Can You Solve the Compliance Challenge?

Regulatory compliance is usually defined by an organization’s adherence to laws, regulations, guidelines and specifications relevant to its business.

There are two primary categories:

  • Internal compliance that focusses on the policies and procedures of the organization (which must be followed to insure SOX compliance) and is focussed on personnel and procurement
  • External compliance that focusses on the (government) legislation and agreements that govern the operation of the organization and falls into the categories of:
    • financial/operational
    • import/export
    • environmental
    • private data / worker’s rights
    • insurance / liability

Non-compliance can be a very costly situation for an organization to find itself in as it can cost an organization hundreds of millions of dollars in some cases. Consider the following costs of external non-compliance:

Financial

  • SOX violations can cost up to 5M per violation; even Deloitte, known for its audits, had to pay 2 Million for a SOX violation
  • Anti-bribery violations have no ceiling; Aon paying £ 5.25 M in 2009, Wills Limited paying £ 6.9 M in 2011, and Macmillan Publishers paying £ 11.26 M in 2011
  • FCPA violations don’t have a ceiling either; Weatherford International paid $152.6 M in 2013, Alcoa paid $384 M in 2014, and Siemens paid $800 M in 2008

Import/Export

Meggitt paid 25 M in 2013 to settle charges of AECA & ITAR violations, Standard Chartered Bank paid 132 M in 2012 to settle charges of OFAC sanction violations, and ING Bank N.V. recently paid 619 M to settle charges of several OFAC sanction violations

Insurance

In 2012, Wal-Mart paid $8M to settle a workers’ compensation class action settlement, and in 2010 a jury awarded $82.5 in a workplace death lawsuit

Lack of compliance costs. Dearly. Why is there a lack of compliance in most organizations? Lack of knowledge, policy, visibility, analysis, and procurement technology. Knowledge can be addressed with training. Policy can be fixed with planning. But visibility, analysis, and procurement fixes require technology.

What kind of technology?

Supply Chain Visibility, Spend Analytics, and a Procurement Marketplace that captures, tracks, and maintains an audit trail of all of the relevant data to insure SOX and FCPA are not violated, import and export restrictions and requirements are adhered to, and that suppliers comply with insurance and regulatory compliance.

To find out how a Procurement Marketplace helps your organization solve the compliance challenge, reduce maverick spending, and enable organizational growth, download Sourcing Innovation’s latest white-paper on The
Procurement Marketplace and The Power of Compliance
(registration required), sponsored by Vinimaya.

Procurement Trend #15. System Integration with Partners

A dozen anti-trends from those wild and crazy guys still remain, and as much as we’d like to find some entertainment value in what they have to offer, we must agree with LOLCat who is bored with our continuing anti-trend coverage and, like the foxes the wild and crazy guys like to chase, instead flee from the obnoxious diatribe they thrust upon us.

So why do so many historians keep pegging system integration with partners as a future trend? I honestly can’t fathom this as Big Blue has been pushing integration projects for decades, but maybe it is because they’ve been living in the corporate cave (as Procurement is still relegated to the basement in many organizations) and:

  • e-Procurement benefits like invoice Automation require some system integration

    because invoices come from suppliers and often have to get into AP systems on the way through the e-Procurement system

  • supply chain visibility is critical for risk mitigation

    because you cannot take action to protect against a disruption if you do not know that a disruptive event occurred

  • strategic planning is improved with good data

    because even though you can make great strategic plans without data, it’s just a theoretical exercise if the plan depends on postulated conditions that do not actually exist in the real world

So what does this mean?

System integration

Not only do you need to brush up on your IT skills, but you have to brush up on your IT project management skills too. System integration projects have been responsible for some of the worst supply chain disasters in history. Don’t believe me? Review Supply Chain Digest’s top supply chain disasters and notice that 9 of the 11 top failures were as a result of technology, and all but one of these technology failures was at least partly, if not entirely, IT technology!

Supply Chain Visibility

You need to implement a multi-tier supply chain visibility. Knowing your supplier’s status is not good enough, you need to know your supplier’s supplier status and sometimes even the status of the supplier of your supplier’s supplier — especially if raw materials acquisition is the weakest link in the chain. Leave no stone unturned that could be covering a ticking time-bomb.

Good Data

When we say good data, we mean good data. Not just data because not all data is good. If it has a lot of holes, is inaccurate, or is too old, it’s bad data, and all analysis on bad data leads to is bad information that results in bad decisions. But good data can lead to good information and then good decisions, and, in an appropriate model, it can lead to actionable intelligence that can power great decisions.

Procurement Trend #16. Stronger Supplier Relationships

Thirteen anti-trends from those crazy eighties (or earlier) still remain, and as much as we’d like to provide some entertainment that hasn’t been rebooted and re-rebooted to LOLCat who is bored with our continuing anti-trend coverage, we must continue to play Sam Sheepdog and make sure that no Ralph E. Wolfe in sheep’s clothing goes undetected or unrewarded for his effort.

So why do so many historians keep pegging stronger supplier relationships as a future trend? Besides the fact that they are likely still struggling to pronounce col-lab-o-ra-tion (which is a undoubtably a new word for them), it is probably because even the Businessman knows that:

  • delivery dates can make or break a product release and a company

    as a late launch can allow your competition to launch first and secure a substantial amount of marketshare that your company may never get back

  • knowledge work needs to be done with knowledge

    and you can’t fake it by throwing more warm bodies at it

  • supplier failures can often be prevented, but only with foresight

    once a supplier’s doors have been closed, it’s too late to reconsider that 180 day net-terms policy

So what does this mean?

Delivery Dates

Product Lifecycle Management (PLM) is key. In order to make sure everything stays on schedule, Supply Management has to monitor, or manage as the case may be, the design, the supplier selection, prototype production, full production, transportation, and the delivery schedule. Any delay anywhere in the process that goes uncaught and uncorrected in a timely fashion will result in a missed delivery date.

Knowledge Work

As per our many previous posts, including our posts on inter-departmental collaboration, more stakeholder collaboration, and talent, we’re in a knowledge economy and supply management is knowledge work. Implement a good Knowledge Lifecycle Management solution, get training, collect knowledge from your employees, partners, suppliers, and customers and put it to use.

Supplier Failure

Suppliers typically fail for financial reasons, and this is often something that can be foreseen. You can follow the financial risk ratings, or you can just pay close attention to what is happening. There are always cues when a supplier is in trouble. Multiple contacts disappear overnight. Late deliveries. Poor quality. And so on. Often it’s just a cash-flow problem that is easily fixed by simply paying the supplier a little earlier (which, for many companies, translates into simply paying the supplier on time) so it can cover its operating costs. When you consider that the supplier has to buy the raw materials, produce the goods, ship the goods, wait for you to get them, and then wait for the clock to start ticking on the invoice when you can often sell the goods as soon as you get them, it’s completely understandable that they can be struggling to make payroll when they have to float operations for six months or more when you, if you are selling a hot electronics item or piece of apparel, can get paid in six days or less.

Procurement Trend #17. Talent

Fourteen anti-trends from the grey-beards’ glory days still remain, and as much as we’d like to provide more entertainment to LOLCat who is bored with our anti-trend coverage, we must make sure that no good deed goes unpunished and since the futurists’ advice is as good as it gets, we must break it all down until you can look past the shiny new paint job and realize that it’s a twenty year old Skoda you are being sold.

So why do so many historians keep pegging talent as a future trend? Besides the fact that they are, unfortunately, still cemented in the people-process-technology (and not the talent-technology-transition management) mindset, it is probably because, no matter where your organization is on its Supply Management journey:

  • more knowledge is required

    Supply Management professionals are currently climbing the Devil’s Staircase

  • more technology is required

    because most work is still tactical paper pushing work (even if it’s pushing scanned PDFs, it’s still paper pushing work)

  • more skills are required

    to transition to better processes, use new technology, and identify more value generation opportunities for the organization

So what does this mean?

Knowledge

As per our previous posts on inter-departmental collaboration and more stakeholder collaboration you need to implement knowledge management. You need to capture the knowledge you have. You need to capture the knowledge your partners bring you. And you definitely to capture the knowledge you generate before it walks out the door when your people move on to the next stage of their professional and/or personal life. It is a knowledge economy, and if you don’t have the knowledge required, you won’t be in the new economy much longer. C’est la vie dans le nouveau monde de l’enterprise.

Technology

As per our previous posts on increased accuracy in demand planning, process convergence into Supply Management, and e-Procurement System Adoption, you need to implement new and better technology solutions. These solutions need to automate the tactical, optimize the operations, and enable the strategic. Electronically pushing paper is not strategic. Monitoring dashboards is not strategic. Re-sourcing a category for the third time through an e-Auction for a measly 3% savings is not strategic. Doing detailed analyses that allow you to identify untapped opportunities, define new processes that will get marketing or legal on-board with spend management methodologies, or helping R&D design a product that is both more cost efficient to produce and more desirable to the market — that’s strategic.

Skills

It’s like we keep saying here at SI, a modern Supply Management professional needs to be a jack of all trades and a master of one. You need to continually enhance your soft skills, your tech skills, and your knowledge of different organizational disciplines, processes, and goals and learn to take advantage of the new technologies and opportunities that are continually being made available to you.

It Might Be Wabbit Season …

But you don’t have to go all Elmer Fudd and shoot everything in sight …

Even though it would appear to be the case that this is precisely what some bloggers would have you do. A few weeks ago we published a two-part piece on It’s Conference Season And That Means it’s Travel Season on why — even though it’s very, very, very important to get your Travel and Expense spend under control — it’s not Procurement’s job to question the validity of the spend or whether or not it aligns with organizational goals put in place. That’s the C-Suite’s job because, when it comes to T&E, it’s not always about immediately measurable financial ROI.

However, last week saw yet another post over on CPO Rising on T&E, which purported to give you the three goals that every travel and expense management program must achieve which, like the previous post, illustrated two of the right things to be doing and one potentially wrong thing because, doing it could be akin to shooting yourself in the foot. Presumably that is not something you want to do?

The post was right in theory when it said that you should strive for alignment between the travel and expense management program and both procurement and finance, but only right in practice if alignment is appropriately defined. According to the author, alignment is achieved when three goals are achieved. The first two goals, which should be achieved, were:

  • Linked capabilities that can capture all booking options which is important because no spend, and no relevant detail, should be lost and
  • Seamless, repeatable processes that result in “straight-through” expense-processing and the ultimate elimination of manual intervention for any expense that does not require manual intervention

because once you see where the spend is going and what the spend should be, and put the right rules in place, there’s no point in wasting a whole lot of manual effort on it.

And the third goal, which should never, ever be pursued without proper definitions was:

  • Pure alignment between the travel and expense management program and both procurement and finance objectives

Why? Because pure alignment dictates that an exception to the rule is never allowed, and there will always be situations during travel where the rules need to be relaxed, and full adherence to the objectives defined in the author’s previous post means that no T&E without an immediate financial return is justified. We already did a two-part rant on why that is not the case (in parts I and II), but it seems we have to remind you of the importance of controlling spend and keeping departments on budget, and the importance of keeping your hands off of policy.

Track, measure, report, and process efficiently — but stay out of policy. The minute you over-step your bounds, the minute the other departments turn against you. And that’s not what you want.