How Did We Screw Up Procurement?
It is the Christmas holiday, and most businesses are shutting down for festivities. As the founder of a small company, I am busy trying to bring in payment for a number of contracts for the end of the year. The more that I learn about the current state of procurement, the more I question how we as supply chain professionals could have screwed it up so badly. Without this first hand experience, I would not have believed just how difficult companies make the procurement process. Today, as a supply chain professional, I just scratch my head. Here are some examples from my inbox today:
- System Integrator. A system integrator contracted for advisory services. They started the process with their procurement department in October. After three months of their procurement team working to develop a PO, we received a PO seven days ago (seven weeks from signature). The company promised immediate funding. I expect to see the funds the middle of January. This is the same company that will ask for me to recommend their services for business process outsourcing. They will be shocked when I share that I consistently see that the use of Business Process Outsourcing for procurement is a mistake. The process from contract initiation to payment will be three and one-half months.
- Technology Provider. When I asked a technology provider for a status update on a contract that was initiated on December 1, the marketing administrator responded that it was only half-way through the process. It still needed four approvals and five document signatures. We received a PO today, and despite the fact that it is listed as payment on signature, the company shared that there will be no one in the office until January 4th. The process from initiation to payment will be five weeks.
- Manufacturer. One manufacturer has contracted for advisory services would like to accelerate the delivery of their services, but it takes two weeks to set-up a new vendor in their system. We have filled out the same paperwork three times. I expect that the time from contract initiation to payment to be two months.
- Services Company. This company wants to be sure that I have policies to support safety first. They asked for proof for compliance to safety shoe and
hard hat policies. I have five employees. They are virtual. Each works from home. I laughed. The request was ridiculous. But, when it comes to procurement, expect the illogical request. So, I mocked up some pictures of employees sitting at their desks with hard hats and sent it in. There was no ability to have a rational discussion that this request for office workers was ludicrous.
So, what I have learned?
- Ask: How Long to Receive a PO? When I first started the business, I asked about payment terms and negotiated net days of payment. Now I ask, "How long does it take your company to initiate a PO?" I then price accordingly. The answer shocks me. It varies from four months to a day. The time frame is unpredictable. It is very easy to work with some large companies and a nightmare to work with others.
- Avoid BPO Outsourcing Teams. The most difficult companies to work with are the Indian Business Process Outsourcing (BPO) firms. Whether it is for advisory services to help their own company and work to support for a third-party, the processes are long, laborious and circular. Try to avoid them at all costs.
- Don't Fight Laborious Processes. Staff to Support the Process. There is a need for a small business to have someone on staff to fill out all of the forms to set-up a new vendor. The worst portals and processes are usually the technology vendors. It takes me a full-time person to support this process. Avoid portals entries if you can.
- Expect the Ridiculous. Just when I think that I have seen it all, I experience things that I never expected. My advice? Try to avoid procurement. While credit card payments will take a percentage of revenue, the funds are more predictable and require less overhead. A credit card can be a small business owner's best friend.
I am a supply professional. As an analyst, I studied and gave advice for the automation of procurement. I had no idea it was this bad until I started my business. My advice this holiday is stop talking about collaborative relationships and try to do business with yourself. I predict that you will be surprised.
How about you? I would love to hear your stories.
About Lora:
Lora Cecere is the Founder of Supply Chain Insights. She is trying to redefine the industry analyst model to make it friendlier and more useful for supply chain leaders. Lora has written the books Supply Chain Metrics That Matter and Bricks Matter, and is currently working on her third book, Leadership Matters. She also actively blogs on her Supply Chain Insights website, at the Supply Chain Shaman blog, and forForbes. When not writing or running her company, Lora is training for a triathlon, taking classes for her DBA degree in research, knitting and quilting for her new granddaughter, and doing tendu (s) and Dégagé (s) to dome her feet for pointe work at the ballet barre. Lora thinks that we are never too old to learn or to push for excellence.trying to redefine the industry analyst model to make it friendlier and more useful for supply chain leaders.
Director at Mercury Supply Chain Solutions
9 年Do people find or have the belief that many companies loose focus on procurement and spend more time chasing the customer and the existing market from a marketers eye, rather than listening to the sellers of what's to come. I do not see have as many fairs in the uk with suppliers showing of the show stopping ideas and concepts. Just a view??
Vice President Supply Chain
9 年Great story and sad! It tells you that process, ownership, integrity and pride of personal work is opportunity that awaits! Yes, it has gotten worse over the years, and this is why suppliers for the federal, state, and city governments don't understand why their rates are higher than the private sector.
Principal Energy Excellence-OQ AE
9 年Genuine observations from Mr Chris Jones! The problem could be due to near total absence of second line help or competent professionals manning it. The top management or CEO of the BPO may not even be aware of mishandling/mess up of a case by their first line executives.. The reason of not maintaining adequate second line support for final resolution or guiding their first line could all be driven by avoidable cost exposure to profits. To resolve the problem at lowest level (i.e. by themselves) and keep top management happy, often the first line wastes more time and ends up disappointing the customer. The first line executives should be encouraged to escalate difficult problems to their seniors, instead of being labelled as inadequate/inefficient on doing so (with the added risk of loosing their jobs). Top Management's perception about those who escalate more problems to their seniors/second line support must change. For a lasting solution, the companies should mend their perception of bottom line profit, customer satisfaction, working culture and reward system,
Freelance ecommerce strategy and solutions consultant at Freelance ecommerce strategy and solutions consultant at Redsock.biz
9 年Great article. Nice to start the New Year with something that brought a wry smile to my face! It usually seems to boil down to whether the process has been "de-personalised" - do the different people in the chain know each other, or does it just flow via some anonymous "efficient" system where each person involved doesn't get to see the bigger picture?
SCM Professional - 30 years experience's driving supply chain innovation. Includes o9 Solutions, configuration management, program management, steering committee liaison, strategic adviser.
9 年In IBM’s turnaround in the late 90s, they had their vendors anonymously surveyed as to what customers their found it most frustrating with which to do business. Repeatedly IBM was cited as the worst customer for the same reasons you detail, Lora. IBM then launched a major initiative to redesign their procurement processes, and then from that experience created an expanded consulting offering to do the same for their consulting clients. As an IBMer at the time, I participated in the redesign and the development of the offering. I discovered several roadblocks to getting businesses to rethink their procurement process. As important as procurement is to the entire business continuum, companies simply define themselves as companies that make and sell things, not as companies that buy things, so procurement does not immediately get the attention that it deserves. Also, even when addressing procurement, many executives think themselves as great negotiators that beat down the price, and that is it. I cannot tell you the number of clients to the procurement consulting service that wanted only our, IBM’s, price list so as to beat their vendors to an even lower negotiated price. The lower price drops immediately to the bottom line, but the process costs are a little more insidious and harder to calculate. As to outsourcing, I am not so sure, Lora. If you outsource a process that is not redesigned and not streamlined, you only add another layer to a bad process, and then you get the result I think to which you refer.