.
We will continue to face big problems and these problems can only be solved with global collaboration and global crowd-sourcing.
“We see a big decline in trust because people don’t believe in old institutions anymore” whether it’s governments, law enforcement systems or our banks.
“Why should my son trust in a banking app when he can trust in a bitcoin app?”
“He believes in decentralisation, a world in which where there is no boss.” Because, at the end of the day, it’s your boss that makes a system inefficient and corrupt.
Establishing a pool of preferred or pre-qualified suppliers is a great idea as long as you are actively managing your supplier pool. Here’s how it’s done…
Last year Government Technology published an article describing how the state of Colorado has turned to a process they call “mini-RFP’s” to streamline and expedite procurement in their IT category.
The author Jessica Mulholland reports the state performed a prequalification of vendors and awarded multiple contracts to address a “specific set of issues and implementations”.
This select group of vendors operating under pre-negotiated legal terms are solicited when new work comes up. The lowest bidder is awarded leveraging their prenegotiated terms and conditions.
This is a concept that I have seen quite a few times before. Many private organisations operate in this manner. Essentially awarding MSA’s that include no rates or commercial terms, just legal terms.
It should be noted that the reason this is more expeditious is because it streamlines the contracting portion of the procurement process. This isn’t a shortcut to procurement, you still need a scope of work, you still need a bid period, and you still need analysis. The time saved is the time with legal.
Prequalification of suppliers isn’t anything new, but it is a unique approach in public procurement. I’m no expert on the legality of this as a government practice, but I will address this from a private business perspective.
1.Agreements without Commercial Rates
Perhaps this is a nuance of the public sector and possibly the reason why the state of Colorado can have a closed bid, but in private business there is simply no good reason to have an MSA without pre-negotiated rates. Nonetheless, I have seen this quite a few times. If you are going to go so far as to negotiate legal terms, locking in rates and commercial terms should be a no-brainer.
2. Obstacles to inclusion
If you plan to add a pre-qualification process to your organisation, consider keeping the process simple and straight-forward. It should not take more than a couple of weeks to complete the process. Anything more than that and you may find that your process becomes an obstacle for inclusion.
3. Scale the Pool
Be sure to have a large enough pool to allow for multiple projects to occur at the same time without depleting your bench. There is nothing worse than having an emergency project when all of your pre-qualified vendors are at capacity and you have no one left to award.
4. Diversify your Pool
Your pool of pre-qualified suppliers should be as diverse as the projects you contract. When I talk of diversity here, I’m not speaking of minority owned businesses. That is important too, but more than that you need to make sure your pool of vendors has large firms for the big projects as well as small firms for the small projects. Don’t just include all the big guys or you may find you have no one at all.
5. Score Performance
If you are going to establish a pool of pre-qualified suppliers it’s important to score each performance. Develop Key Performance Indicators (KPI) to evaluate how the suppliers performed and make sure to collect a report for each engagement. This will give you actionable data to evaluate the performance of each supplier.
6. Aggregate and Report KPI’s
Grading the suppliers on each project is essential, but when you collect and aggregate that data across a year, now you have powerful data. Anyone can have a bad project, but with a consolidated view of a vendors performance over a year, you can address specific problems, identify weaknesses, and generally grade each supplier objectively. With this data, you can elevate suppliers that perform well and downgrade those who perform poorly.
7. Evaluate your Pool at Least Once per Year
With your performance data in hand, you should meet with your suppliers annually and share the results of your scoring. This may be a difficult conversation, but if you are basing your comments on facts, it will be easier. In addition to reviewing existing suppliers, this is the time to look outside of your pool to identify new or up-and-coming suppliers to add. You should also evaluate the state of your organisation to right-size your pool.
8. Update your Agreements
Above all else, don’t let agreement expire. Track the end of all agreements and create reminders on your calendar to ensure you are proactively renewing, terminating, or renegotiating agreements before they expire.
Establishing a pool of preferred or pre-qualified suppliers is a great idea as long as you are actively managing your supplier pool. Keep on top of your contracts and you will soon see the fruits of your labor.
Do you have prenegotiated or prequalified Suppliers in your organisation? If so, do you follow these recommendations? Are there any best practices you recommend? Tell me your stories.
What is blockchain? How can it impact your organisation and help establish trust? Why should procurement be embracing it? We answer all of your burning blockchain questions…
Blockchain belongs to the (long?) list of buzzwords that are part of the growing hype surrounding new technology. Many people equate blockchain with Bitcoin, the first relatively mainstream cryptocurrency. For some, this association makes blockchain seem like something for hackers and illegal commerce, and far removed from typical B2B or B2C applications.
However, what many may not realise is that blockchain can have a significant impact on business because it can be a powerful tool in establishing trust. Trust is at the heart of business and drives:
How we cooperate with other people (blockchain makes it easier to build trust in new business partners),
How we automate activities (blockchain can ensure that a “machine/process” performs as expected)
How we make decisions (blockchain creates more confidence in data),
What Is Blockchain?
Blockchain can be intimidating. It is a complex technology and understanding and explaining it is far from easy (I still haven’t entirely figured it out). However, for procurement and supply chain professionals, understanding what blockchain enables and the associated implications is much more important than knowing how it works. What makes blockchain so valuable is linked to how records are added to the database:
A network of computers stores and verifies any new record, making the blockchain more robust than a single instance (like in most traditional databases),
Every transaction (“block”) is linked to the previous one (“chain”), creating complete traceability and preventing any data alteration,
It is decentralised (peer-to-peer), which means there is no authority deciding the rules or with a personal interest in manipulating data in one way or another.
Data in the blockchain is therefore immutable and impartial. It is shared among parties (publicly or privately) and cannot be changed by anyone.
“Protected from deletion, tampering, and revision. In this world every agreement, every process, every task, and every payment would have a digital record and signature that could be identified, validated, stored, and shared. Intermediaries like lawyers, brokers, and bankers might no longer be necessary. Individuals, organisations, machines, and algorithms would freely transact and interact with one another with little friction. This is the immense potential of blockchain.” The Truth About Blockchain, Harvard Business Review
Therefore, blockchain is a form of digital trust. More trust makes doing business easier, streamlines many processes, and creates transparency. Furthermore, and more importantly, it means that blockchain can serve as the backbone for new types of cooperation between machines (M2M) and between humans (H2H) that were, until now, limited by the cost of building trust or by a lack of trust altogether.
Businesses and business relationships stand to benefit significantly from what blockchain technology has to offer, and here are the main reasons for why procurement and supply chain professionals need to start taking notice:
1. Streamlining Operations
Beyond making transactions more secure and efficient by removing intermediaries, blockchain technology can also increase transparency in the supply chain. At each step of the value chain, from the extraction of raw materials to the customer, blockchain technology can store and record every transaction and exchange of ownership. This would provide companies with a complete, trustworthy and traceable record that would facilitate and simplify the process of due diligence, which companies need to complete in order to ensure compliance with rules and regulations restricting illegal or unethical corporate activities (child labor, modern slavery, conflict minerals, product traceability, fraud, counterfeit, etc.). Not only would this streamline internal processes (increasing efficiency and reducing costs), it would also establish more trust between companies, suppliers, regulatory bodies and the consumer. This is why many companies with a complex supply chain in industries with strict regulations and requirements related to product traceability (pharmaceutical, food & beverage, etc.) are already testing blockchain technology for that purpose.
2. Better Cooperation Between People
Blockchain can also enhance and improve Human-to-Human (H2H) cooperation because collaboration between people also relies on trust. This is particularly true when partners do not know each other, which is especially common in new business models (platform/ gig economy).
Identity and reputation are the two pillars of building trust. Because of its cryptographic nature, blockchain embeds mechanisms that ensure that users are who they say they are. That covers a user’s identity and extends to other credentials:
“Using the blockchain and strong cryptography, it is now possible to create a certification infrastructure that puts us in control of the full record of our achievements and accomplishments. It will allow us to share a digital degree with an employer while giving the employer complete trust that the degree was in fact issued to the person presenting it.” Certificates, Reputation, and the Blockchain, MIT Media Lab
Reputation is nothing more than the result of past transactions. As noted earlier, the blockchain logs all transactions securely and transparently. So, the blockchain makes it easy to measure and know someone’s reputation. Blockchain therefore makes it easier to do business with new partners by reducing the costs and risk which are often associated with new business relationships. Traditionally, a fear of risk and unexpected costs has been behind the rationale to aggregate spend towards a limited number of suppliers and/or to favor (consciously or unconsciously) incumbents. The use of blockchain can allow procurement organizations to revisit their category strategies!
3. Better Cooperation Between Machines
With blockchain organizations can
Trust the data stored in it,
Create new data collection points by digitalising more processes,
This creates a distributed system (data + process) that they can trust (completeness, accuracy, authenticity, resilience). So, it is possible to automate further without being exposed to typical risks due to lack of data, poor/corrupted data, unreliable execution, interferences by third parties/intermediaries,…
Blockchain is the ideal infrastructure for machine-based activities that the Internet of Things (IoT) has been lacking. It opens the door to new “apps” that will run precisely as programmed. An immediate area of application that is relevant for Procurement is Supply Chain Management.
For example, companies can track the movements of a container at all times. Whenever it reaches specific points, the blockchain will record the activity and smart contracts will execute automated actions (e.g. registration for customs, payments,…). The same concept also extends to upstream/downstream activities like inventory tracking/management or ordering/requisitioning/replenishing.
4. Better Insights with the Convergence of IoT, AI, and Blockchain
“Blockchain and AI are the two extreme sides of the technology spectrum: one fostering centralised intelligence on close data platforms, the other promoting decentralized applications in an open-data environment. However, if we find an intelligent way to make them working together, the total positive externalities could be amplified in a blink.” The convergence of AI and Blockchain: what’s the deal?, Francesco Corea
When considering the Internet of Things (IoT) + Blockchain and adding Artificial Intelligence (AI) to the landscape, a bigger picture emerges that covers data, insights, and actionable intelligence: the core of business activities! When combined, these technologies represent an opportunity to address the “big data” challenge summed up in the “6 Vs”: Value, Volume, Variety, Velocity, Veracity, and Variability.
Some of the latest technologies represent critical components for building better insights and actionable intelligence:
IoT = Provides the ability to collect more information (Volume) and in a real-time manner (Velocity & Variability). This is especially true when monitoring physical supply chains (e.g., sensors and geolocation for containers) and changing demand (e.g., sensors in machines for predictive maintenance). It is the foundation that makes gathering data possible and keeps the Big Data engine running and improving (e.g., machine learning).
Big Data = Makes it possible to consolidate, aggregate, and slice more data coming from multiple sources (Variety), both internal (e.g., ERPs, or other information systems) and external (e.g., IoT sensors, third party data providers…).
Blockchain = Increases trust and reliability (Veracity) in the data collected and stored which is a critical factor in trusting the insights and decisions derived from that data. It also creates a “data backbone” that can be utilized to create interoperability (internally and externally) opening the door to further automation and “interconnections” between physical and financial supply chains.
AI = Exhibits tremendous computational capacity to analyze massive sets of data to build new knowledge (Value) and continuously learn and improve from new data.
Too Good to Be True?
Blockchain represents an important for the business world. Procurement organisations cannot afford to ignore it because it has the potential to open doors to further improvements from streamlining paper-based processes to enhancing cooperation and developing new strategies and supporting new operating/business models.
Despite the potential benefits, however, organisations should still make an informed decision about testing blockchain bfore rushing in. Blockchain is still a relatively new technology, and in addition to understanding the potential it holds, procurement organizations also need to understand the limitations and risks, which we will cover in our next article. Stay tuned!
Learn how to persuade your colleagues and suppliers with 6 tips from 20th-century propaganda masters. Guest post from Invaluable.com.
Since their introduction in 1984, Dr. Robert Cialdini’s six principles of persuasion have become the framework for understanding the science of influence. Each principle is distinct and outlines different methods for effective persuasion.
Mastering the art of persuasion has become a major “soft skill” in the modern corporate world. The ability to influence others is key to developing strong relationships with suppliers, employees and end-users. Persuasion can help to convince others that we are credible, trustworthy leaders worth following and allows us to manipulate the psychological processes of others to our benefit to achieve better results.
In the procurement profession specifically, strong persuasion skills can help to convince your organisation to be more strategic in managing money and can also be a key factor in your fight to minimise maverick spend.
Learning from the propaganda masters
Before the rise of the social media influencer, advertising and propaganda posters were some of the most powerful persuasion tools available. Propaganda posters have been used for decades to inspire, educate, and galvanize the public. Whether you are selling a product, a war, or an idea, advertising can be a powerful tool to inform and persuade your audience. Propaganda posters from the 19th and 20th centuries addressed topics ranging from patriotism to healthcare to feminism.
This article, originally from Invaluable, takes Dr. Cialdini’s six principles of persuasion and applies them to famous propaganda posters used throughout history to wield influence and power over their audiences. With their striking imagery and bold messages, these posters are superb examples of each principle and perfectly illustrate the mechanics behind persuasion.
The first principle, reciprocity, is based on the idea that people often feel obliged to match or repay the behaviors and gifts they receive from others. When using the principle of reciprocity for persuasion, look for opportunities to be the first to give, and make your token unexpected and personal whenever possible. This tactic facilitates a relationship in which the recipient feels appreciative of your contributions and is likely to be more open to the message you share or the favor you ask for.
The propaganda poster “Remember Your First Thrill of American Liberty” is an example of reciprocity in action. This poster was created by the Food and Drug Administration in 1917 to encourage immigrants to the United States to invest in the war effort by purchasing Liberty Bonds, which were a crucial source of funding for the war effort.
By highlighting the benefits and opportunities that the United States had given to immigrants, the poster called upon its audience to invest in the country’s war effort in return. The poster also strategically included the Statue of Liberty as a metaphor for the opportunities available in the United States and to remind immigrants of the emotional experience of arriving in the U.S. for the first time. The artist’s powerful illustrations and the poster’s authoritative call-to-action prompted Americans to recall their debt to their country, which ultimately proved persuasive in raising money for the war effort. This poster remains a powerful example of the way reciprocity persuades us to act.
The second principle of persuasion, scarcity, refers to the idea that when people have less of something, they want it more. Scarcity speaks to our human nature to place greater value on things that are less readily available. To use this principle, incite people to act, agree, or buy your product by demonstrating how they can benefit from it, what’s unique about your offering, and what they could potentially lose out on.
In the poster “Doctors are Scarce, Learn First Aid and Home Nursing,” the artist used the scarcity principle to promote basic at-home care. By making it clear that good medical care would be hard to come by, the poster instilled fear and communicated the importance of individuals learning to manage their own minor health concerns. The poster was created to communicate people’s need to learn to handle their own injuries and illnesses since many doctors were oversees fighting in the war effort.
This poster is historically significant because it is one of the many examples of ways Americans on the home front were forced to ration supplies and services to aid in the wartime effort. Its message drove Americans to act and remains a powerful reminder of the scarcity principle and its ability to influence.
The third principle of persuasion is authority. This principle says audiences are much more likely to listen to messages from sources they respect or view as experts. Whether you are explaining your point of view or selling a product or service, showcasing your credentials will help your chances of success. No matter what your message is, it will be better received if it is packaged in a way that makes it seem authoritative.
When using authority, the source doesn’t always need to be yourself. When someone else points to your credentials the message can be just as powerful or even more effective. In the propaganda poster “Christ Guerilla,” Jesus was portrayed as a guerilla fighter. The poster was created by the Organisation of Solidarity with the People of Asia, Africa, and Latin America based on a quote from the Colombian priest Camilo Torres who said, “If Jesus were alive today, he would be a guerrillero.”
The poster called on the authority behind the Christian religion to convince audiences that being a guerilla fighter was a noble cause. This piece of propaganda was created in Cuba during the 1970s as part of a political movement to fight imperialism and defend human rights. Its message was clear: guerilla fighting was noble, necessary, and moral. Because the poster called upon the authority of Jesus to deliver its message, its theme was especially resonant for its audience.
The consistency principle refers to the idea that people like to remain resolute with the things they have said or done in the past. If someone already agrees with some of your message, or if you are able to get your audience to buy into your point of view in a small way, you’re much more likely to convince them to take further action.
The “We Can Do It!” poster used the consistency principle to encourage women who were already working in factories to work harder. While today this poster is considered one of the most iconic U.S. propaganda posters of all time, it was not widely circulated during World War II when it first appeared. The poster was made in 1943 by J. Howard Miller for Westinghouse Electric, and was part of a broader effort to encourage both male and female workers to work harder due to the high demand for manufacturing generated by the war effort.
The poster resonated with women in its original context in the 1940s and continues to serve as an icon of feminism today. When it was first created, the poster used the consistency principle to remind women of the importance of committing to their factory jobs while encouraging them to work harder and stay motivated. The likeness of Rosie the Riveter still resonates, and the poster has become a rallying cry for recognition of equality.
It’s commonly accepted that people are more likely to agree with the opinions of someone they like. The fifth principle of persuasion, liking, is based on this idea. This principle notes that people agree with those who are similar to them, those who pay them compliments, and those who cooperate with them. If you know your audience already likes you, you have a leg up for persuasion, but incorporating these three factors into your communication efforts can go a long way towards making your audience receptive to your message. Before making your case, consider spending a few moments with your audience to build rapport and likeability.
The poster “Women of Britain Say ‘Go’” incorporated the liking tactic to encourage the men of Britain to buy into the government’s request to join the war effort. During World War I, posters were one of the most important mediums for conveying a message. Women were used in these posters to spread ideas of morality, innocence, and justice in the face of danger.
While this poster was intended to remind the women of Britain to encourage their men to enlist, it also clearly communicated to British men that they’d be spurned by their loved ones if they refused the call to serve. Using the opinions of their families as advocates proved to be an effective persuasion tactic in getting men to enlist.
The sixth principle, consensus, is the idea that people are likely to agree with something if it is in line with what the broader group believes. To get others to believe in your message or your product, point to what those similar to your audience believe and do. When people are unsure of how to act, they look to the behaviors of others they identify with to determine their own beliefs. By highlighting what your audience’s larger social group thinks, you are more likely to get their buy-in.
The title of the poster roughly translates to “Let’s Fulfill the Plan of Great Works,” and shows clear parallels to the consensus principle. The tiny hands fill up a larger hand to communicate to the viewer that all of Russia is working together to reach a common goal. The poster was created in 1930 by Gustav Klutsis, a popular poster artist during this time period who was a popular designer for the Soviet government. This piece was created in the Constructivist style, which originated in Russia in 1919.
Klutsis was associated with the Communist party and created propaganda art for the organization, especially when the party was under the control of Stalin. The hand in this poster is Klutsis’ own hand, but it was used in the poster to represent the workers who were crucial to achieving the Communist party’s goals. The artist incorporated the faces of the workers directly into the poster’s design so they appeared not as individuals, but as a collective mass united around the same goal.