February 2020

For many organizations, Indirect spend is a challenge to understand, as much as manage. The spend is often substantial and easier left alone. On top of that, you may not have the resources to dive in and get the many categories under control. If you are beginning to dig into into your Indirect categories, or you have been with dismal results, here a 5 issues that may be beneficial to correct first.

1. Your Procurement Managers do not KNOW the categories they manage.

It is important to at least have a working knowledge of the categories you are working within. If you do not know the ins and outs, that is fine, but being able to speak the language is necessary. Not understanding a category opens you up to tougher negotiations, worse contract terms, unnecessary spending, and a negative view of Procurement from stakeholders. It is important for Procurement to be involved in any negotiation early, however, coworkers and suppliers will not demand your involvement if you slow them down.

If you are thrown into a category, be upfront and honest with stakeholders who can show you the ropes internally. This way you are taught with the bias of your company in mind. If the supplier is your source of information, you may be taught dishonestly in some, but rare, cases. For example, if once monthly HVAC maintenance is acceptable, a supplier could instruct you that twice monthly service is necessary to get double the business. With stronger category knowledge, you could avoid doubling the required maintenance expense. The same situation could apply to contract negotiations. If a supplier is aware of your lack of knowledge, you could end up with terms that do not benefit your company’s goals. Most importantly, the respect from suppliers and stakeholders to require you be present in negotiations is paramount. As the Procurement representative, you may not be a category expert, but you more than likely are a negotiating and contracting process expert. This is where you will shine, so garnering the respect to be present is extremely important.

Source One Corcentric Gears and Belts MRO Indirect Spend2. Your data tells the wrong story.

How much trust can you put in your internal reporting? How well do you know what this data represents?

Procurement Managers often believe the exact story that their reports are telling them. They choose a category, run a report, and take the total of the spend column as the exact amount of spend in that category for a time frame. However, this is often not the case. Understanding the data allows you to understand the category much better. If your company has a large amount of spend without corresponding purchase orders, be sure to understand whether you are seeing this data or not. Know whether you are looking at spend that has been received against a purchase order or matched and paid against a purchase order. If you do not know exactly what the data you are seeing is telling you, your ability to find cost saving opportunities is greatly diminished. You also risk working within a category that has little addressable spend.

3. You have too many old contracts with too many suppliers.

Contracts are one of the most relevant pieces of information for the Procurement department’s success. Many companies rely on contracts to lock in pricing, payment terms, and other legally binding agreements between the company and supplier. However, contract management is often forgot about as business goes on as usual. The clear line of communication between the supplier and company is lost as the contract renews over and over for years. The benefits the company was getting when the contract was signed are now outdated. Procurement could potentially negotiate a much stronger contract, but no longer knows the contract exists.

This is common among conglomerates and large companies with decentralized purchasing, especially when standards for contract management are not a documented company procedure. Once Procurement begins to analyze the category, it is extremely difficult to get a hold of all the contracts with all the suppliers. The easiest way to avoid this is to consolidate contracts and suppliers. This can be a great opportunity for cost savings, as well! The consolidated spend will make your contract negotiation much stronger as you drive spend to less suppliers. Finally, be careful about evergreen clauses that automatically renew contracts. Once communication breaks down between Procurement and the suppliers, the contracts become a nuisance that will not go away. If necessary, use short term evergreen clauses that renew for a year or two at the most.

4. You are concentrating on the wrong categories that are too difficult, or have too little addressable spend.

For multiple reasons, Procurement managers can have their focus on the completely wrong categories to drive cost savings. If you solely consider spend, it can mean focusing on a category with a small amount of addressable spend. Be sure the large numbers are in fact addressable. For example, freight is a high spend category for certain companies. However, the cost is often high no matter what carrier you use. A better situation could potentially be negotiated, but there is a ceiling to the savings.

Procurement should also be considering when the last time the category was taken to market. If your resources are limited, addressing a category that has not been analyzed for years may be the better decision. Finally, reflecting on whether you are addressing a category because it is one you know well may be another opportunity for improvement. I have seen this multiple times. A Procurement manager is comfortable with stakeholders in one category of spend and continues to look for savings to work with the same department. This often leads to unproductive analysis from the manager that is continued down the chain to the analyst level.

5. You are overdoing due-diligence and not “getting in and getting out”.

Perhaps the most unproductive way to handle Procurement is to overdo due diligence without making any decisions. What I mean by this is looking into spend, analyzing, meeting with suppliers, running RFP’s (Request For Proposal) or RFQ’s (Request For Quote), negotiating contracts, and then doing it over and over without making any changes. At some point, a change will need to be made to actually render savings. If you are not making any decisions, you are not affecting the organization in a positive way. Be careful not to sit in the supplier sourcing function of Procurement for too long. This can cause Procurement managers to be viewed as wasting stakeholders’ and suppliers’ time. Not everything needs multiple meetings, and everyone on the organizations’ and suppliers’ end does not have to be present to have a quick conversation.

Finally, remember what the function of Procurement is. We are here for sourcing, contract management and negotiation, and supplier management. Good Procurement is simply getting as much of your organization’s spend under control. We are not Finance, we are not Accounts Payable, and we are not IT. This is what I mean by get in and get out. Too many times, Procurement gets stuck with processes that handcuff the department from doing what it is there to do. To be effective, take on as few non-Procurement functions as possible. Since we are so hands-on in the beginning stages of a supplier relationship, we often are the ones used as a fall back for tasks other departments do not want to handle. So, when possible, get in and get out, and find the next category to get under control!

Third party, fourth party, fifth party, and so on! Unfortunately I recently turned thirty, and I am not referring to my typical weekend’s social agenda. Rather I am referring to the numerous levels of the supply chain risk your company should be managing, or at the very least considering and monitoring.

In today’s world it has become increasingly complicated to stay up to date with all the different types of risk that are emerging let alone manage them. I have no doubt we are all generally familiar with the concept of third party risk management (TPRM), and have a firm understanding of what an effective program looks like. Despite these assumptions, I am going to drop a few quick definitions in order to play it safe.

a. Third Party Vendor: any entity that a company does business with directly. This may include suppliers, vendors, contract manufacturers, business partners and affiliates, brokers, distributors, resellers, and agents.
b. Fourth Party Vendor: a company to whom your company’s third party outsources to, in other words, your “vendor’s vendor”.
c. Fourth Party Vendor Risk: risk to your company introduced by your suppliers' suppliers.

Today I am going to discuss fourth party risk management (FPRM) and why it bears consideration of being equally weighted to TPRM within procurement departments. I know there are many out there likely screaming “Pump the brakes! It is hard enough to manage third party risk, why should I spend my time trying to track 4th party risk. If something goes wrong with a 4th party, my 3rd party will be responsible.” Sikeee! Your third parties may handle rectifying issues that arise with their suppliers, but B2B customers and regulators are more likely to hold you accountable. Especially if customer information is involved. This is why it is mandatory that procurement departments have risk policies in place that extend beyond their third parties.

Before diving deeper into these protective measures and discussing how to build an effective fourth party risk management program, I want to briefly discuss the types of fourth party risks we should be concerned with avoiding. Put simply fourth party risk types are identical to third party risk types with the exception of the source, they are driven by your suppliers’ suppliers. Fourth party risks include: strategic, reputation, operational, transaction, compliance, concentration, and information security. For more definition on what constitutes each of these risk types please refer to this blog.

Below I described a scenario that presents fourth party risk.

Company A partners with Company B who is a large PEO. Company B directly handles the majority of Company A’s HR functions and payroll services, but once a year when tax season comes they outsource payroll tax filing to Company C. Company C is a small software company that developed a propriety solution that files form 1095-C on behalf of its clients with the IRS. Because Company A has no direct contract in place with Company C, this situation presents a great deal of fourth party risk. 

What type of fourth party risk is present in this scenario?
Now, if you were able to correctly diagnose the risk type present in this scenario as information security then you are catching on fast!

In closing, I am going to list a few actions you can take to protect your organization against fourth party risk:

1. Perform as much due diligence in evaluating your fourth parties as you do your third parties. Work with your third parties to request information. Since you don’t have a contract in place with your fourth parties, you may need their assistance to get all of the information you need.
2. Verify your third party vendor’s own TPRM policies are on par with your own. You want to be certain you are comfortable with the degree to which they assess and manage risk.
3. Whenever possible, require that your third parties contractually commit to notifying you prior to contracting with a fourth party vendor. 

Identifying and managing fourth party risk is no easy task, and regulators recognize the challenges we all face. Helping to demonstrate that you have adequate procedures in place and have made all reasonable efforts through appropriate documentation and a well-organized approach can really help your case upon an examination. When a fourth party is involved, the risk should be analyzed as extensively as it would be when reviewing a third party. If you do your due diligence in ensuring this is standard practice, your organization will benefit in the long run.

It is often eye opening when companies begin to analyze spend in a new Indirect category.

Increased visibility can uncover unexpected issues and wasteful practices that cost millions in unnecessary expenses. The task of correcting the poor habits can be too daunting for leadership to invest time in, and the mess gets swept back under the rug. However, with a little analysis, many of the problems begin to stick out like a sore thumb. Once the big-ticket issues are known, concentration on those issues alone can mean a rewarding return on investment for time put in.

Source One Procurement Services Handshake With Suppliers

Perhaps one of the largest of these obvious and easily addressable issues are supplier relationships that have become too subjective in nature. Of course, the supplier should be viewed as a partner working towards a mutual benefit. As a Procurement manager, a strong relationship is desirable for ease of communication and simple contract negotiations, as well. 

However, the relationship can digress into a friendship instead of a professional relationship.

The use of digress is intentional, and not meant to sound wholly negative. A professional friendship is acceptable but should still require the supplier to remain competitive in the current marketplace. This relationship can sidestep negotiations and move right to awarding the supplier business when quantitative and qualitative benefits are few and far between. This happens all the way up and down the chain of command, especially in Indirect categories and large organizations. A buyer in one region may “like a guy” with a company, so the supplier gets all the business. Meanwhile, the possibility for a national contract, or online ordering system, that could save a large amount of time and money is present with another supplier.

Luckily, the fix is simple in theory and still relatively simple in practice. 

The goal should be to judge all suppliers objectively, first. Your organizations requirements need to be defined and agreed upon prior to awarding business to any supplier. This could show your current suppliers are the best choice for your organization. Although, I have seen the opposite in most situations concerning a new, never-before addressed Indirect category. Based on the new objective requirements, reasons should be found of why NOT to go to market. If the friendly incumbent supplier does not stack up against your new pre-defined objective standards, go to market and take advantage of the new eager suppliers waiting to do business.

To decide what objective standards you should expect from your suppliers, asses the current market. Ask what alternative products, services, or processes are available in comparison. Is it a good time to go to market with the current market conditions? If the market is weak or the natural cyclical nature of some categories is not on your side, speaking to your incumbent suppliers is always an option. Discuss your new objective standards for your business. Often, that is itself enough to get immediate benefits and savings.

Many have opinions on the future of Procurement, and the start of a new decade has inspired many to take a look back to shape what their future will look like. This has contributed to many takeaways, but among them all, I think the most looming is a sense of uncertainty. We are undoubtedly heading towards a crossroads in Procurement, with only a small number of Procurement organizations prepared to handle the complexities of the future. These well-equipped organizations have embraced the factors contributing to this crossroads for Procurement and found ways to overcome these challenges proactively. In an effort to help address these challenges, here are 5 ways you can boost your legacy Procurement function and increase your influence within your organization:

1. Understand Your Maturity

For some, you may already know the level of maturity for your organization, but for others this is the first step in gaining efficiencies, building your business case, or revamping your organization or team. The important thing here is to remain as objective as possible, whether that means an independent auditor or consultant evaluation or by taking a hard, honest look at your processes. An independent, objective assessment is your best bet, but you can familiarize yourself with thought leadership and industry best practices and compare your standards and practices, but this requires objectivity that might be difficult. If you understand how your team fares from what most considered a leading best practice, you can begin to work on process improvements and efficiencies needed to take that next (or first) step.

2. Know Your Metrics

This may sound like a no-brainer, but understanding your metrics and how you measure performance is important and critical to your success. This means measuring performance of your suppliers based on KPI’s and service levels, tracking your invoices and PO’s, tracking your own team’s cycle time, et al. You need to know how you and your organization measure success and find ways to be more strategic. For some this is avoiding/eliminating spot-buys or consolidating your supplier list, but you can expand and generate more opportunities to be strategic. Examining your metrics is a great place to start to identify initiatives and better understand how your team or organization functions (this should only be the tip of the iceberg!).

3. Tighten Up Policies

Once you’ve reviewed your data, it’s probably time to start reviewing your policies. If you have a strong grasp on your numbers and metrics, then this might just be a refresh, but if your data and metrics are in disarray or unorganized, now is the time to strengthen your polices. This step might be tough without support from the top, but the goal of a policy refresh should be to identify gaps in your current state and then updating and adjusting accordingly. Moreover, now is the time to enforce your policies. Don’t let your team, the business team, or suppliers deviate from any policy you’ve established. However you chose to do so is at your discretion, but accountability during every step in this policy refresh is vital to continued success. Policy and procedure is where it all starts and strong policy and procedure eliminates any potential for gaps and ensures compliance.

4. Build Your Brand

This one may need a little finesse, but ultimately you want to present an image of a well-oiled machine with the flexibility to address more complex buys or initiatives. This may just be an internal rebrand or a soft re-org or this may be the first step in gaining senior level buy in. In any event, whether you’re rebranding your team or just beginning to build your brand, start smaller if you can. Pick a category or line of business and test out new policy or procedure, observe what works and what doesn’t, and then try to implement on a larger scale. Some may argue against this due to complexities or nuances of certain categories or calling this low the hanging fruit, but starting small lends you the flexibility to be creative and test the waters. The purpose of this exercise is not use a small sample size to apply all your new strategies, but to test policy and procedure or launch small updates to existing process. In essences, this is where you can start to grease the wheels while you build your brand or business case for larger influence.

5. Be Proactive and Collaborative

Like most aspects of our everyday life, being proactive is always a wise decision that can eliminate any stress further down the road. But, when it comes to Procurement being proactive can lend credibility within your organization. Taking the next step or reviewing your policy and procedure before any fire drills shows you are always thinking ahead, planning, and being strategic, an ideal image needed for any Procurement organization. Additionally, we need to be willing to adopt cross-functional methods or solutions from outside our bubble to embrace the complexity of what the future for Procurement looks like.  Reaching out to other teams within your organization shows you are willing to collaborate and are open to incorporating some practices from outside Procurement. Always be on the lookout for opportunities to collaborate and be proactive and don’t accept stagnation for your team. If we’re always looking for continuous improvement, we won’t fall back into our old habits.

An overview of the challenges in achieving agile contract governance.

"If you think compliance is expensive, try non-compliance.”
— Former U.S. Deputy Attorney General Paul McNulty

Contracts are what drive, and define, business. In fact, they define a vast number of non-business relationships as well. How those contracts are managed and how the data in them is governed is vital. To dig into the challenges and solutions on that topic, we’re present this two-part blog on agile contract governance. Part one kicks off by outlining the challenges of organizational stakeholders. Part two explores how these challenges can be more effectively addressed.

Today, companies are grappling with the ever-increasing amount of unstructured data that has built up from company acquisition, document management solutions, digital archiving and authoring using desktop applications that are now available on all types of devices. In fact, according to a report from the Information Governance Initiative*, the amount of digital information in the world will double every two years.

Critically, while information volume is growing across the board, the vast majority of the growth is in unstructured information which is growing faster than most organizations’ abilities to handle it. That makes it hard for organizations to generate any real value from the data, much less control the complexity and risk that it represents.

One of the biggest challenges is to effectively and efficiently expose the value of this information to the business. How do you separate the relevant from the irrelevant? Many companies look to information governance for information management, compliance, retention, disaster recovery and business continuity.

Research and advisory firm Gartner defines information governance as:

"The specification of decision rights and an accountability framework to ensure appropriate behavior in the valuation, creation, storage, use, archiving and deletion of information. It includes the processes, roles and policies, standards and metrics that ensure the effective and efficient use of information in enabling an organization to achieve its goals.”

Businesses, therefore, need to establish which data is of high value and implement a plan to manage and leverage the information extracted. How does a business determine which data is more valuable than others?

A key data set from which to acknowledge, gain visibility and value is contracts.

Why? Because the data contained in contracts affects every area of the business: General Counsel/Legal, Procurement, Finance, Sales, Customer Service and IT. But, it affects them differently, so let’s take a look at the specifics:

Contract challenges faced by the General Counsel

According to the 2018 Litigation Trends Annual Survey from Norton Rose Fulbright, 87% of businesses surveyed expect the number of litigations and legal disputes to remain the same or increase. Across industries, the number one or two dispute is “contracts.” Contract disputes arise in a vast number of contexts, and often litigation is related to respecting the various contract parties’ expectations, rights and obligations based on the quality of goods ordered and delivery criteria, performance under license agreements, the interpretation of agreements regarding provision of complex services, performance agreements and more.

Ⓒ 2018 Norton Rose Fulbright US LLP

In a survey conducted by the International Association for Contract & Commercial Management (IACCM) of 750 organizations, the number one focus area for improvement is contract management tools and systems. In other words, technology. This is in an effort to expand automation, leverage dynamic playbooks and clause libraries, or even delve into machine-based negotiating. Companies are also looking to improve contract standards and structure, skills development, risk management and a number of other areas. As IACCM puts it, “…technology is an enabler of these improvements,”*** or in other words, agile contract governance.

Contract challenges faced by Purchasing / Sales / Customer Service

Bluntly stated in a McKinsey report, the majority of contracts lack basic elements that could enable better vendor performance and cost savings, and the majority of organizations invest relatively limited resources in contract development and vendor management.**** Ouch.

Causes include contract volume, lack of procurement resources or ownership, organizations not being aware of competitive terms and/or contract structure, and a narrow focus of terms and conditions that is not forward-thinking enough.

As more organizations embrace the idea of digital transformation, a lot of resources have to be put behind the need for systems integration — customer facing CRM, ERP, procurement, finance, sales and of course contract lifecycle management. Simultaneously, all this technology is disrupting trading relationships in a globally networked world. Contracts are increasingly becoming a primary management tool for integrating business operations, ensuring compliance and instilling integrity.

In light of this, contract management has evolved into a sophisticated approach to integrate disciplines across enterprises, along with the data and other assets they represent.

While contract creation, approval workflow, reporting, analysis and alerting collectively provide value on all new contracts, there is a major piece missing: all the current, active contractual obligations and the onboarding of active 3rd-party contracts that reside within the business. If we again consider the litigation aspects, this is a significant potential blind spot for the organization.

How have these challenges typically been addressed?

Organizations have realized that the first key phase is to discover and get visibility of their contractual assets. From there, make informed decisions and leverage the contract corpus to determine revenue opportunities as well as cost and expense mitigation. This project has typically involved taking the contracts to an external third party — for example, a legal process outsourcing (LPO) firm, which will manually extract the designated fields and provide them in a spreadsheet format or populate the target application as part of the project. This is expensive and, if the requirements change or additional metadata is required, this process needs to be repeated, causing further delays and expense.

Existing contract governance solutions and drawbacks

To discover and gain visibility of their contractual assets, organizations have typically deployed a global search platform and/or an eDiscovery solution as part of their information governance strategy. These search solutions provide the user with a list of potentially millions of hits based on a simple keyword search, which the user then needs to reduce by opening many documents to decide which ones are truly relevant. Similarly, eDiscovery also leverages keyword searching, and in recent years predictive coding, which essentially is a process for a subject matter expert (SME) to review and mark a sample set of documents as being relevant.

This still requires someone to manually review each of the resultant documents. Bear in mind, these applications are classifying not just contractual documents, but all unstructured documents, emails, content management applications and structured documents, which means the search results returned could be lengthy running into the thousands or even millions.

There are solutions that combine information derived from rule-based extraction, where people are employed to manually review the documents and extract the designated information for future uploading into another application. Any changes to the business question requires the manual review to be repeated, rules to be modified or new ones created by the vendor, which does not lend itself to agile contract governance.

In Part Two of this blog series, we’ll explore how the challenges of agile contract governance can be more effectively addressed, especially with the help of technology.

This blog comes to us from Megan Ray Nichols of Schooled by Science

Because procurement begins the supply chain, delays in this sector are some of the hardest to mitigate — without raw materials, many departments must wait for restocking with no other options. Insufficient acquisition as the result of planning errors can lead to inventory stock-outs, delays and frustration. Business departments stall while waiting for parts of the organization to source materials or services, which slows their operations.

As a procurement specialist, it's good to have a plan for increased demand. Here are some ideas you can use to adjust your acquisition strategy when rising trade requires you to think differently.

Responding to Increased Demand

In general, identifying potential bottlenecks and optimizing your strategy can help you face increased demand. Even if you have a good and steady relationship with one supplier, market research should be a continuous process. You may find that during a spike in interest, current suppliers can't provide you with all the materials you need, forcing you to look elsewhere on a moment's notice.

Where possible, organize your procurement tactics around scalability and flexibility. Some systems and workflows that are functional when demand is lower won't necessarily be as useful when it grows. This factor may be especially true when there is more to keep track of — like orders, supplier evaluations and approvals. At high volumes, valuable information can get lost in the shuffle, making it harder for you to respond to issues and avoid delays.

Acquisition, like the rest of the supply chain, is becoming increasingly digitized — which means there are cutting-edge tools and platforms you can take advantage of. Different types of software can smooth out the process by centralizing data, like order tracking, and automating some procedures, like vendor evaluation.

However, you should also be aware of how disruptive adopting new technology can be. While software can optimize acquisition and reduce error risk, you should upgrade judiciously. You'll need to spend time learning the new tool to integrate it into your procurement process. During this learning period, your productivity could decrease.

You should also prioritize communication with the rest of the supply chain. Other areas, like warehousing, also need to adjust their strategies to meet higher customer demand. By keeping in touch, you can be aware of the issues others are facing and mitigate them before they cause delays. Coordinating delivery with the warehouse will work best if both you and warehouse management are on the same page about current storage capacity.

Planning for Risk

Global supply chain risk increased by 36% in 2018 — meaning supply chains are becoming more volatile, making risk mitigation more valuable than ever. When planning for higher interest, you should also examine how your system might be vulnerable to hazards, which could hamper your ability to source materials.

Your procurement strategy should be continuous. Specialists should be continuously planning and remaining aware of shifts that could disrupt the process — like supplier issues, accidents and business reorganization — and how they can manage these problems. Avoiding risk can ensure your acquisition method's success, even when demands increase without warning.

Optimizing Your Procurement Strategy for Changing Operations

Your procurement team is one of the most essential links in your the supply chain. Without a successful acquisition, the supply chain can't begin — meaning all other departments rely on effective techniques from specialists in this sector.

There are a few ways to adjust your procedures to meet demand — for example, identifying and resolving potential bottlenecks and communicating with management and staff from other supply chain points.

When you use these techniques together, they ensure your approach to inventory acquisition will be flexible enough to meet customer wants and needs, even if they spike unexpectedly.

With visibility across the supply chain, Procurement is perfectly equipped to implement and enforce sustainable practices

How can the function promote responsible, ethical, green practices in the new decade? Check out the infographic below to learn more. 

Cyber attacks against companies in the supply chain are on the rise around the world, and experts say a big part of the reason why is that they may not be as well-equipped to handle such intrusions into their systems. As a consequence, it is now critical for businesses at every step of the supply chain to make sure they're doing more to get out in front of these threats and proactively address them sooner than later - or else risk becoming hackers' next victims.

Part and parcel with such risk is the fact that companies in the supply chain necessarily have to share large amounts of potentially sensitive information with one another to push efficiency to its peak, according to Accenture. Simply put, if one company in a given supply chain is affected, it's possible - or even likely - that many of their partners could be as well. With more data than ever moving into the cloud, companies sharing critical information need to be assured that what they freely share with partners can be safeguarded against unwanted intrusion.

Another problem here is that logistics companies are increasingly ensuring they get a better view of the entire supply chain by investing in the internet of things, the report said. That creates more targets for hackers even as companies get better insight into their own processes.

Hackers pose a real threat to supply chains.Hackers pose a real threat to supply chains.
A growing threat
Moreover, with so many companies now investing heavily in new technology, they have to make sure they're getting the authentic offerings they believe they are, according to Venturebeat. Studies have found as many as 1 in 6 companies have purchased counterfeit tech, and the vast majority of companies now report feeling unprepared for the fallout from an attack, if it were to take place.

With attacks on the rise, vigilance is needed in every aspect of adoption, but in the rush to avoid these issues before they arise, companies may make a major misstep, the report said. While the most recent trends in these incidents seem to suggest hackers are increasingly targeting hardware for attacks, rather than software, there is nevertheless a need to keep tabs on all fronts as these threats develop.

Improving industry standards
If companies are aware of these issues, it stands to reason that the federal government is as well. As such, it should come as little surprise that the U.S. Department of Defense is eager to beef up its security posture as it relates to the supply chains it relies on for all manner of products, according to Breaking Defense. DOD acquisition undersecretary Ellen Lord recently laid out a new plan by which partners will have to adhere, known as the Cybersecurity Maturity Model Certification, or CMMC. Given that the department partners with many small and medium-sized businesses for necessary products, it is providing a long runway for compliance, while stressing the importance of getting onboard sooner than later.

As these threats continue to emerge, companies need to do more to make sure they are acutely aware of the unique challenges they face, and have solutions in place to address those concerns on an ongoing basis.

There has been a lot of coverage of the massive wildfires that destroyed large swaths of the nation and threatened major cities. In fact, the are affected by these fires is massive and has created major problems not only for residents, but those in the global supply chain as well. Many companies that ship to or from Australia may see major delays in their processes as a result.

While they haven't been in the news as much of late, the fires are unfortunately still going strong in some parts of Australia, and scorched an area larger than Scotland since they began, according to Supply Chain Brain. Many areas of the state - including those with massive swaths of land devoted to national parks and farming - have been hit hard, some losing more than half their area to the blazes.

However, it's not just farms or areas that have been destroyed which could affect the global supply chain - there are others where fires did no direct damage, but led to power outages or cut off access to shipping that simply cannot unload their wares (such as milk and fruit), the report said.

Even weeks after they began, wildfires remain a major problem in Australia.Even weeks after they began, wildfires remain a major problem in Australia.
A huge impact
While many may not realize the extent of the impact Australian wildfires - which are significantly larger than those that swept through California in recent years - will have on global food supply chains in particular, experts say it could be overwhelming, according to Fox Business. In addition to the above concerns about immediate shipping capabilities, it's also worth noting that the pollutants released by these fires are likely to affect farms hundreds of miles away - for years to come.

That could lead many farms to suffer smaller harvests in the next few years, the report said. With as many as 1 billion animals dying in these fires (including livestock), the ability of ranches to produce dairy, meat, wool and other animal byproducts is going to be significantly diminished until herd populations could be set back appreciably. Australia is the world's second-largest exporter of beef, and thus the impact on the global food supply chain is likely to be greater than many realize.

Other concerns
Of course, the conditions that helped lead to wildfires becoming so widespread have also taken their toll, according to World Grain. While wheat and other grain production hasn't been affected by the wildfires themselves, the massive, long-term droughts Australia has suffered - which certainly helped fuel the wildfires in the first place - are a bigger point of concern. It's expected that bushfire season will continue for some months to come, and make it harder for farms to produce at the levels many around the world have come to expect.

With all this in mind, those who rely on Australian companies of all types as part of their supply chain may need to change their expectations for shipping in both directions across the Pacific in the weeks - and months - ahead, as there is no end for this crisis in sight.

Like most procurement service providers and analysts, the consulting team at Corcentric decided to use the arrival of a new decade to perform both a look back and a look forward into the state of the procurement function.  I had the opportunity to weigh in and provide the opening statement for our whitepaper on the topic, Procurement in 2020.

As I thought about where we have been and where we are going as an industry, I can’t help but feel a little disappointed.  For as long as I’ve seen “Procurement 2020” reports, I’ve felt (like most of us) that Procurement would finally get the respect we were due by the time 2020 came around.  After all, we know that Procurement done right can have a substantial, sustainable impact on the organizations we support.  Driving savings, simplifying the buying process, and building supplier relationships can create a competitive advantage and true differentiators that often transform a company into an industry leader.

In my opening remarks I mentioned that the first 2020 report I saw was in 2013.  Yet the recommendations and future state vision provided at that time haven’t changed much compared to the same reports that came out this year. It looks like we’ve made little, if any, forward progress over those seven years.  To figure out why, I took a close look at some of the results in the most recent Deloitte CPO Survey. The first set of statistics that stood out to me had to do with technology:

Two-thirds to three-quarters of organizations surveyed are leveraging digital technologies along the source-to-pay continuum to some extent.
Only 3% of Procurement leaders believe their staff possess all the skills required to maximize use of digital capabilities
Only 6% of Procurement leaders believe their digital strategy will help them fully deliver on their objectives

So we use technology yet openly admit it’s not going to help as much as it could, most likely because our teams don’t have the skills to properly leverage it.  Naturally, CPO’s should be looking for new talent and leveraging third parties to supplement their teams and fill the talent gap – right?  Back to the survey:

51% of procurement leaders believe their current teams do not have sufficient levels of skills and capabilities to deliver on their procurement strategy
47% of procurement leaders found it more difficult to attract talent in the last 12 months
Levels of procurement outsourcing have dropped to 10%, the lowest level in over 5 years

So we have the technology, but we don’t use it because of a talent gap, and we can’t attract nor do we plan to outsource the acquisition of that missing talent.  It reminds me of that saying, “You didn’t plan to fail; you just failed to plan.”

Let’s face it: PROCUREMENT IS A PARADOX.  We all know and clearly can see what our problems are and what addressing those problems could mean, yet we continually struggle to address these issues in a meaningful way.  When you boil it all down, Procurement still faces three issues from 2013 that we still face today:

·         First, as a function, we don’t invest – in digitization or in training.  
·         Second, Procurement still struggles to distinguish itself as a business partner.  
·         Third, when we get that seat at the executive table, we don’t use it.   

I can’t stress this enough to today’s procurement leaders:  focus on solving these problems. It’s the only way to ensure that we won’t look back at another wasted decade.

As a business owner, the sun rises and sets on the customer. If the people you are selling to aren't satisfied with a specific product or service, they'll let you know as much with a drop off in demand.

But demand can't be determined without supply, which requires putting the pieces and planning in place to assure the wheels on the supply chain management train are properly lubricated. Here are a few keys to building or bettering a supply chain strategy:

1. Align strategy with your business's main objective
Perhaps the most important element to crafting a sound supply chain strategy is knowing what it is you want to achieve in big-picture terms. Once this aim is defined, the next step is aligning your supply chain so they work in tandem.

For example, in an effort to better differentiate your business from the competition by producing goods faster, you could partner with a third-party, which may be in a better position to install a particular component for a device or consumer product.

Speed may go by the wayside, however, if that third-party's supply chain is out of alignment with
yours. In order to fill this gap, you may want to hire a supply chain manager, which more companies are doing these days. A supply chain manager performs many functions, but above all, their job is ensuring every piece along the supply chain harmonizes with the company's main objective(s).

2. Find the right 3PL
Otherwise known as third-party logistics providers, 3PLs can help you build a sharper supply chain. From standard 3PLs that specialize in distribution and warehousing to the service developers that prioritize value-added functionalities like tracking and tracing, 3PLs bring solutions to known or soon-to-be problems.

As noted by Supply & Demand Chain Executive, deciding which 3PL is the right one depends on your company's principal goals. Ideally, select the one that "proactively comes up with new and creative ways to save you money and improve productivity." If there's one area of development or management your weak in, such as compliance or risk assessment, your 3PL may be able to make up the difference.

Sustainability is a core component to growth and development.Sustainability is a core component of growth and development.
3. Prioritize environmental sustainability
There's a reason why assembly lines are used as often as they are: They work. The people, processes and parts within them enhance production and overall output through repetition and reliability. But speed should not come at the sacrifice of the environment.

More Americans are changing their habits by using less plastic and relying on alternative sources of energy. Businesses that introduce sustainability into their supply chains can benefit from strategic advantages, especially when they're advertised to a public that supports companies that prioritize the planet. These may include stronger sales, production efficiency or a greater ability to recruit high-skilled workers. According to a recent poll conducted by Gallup, nearly two-thirds of respondents say the environment's health is more important than the health of the nation's economy.

These strategies can give your company the visibility and daylight it needs to stay strong when the pressure from your competition rises.

The following blog comes to us from Matt Clark, COO of Corcentric. 

Digital transformation is a “must” not a “maybe.”

Companies large and small, B2C and B2B, understand that in order to succeed in today’s global and highly competitive market, it is essential to utilize technology, especially digital technology. By implementing innovative technology, companies can more efficiently manufacture and develop product; more effectively market to and engage with customers; and more successfully gather, optimize, and analyze data. In addition, internal processes become more cost-efficient through the digitization of manual and paper-based processes that have been and continue to be time-consuming and error-prone.True digital transformation means that companies must integrate digital technology into all aspects of a business, essentially changing how they do business and how they communicate with their customers and suppliers. This can seem daunting … but it doesn’t have to be.

Why does digital transformation cause such trepidation in the C-suite?

A 2018 McKinsey study found that the failure rate for digital transformation was an unacceptable 86 percent. Even industries like high-tech and telecom, industries with extensive experience in digital technology, have a success rate of only 26 percent.

That is a frightening statistic for any CFO or executive to consider and questions persist:

  • Do we have the right talent in-house?
  • Do we have the necessary technology?
  • How long and how much do we need to invest before we see an acceptable ROI?
  • And, of course, the inevitable fear of change itself.

But the move towards digital transformation is unstoppable. According to IDC, by the end of this year, businesses globally are expected to spend nearly $2 trillion on digital transformation projects.

So how do you manage the transformation project to ensure success?

Don’t try to do everything at once

An October CFO article related the incident of a major international utility company, based in North America, which decided to go digital to better serve its millions of customers. It was a full leap into digitizing every customer touch point instead of first focusing on simpler, more repetitive tasks to make sure that the first steps are completed before future steps are taken.

The result for the utility was almost pre-ordained, according to the article. The “moon-shot approach” burned through the budget ($250 million) and a couple of years later, the utility had to stop and start all over again. The “all-or-nothing” approach was replaced with a “continuing series of smaller bite-size projects.”

Take the step-by-step approach

There are specific areas within an organization that are natural collaborators when it comes to their specific functions and may be where to focus logical first steps. This is especially true of Procurement and Finance (both accounts receivable and accounts payable). These two functional departments have historically remained in their own silos, with little to no visibility into the overall transaction from purchase to payment. Digital transformation changes not only how these processes are handled, it also changes the relationship of the two departments, creating a “holistic partnership” that ultimately strengthens the company.

At Corcentric, we see very clearly that the convergence of Procurement and Finance is the real driver for technology solutions that will address the entire Source-to-Pay continuum, especially configurable solutions that can answer the needs of each department. This is about more than just eliminating paper invoices and manual handling. A holistic approach connects every step in the transaction process, from the point of sourcing product to the final step of paying suppliers. In addition, the ability to capture and analyze the data produced in the continuum as well as historical data enables CFOs and CPOs to better manage their working capital and grow their business.

Implementing digital transformation projects in this more incremental fashion also limits the amount of disruption your organization will experience. In addition, the teams working on these transformation projects (and it will take a team) will be able to identify which steps contribute to the success of each project and which caused slowdowns.

Originating in Wuhan, China, the coronavirus is grabbing headlines around the world for its potential impact on people's health, regardless of where they live. However, the disease also poses a unique risk for many companies with supply chains that stretch into China, simply because so much is produced there. Many manufacturers and other producers in China are shutting down operations while the government works to contain the disease, and in the meantime, the effect on global supply chains is growing.

With more than 20,000 cases of the disease discovered in China so far - and the number of patients growing seemingly all the time - there is no end in sight to the slowdown in China's output, which poses a major problem for companies the world over, according to Bloomberg. At least 20% of all global imports come from China, and the impact on its neighboring nations may be particularly strong, as roughly 40% of their imports are Chinese in origin.

In the U.S., that number is in the 30% range, but just about every first-world country on the planet gets at least 10% or so of its imported goods from Chinese manufacturers, the report said.

Companies have to plan for how the Coronavirus will affect them.Companies have to plan for how the coronavirus will affect them.
Compounding the issue
The coronavirus was first spotted in December, but has spread ever since, into late January - when Chinese production typically slows anyway because of the Lunar New Year, according to Sourcing Journal. That likely put an even bigger crimp in many global supply chains, and some companies stateside are now anticipating delays in shipments of at least a month.

Right now, the Chinese government will only allow factories to be open starting Feb. 10, but there is little certainty that this date will not be pushed back as well, the report said. Simply put, there are no firm indications for any companies in the U.S. or elsewhere that are waiting for both answers and shipments.

"This is going to be a significant disturbance in the supply chain," Sean Maharaj, managing director of global management consultancy AArete, told Sourcing Journal. "We compare this to the impact of SARS, but the export capability and global merchandise manufacturing was significantly different in terms of not only the volume coming out of China, but the complexity of the supply chains."

A broader problem
As it relates to SARS - another respiratory illness originating in China, nearly 20 years ago - experts caution that comparisons can be tricky, according to The New York Times. The Chinese economy has grown to eight times the size it was in 2002 and 2003, and its participation in global trade has skyrocketed. Observers also expect to see a significant impact from the Coronavirus in terms of what the Far East nation buys from other countries as well, meaning it's not just imports from China that companies in the U.S. and elsewhere need to worry about - it's exports to China as well.

For all these reasons and more, any companies operating supply chains across the Pacific - in either direction - need to be fully aware of all developments around the Coronavirus and plan for any contingencies that may come next.

As recently as 25 to 30 years ago, few could have imagined just how far technology would come. From do-it-all-for-you computers that literally fit into the palm of your hand to the inception of machine-learning capabilities, technological improvements make everyday life and work-related activities more efficient and productive.

Business owners, as a result, are leveraging state-of-the-art technologies in order to optimize their supply chains. What are these technologies? More specifically, how are they coming along in terms of overall maturity or adoption? Forbes magazine recently cast a spotlight on some of them and how far away such innovations are from reaching the commercial marketplace - if they haven't already.

1. Autonomous trucking
For several years now, the trucking industry has been in the midst of a significant driver shortage. According to the most recent estimates available from the American Trucking Association, intense demand required an additional 60,800 drivers in 2018 than what was available, up 20% from the previous year.

Many within the trucking industry believe autonomous trucking could be motor carriers' saving grace. As Forbes reported, executives believe this technology may be as few as three years away from rollout, as states like Florida and Texas appear to be at the forefront from an implementation perspective.

But safety remains something of a wild card. Forbes noted that if trucking execs can corroborate self-driving vehicles are, indeed, safer to use, more widespread implementation will almost assuredly follow, with consumers and supply chains among the largest beneficiaries.

5G is the next generation of high-speed internet connectivity. 5G is the next generation of high-speed internet connectivity.
2. 5G
As lightning-quick as internet connections have become thanks to broadband and WiFi - especially when compared to the days of dial-up - 5G is even faster, delivering massive quantities of data in the blink of an eye. As the old saying goes, time is money, and as 5G gets closer to more widespread adoption, business owners will be able to dramatically increase productivity, noted Greg Carter, chief technology officer at GlobalTranz.

"5G will impact supply chain and logistics by allowing more data to be transferred more quickly in real-time, in turn making increased visibility throughout the supply chain possible," Carter wrote.

He added the real-time capabilities of 5G will make work processes that much smoother and more seamless, thanks to greater visibility into these processes and more widespread utilization of Internet of Things technology.

3. Artificial Intelligence
Few tech innovations have come quite as far as AI, both in the consumer and industry space. Forbes noted that AI will continue to advance in the weeks and months ahead, especially as the technology becomes more affordable to implement.

This may be particularly true in manufacturing. According to Oxford Economics, industrial robotics could fill as many as 20 million job openings in the sector within the next decade.

Adrian Cooper, chief economist and CEO at Oxford Economics, said AI adoption will also lead to new job opportunities for people. For the most part, Americans - inside and outside manufacturing - aren't too worried about displacement. Just 23% of respondents in a Gallup poll said losing their job to AI was something that concerned them.