Procurement & Technology: The Road Less Travelled

A few weeks ago a former employee from my practitioner days called to catch up. Our discussion was fun and included a few memories of days gone by and how those days have led us both to our current career paths. In the discussion, this employee said to me, ‘you know I still find it odd that no matter who I work for, selecting and bringing in technology is still a functional or IT decision and not necessarily a business strategy decision.’ Obviously this led to her sharing a story regarding two recent technology selections.

Automation At Last

The company is a large $6B business with a decentralized procurement team that is quickly becoming center led. The team needed software to bring it into this century. Because spend needed to be identified, an increase in savings was required and more stakeholder engagement was needed, they selected the upstream suite but initially turned on spend and sourcing. Contract management would be turned on later, they said, along with the supplier performance section.

About two months into the technology implementation the company ran into a supplier issue when a supplier failed to produce enough components and ultimately declared Chapter 11 bankruptcy. Unfortunately it was the only supplier the company had for this particular component. As you can imagine the company went through the normal gyrations of pulling their tooling and looking for a new supplier who could quickly come up to speed. While this was a lesson in risk management, it also became a lesson in terms of technology planning and strategy.

What Comes First?

The procurement technology chosen first was to satisfy the business need of more spend under management and more cost savings. Unfortunately because there was no visibility into the spend or the supplier data, the suppliers’ poor performance became a financial nightmare for them all. The company was so impacted by the supplier downfall, their board decided they needed a supplier performance management system. The IT team purchased another system while procurement solved the current business issues and continued with their spend and sourcing implementation.

Unfortunately the first technology system isn’t the same as the second technology system. The second technology system is a stand-alone system that does not tie into external feeds well, has a much lower ROI and was much more costly than the original technology suite system. The spend and sourcing solution suite had all the functionality required for supplier performance, but it wasn’t communicated to the rest of the organization. Now the business has integration issues and is spending more money to solve a problem. Procurement, IT and the rest of the functional stakeholders in the business missed out on putting together a full business strategy aligning and integrating the business needs, a technology implementation roadmap and a communication plan so the business could come together with a sound plan. This strategy may or may not have included supplier scorecarding up front if the need had been identified as an issue either by procurement or other stakeholders such as supply chain. The important point is when tragedy struck, the business could coordinate efforts proactively vs. working in silos reacting to the situation.

Strategy vs. Tactics

I asked my former employee how much it was costing them for the two implementations, supplier risk issue resourcing effort and profitability. Her response initially wasn’t about money, it was about the value they were losing because now they had two installations, even less resources and both implementations were becoming stalled because they didn’t strategize and align as a business team.

Her largest concern was no value was going to be captured because they had taken different roads vs. walking together down one road. Her final comment was, ‘businesses need to understand that selecting and implementing the right technology and in the right order is a strategy, not a tactic for automation.’

As her former manager I suggested she open up the lines of communication and become more aligned with the business strategy instead of solving one problem at a time. She told me her first lesson was becoming aligned with IT and the overall business strategy so success could occur. For me, this was another lesson for Procurement – how to take the road less travelled. TEAM vs. I/Function.

Unlocking the Power of Procurement: Language Matters- It’s All about Value

This is the third of four quick hit advice articles focused on promoting procurement success and cultivating internal advocates.

Unlocking the power of procurement and strengthening the procurement team isn’t easy and it requires a plan. Most procurement teams are Continue reading

Supplier Relationships Are Vital

In 2012 a BP oil rig off the Gulf Coast of the U.S. exploded and sank due to defective cement on the well. Eleven lives were lost and there was incalculable environmental damage. The fault was mainly with BP but also with the rig operator and contractor. BP and its partners were blamed for a series of cost cutting decisions, insufficient safety systems and systemic root causes tied to the cement.

Guy Allen of Real World Sourcing, LTD noted, “Protecting against quality risk starts with the design of a product. Where possible, it should be straight forward to manufacture and produce. The quality and performance of your suppliers should also be part of the key decision-making criteria in your selection of the supplier. Once in production, close monitoring of production quality should be expected of the supplier. The supplier’s use of statistical process control, quality checks and routine testing to eliminate substandard material and products is required. In addition the buyer must include consequential damages clauses in the supply contract.”

Oil and Gas Lesson

Fadel Gheit, a senior oil and gas analyst at Oppenheimer said, ‘The Gulf of Mexico is the most profitable part of the world for BP.” In September 2014, a U.S. District Court judge ruled that BP was primarily responsible for the oil spill because of its gross negligence and reckless conduct. BP was ultimately fined $18.7B.

This tragedy was one that not only shook up families with the loss of life and environmental destruction but it also opened some doors for more collaboration. Robert Handfield Ph.D., North Carolina State University believes “there is a lot of room for all of the players in the oil and gas industry to work together to identify risk mitigation and solutions for deep sea oil drilling. This is a highly complex and technical environment, and there are many, many opportunities to drive better collaborative contracts and risk mitigation strategies throughout the supply chain. “

Final Point

Supplier relationship and management of it is critical to strategic procurement. The strength of the relationship is two vs. one, transparency, collaboration and innovation. Real value is extracted when working together. Supplier Value Management is vital to visibility between partners and the building of trust.

Innovation and Risk Management: A Requirement for All Businesses

Polaroid was a company that designed and built some of the most important instant cameras and film in photographic history – they were the instant camera and instant film maker. In the 1970’s Polaroid produced 1 billion pictures annually. In 1992 the company achieved $3B in revenues. But then Polaroid was too slow in adaption to the digital age, went through two bankruptcies starting in 2001 and long legal battles that lasted into 2009. This was Polaroid’s demise.

Polaroid is now back thanks in part to a fully architected innovation strategy. According to Polaroid’s CEO, Scott Hardy, ““We are no longer this large vertical operating company that has factories making film and thousands of employees around the world. We are really curators of innovation.”

Polaroid is now a multinational consumer electronics company. Their many new products include the Cube, a tiny entry-level action camera; the Zip, an inkless mobile printer for smartphone pictures; the iZone, a tiny zoom camera that uses your cellphone as a viewfinder; and the Socialmatic, a rectangular, Android-powered smart camera with a built-in inkless printer. Polaroid also partners with Blipfoto, an online photography community.

How They Did It

Polaroid weathered the storm and focused on an innovation strategy. To move forward into the digital age Polaroid had to significantly change its strategy moving away from the conventional to the new, digital. Harvard Business Review recently noted for Polaroid, entering the digital world meant mastering completely new competences in solid-state electronics, camera design, software, and display technology. It also meant finding a way to earn profits from cameras rather than from “disposables” (film, paper, processing chemicals, and services).


The future of our world relies upon continuous innovation. Some products will replace and displace others, as in Polaroid’s instant camera and film, while many others may stay the course and change over time. The important fact about innovation is making sure you are committed to the transformation as your business changes and meets the market needs. Paul Teague, a contributing editor to Procurement Leaders says it well stating, “Delivering continuous innovation will be increasingly seen as a vital function and business requirement. This suggests one definition of open innovation as sharing risk with partners as well as sharing rewards. It’s a suggestion corporate leaders should take seriously, because it can mean the difference between growth or stagnation.”

Supplier Management

The supplier relationship is critical to strategic procurement. Maximizing opportunities by collaborating with innovative suppliers brings forward the supplier’s knowledge, skills and capabilities and increases both buyer and suppiler competitive advantage in the marketplace. John W. Henke Jr. and Chun Zhang escribed it well, “when customers collaborate with suppliers they can build trust, reduce relational stress, and increase innovation-related activities.”

Volkswagen, Far from Fahrvergnügen

In the 1990s, VW used the word Fahrvergnügen in their advertising campaigns. One of the tags lines was, “Fahrvergnügen: It's what makes a car a Volkswagen". According to Wikipedia in English, Fahrvergnügen, means ‘driving enjoyment’. Continue reading

Bankrupt Automotive Supplier Understands How Vital Customer Relationships Are for the Future

Chassix Holdings Inc., a supplier of chassis, brake and powertrain components to General Motors Co., Ford Motor Co., FCA US LLC (the former Chrysler Group), Nissan North America, BMW AG and others in the automotive industry filed for Chapter 11 bankruptcy reorganization in March 2015. The company filed for bankruptcy because of unprofitable contracts with customers while rapidly increasing demand for its products strained capacity and led to quality problems, according to its bankruptcy filings. The company also lacked the financing and access to capital that it needed to expand production capacity. Chassix noted in its filing, "This perfect storm of events resulted in an onslaught of quality issues and missed release dates that significantly increased the debtors' costs of manufacturing."

Supplier Financial Health

Continue reading