What You're Saying

Nod and Shrug - A standard response to supplier risk management

Lately, we have had a chance to speak with procurement and supply management professionals at a number of industry association meetings.  While spend management remains an important topic, we love to ask is risk management important to your organization and if so what do they do about it.  The responses can best be summarized by the reaction – Nod and Shrug. 

People acknowledge that supplier risk and performances is important with a nod, but often are unable to explain a consistent process for how risk and performance are managed as evidenced by their shrugs.

How would you respond?  Let us know.

And if you would like to hear how MasterCard has responded, check out the webinar they will be speaking at on October 12.

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Complete Transparency - Supplier Audits

In a great blog post from Forrester's Patrick Connaughton, Apple Makes Public The Results Of Its 2010 Supplier Audits...The Good, The Bad, and The Ugly, Patrick raises a number of inter-related questions:

• Has your company published a supplier code of conduct?
• Is it conducting supplier audits to ensure that the code of conduct is beling followed?
• Does it have a plan in place if you turn up something truly ugly?
• Would you publish those results if they were bad?

The reason for these questions is that Apple has done just that.  In its Supplier Responsibility 2011 Progress Report, Apple documents the results of its own audits and specifies problem areas.

Can you imagine doing the same?

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High Performance in Procurement Risk Management

In a recently published article in Industry Week, High Performance in Procurement Risk Management, Per Segerberg from Accenture shares findings from a research project by Accenture and MIT professor David Simchi-Levi.  In the article, Mr. Segerberg highlights a number of conclusions that can be drawn from their research:

The article goes on to propose a "risk management framework" that includes three key steps: 1. Risk Anticipation, 2. Risk Monitoring, and 3. Risk Mitigation. 

Sound recommendations for sure!

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Foreign Corrupt Practices Act

FCPA has become a hot topic in procurement circles.  It is something we are hearing about consistently from clients and prospects alike.  Why?  Well, for one, as reported recently in Bloomberg Law Reports "DOJ lead FCPA prosecutor Mark Mendelsohn stated that, 'Third-party due diligence must be robust, thorough, impeccably documented, and preserved.' Further, Assistant Attorney General Lanny Breuer stated at the 2010 at Compliance Week Conference that one benchmark of an effective corporate compliance program is 'extension of anti-corruption policies to third-party agents and business partners.'"

But perhaps more importantly, violations of FCPA can cost a company a lot of mone - up to $2 million/violation.

This is just another example of how the responsibility of procurement has changed over the past few years.  While procurement is still looked upon to save money, the C-suite and board now recognize that there is real liability associated with poor oversight of a company's extended enterprise.

Is FCAP on your radar?

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Procurement Leaders Speak Out

Last week, I had the good fortune to attend the Procurement Leaders Forum in Boston, Massachusetts.  

What I heard loud and clear, from both the scheduled speakers and attendees, is that there is a real transformation beginning to take shape.  Executives are re-focusing their strategic efforts from optimizing the P2P process to optimizing the value received from and minimizing the risk of each supplier relationship.   People seemed to be saying we have done a good job streamlining our transactions and leveraging our spend, but now we need to ensure that we really manage the relationship.  This entails improved risk assessments (pre- and post-award), performance evaluations, and compliance monitoring.

Is this true at your company?  Let me know.

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"Why is vendor management so important?"

Gartner recently published an interview with Christopher Ambrose and Helen Huntley on the key trends surrounding vendor management.  Some key takeaways:

• HH: "We know for a fact that organizations are relying on more suppliers than ever before." 
• CA: "Too often, the focus of vendor management has been on standard metrics and management processes across all vendors. Many organizations are now categorizing their strategic vendors, separating those considered critical to their business from those delivering more commoditized products and services. "
• HH: "When you segment vendor relationships you can more easily prioritize vendor management fundamentals."

These simple points highlights some key capabilities that Hiperos is asked about when meeting with prospects:

• Provide access, visibility, and control across an ever increasing supply base.
• Support creation of risk profiles to segment vendors based on impact on the business.
• Deliver a platform to create unique management programs at both the supplier and contract or relationship level.

The complete interview can be found here.

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Thank you Forrester

Forrester’s Vendor Strategy Analyst Day provided lots of stimulating ideas and interesting predictions. 

• Andrew Bartels pointed to historical cycles that show after a nine year technology “refinement and digestion” period, we are at the beginning of an exciting “innovation and growth” period.  He sees “Smart Computing in the air with flexible, adaptable, responsive, and extended IT systems that incorporate awareness and analytics to make IT more intelligent to solve new business problems.”  These changes he said will move us from automating transactions to helping with the collaborative process.  We just love that!
• Christine Ferrusi Ross talked about how the IT landscaping is changing in terms of user behavior, service offerings, and pricing/delivery models.  Music to the ears of the true, on-demand solution providers!

 There were many other pearls of wisdom delivered throughout the day and we were glad to be invited.  Ellen Daley’s team really knows its stuff.

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Worth the Price of Admission

Shared Assessment Summit.  Well attended event.  Senior level participation.  Excellent panelists.  Reinforced that companies really are focused on tracking their vendors in a whole new way – one focused on limiting exposure and maximizing return to internal and external stakeholders alike.  Some sound bites from the meeting:

• “The impact of our supplier relationships on the company is growing.  More and more critical services are being outsourced which increases the risk. We started out a decade ago outsourcing non-critical tasks, now that we have booked those savings we are now outsourcing critical tasks with greater and greater regularity.”

• “When thinking about our relationships, we tie risk to the cost of the breach, of lost availability, of diminished reputation, of number of employees impacted.”
• “For us, it is not just about the regulators.  Our customers also want to know what is being done to manage our suppliers because of the potential impact on them!”

It is always healthy to reinforce common sense!

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You’d think it was simple, right?

“We just need to collect and confirm the DUNS numbers for each physical location – from factories to corporate headquarters. Our current systems and processes don’t seem to be working.” – Commodity Manager from a High Tech Company

This is not an uncommon type of problem to hear about – collecting and verifying basic supplier information is often a nightmare. In a global organization with tens of thousands of suppliers, and with each functional area requiring different information, the picture is ugly. Suppliers get multiple requests, in many instances for similar information, in multiple formats, at multiple times. This is then compounded by the fact that each supplier likely has multiple contracts. Oh yeah, and then this information ends up in multiple systems.

STOP!!! This problem is relatively simple to solve. There are solutions that will support a standard way to communicate information requests to suppliers, approve the updates, and send to systems of record (e.g. ERP and procurement.)

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When the OCC examiner comes to town

A former OCC examiner commented, “Interesting how many companies really don't have a contract repository that is the central point for control. The bank needs to know “what supplier is doing what, where are they doing it, who is working with them, and who at the bank is responsible for the relationship.”

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What is this Extended Enterprise?

Banks are under the microscope from regulators – not just in how they are managing their vendors, but also about having proper controls in place for independent sales organizations (ISO’s) and affiliate transactions.

This is the extended enterprise. It is not just about supplier management. For example, how does legal, finance and risk know what relationships a business unit has with affiliates and how they are being monitored. The FDIC wants to know.

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It’s finally about the information!

“To me, it is like a mash up. You can't do vendor management like we did ERP or procurement when it was all about the data and a structured business process. Vendor management is about responding to information from many sources, without rigid integration, and providing our people with this information, the way they want, so they can react.” – Procurement Executive from a Pharmaceutical Company

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Incremental change works with Enterprise 2.0 solutions

During a prospect call, an executive commented that his company is planning to spend 6-12 months to get everything right - all the workflow and the use cases before they implement. This thinking is a relic of traditional enterprise software – huge capital expense and huge implementation costs led to no margin for error.

The Enterprise 2.0 world allows you to make incremental change that creates value. You don't need to accomplish the big bang like you did with systems of the past. The nice thing about the new tools is that you can make incremental change, and get more than incremental value.

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Understanding how the vendors fit

Yesterday I met with a CPO. She said “vendor management used to be all about price and quality. Now it is about ensuring that each vendor “fits” the organization.”

What did she mean? Being aware of the roles that vendors play, the impact they have on the business, and leveraging a management framework to ensure that expectations are met. Understand your vendors, so you can determine the best way to manage them.

For some vendors, it is about how you manage and monitor performance. She said “like some kids need a report card and a conference, while others will manage to their goals on their own.” For some vendors, it might be about risk - making sure they are not cutting corners, that they are following all the rules. She added “Some kids, you have to ask where are you going, with whom, and when you will be back, while with others, given the rules and proper oversight, will almost always do the right thing.”

Seems like she is beginning to think about vendors as individuals who need to be managed based on their key characteristics and goals.

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