Can the UK Help American Manufacturers Shift Their Sourcing of Critical Materials?

Maybe, but not in the way this recent article in SupplyChainBrain suggests. The article, which really had the doctor scratching his head, referenced the Atlantic Declaration and how the United States and United Kingdom are resolving to build resilient, diversified, and secure supply chains and, more specifically, bolster the U.K. as a source of five critical minerals: cobalt, graphite, lithium, manganese, and nickel.

While we need a secure supply of these minerals in the Americas to ramp up and sustain EV (Electrical Vehicle) production, as the article also notes, the UK is the world’s 12th largest exporter of cobalt, 16th largest of graphite, 12th largest of manganese, 11th largest of raw nickel, and doesn’t even make the charts on Lithium. It can ramp up all it wants, these numbers aren’t going to change (because every other country is ramping up too), and the bigger countries (likely) have deeper reserves.

Plus, the UK, with very dense cities like London and limited land mass, is in desperate need of EVs itself to keep its smog levels down, so how much can it really afford to export?

The reality is that the UK can help by working with the US to identify non-China sources of these materials, use their collective bargaining might to secure supply at a sustainable cost, and help manage suppliers who are closer to / more used to working with the UK than the US. Similarly, since the UK is a small island and will likely need to import these vehicles (since the local market size doesn’t make an automotive production plant an economical investment for most automotive brands UNLESS a significant part of the UK market would switch to that vehicle), it can also guarantee a market for any suppliers that it secures those materials on behalf of.

Plus, if UK and US companies team up, they can split the effort and share their knowledge and best practices, and the more creativity you have to solve the upcoming challenges, the better — and chances are that the UK, who no longer have the weight and support of the EU backing them up, needs to be very creative these days.

Anyway, while we applaud the joint effort, it’s doubtful that the UK is going to solve even a fraction of the US need raw material wise. But human capital wise, they are even more incentivized than the US to solve these challenges.

B2B Marketplaces Have Their Place But …

… don’t look to them as a foundation for supplier collaboration! While it’s nice to see Procurement platforms and technologies getting noticed in Financial publications, the juxtapostion of the headline and subheading on this recent Financial Express article made us go “OI! YOY! YOI!”.

The headline was great:
Integration of B2B marketplaces into supply chain networks for increased efficiency

… it’s exactly what Finance needs to hear as B2B Marketplaces are a great solution for commodities or products typically bought spot-buy on the open market, and much more efficient than sending out an RFP for something you can find and buy quicker, easier, and cheaper online, and definitely better than searching half a dozen supplier sites to find the right product at the right price.

And the subheading started off great:
A notable opportunity for enhancing Supply Chain Management (SCM), as rated by 53% of businesses, lies in collaborative efforts with suppliers.

… because collaborative efforts are not only a great way to increase efficiency, but also increase value by lowering cost, increasing quality, adding capability, etc.

But the way the sub-header ended was head-scratching to say the least:
… The answer lies in utilizing user-friendly and efficient B2B marketplaces.

NO! No, No, No, NO! If you want to collaborate with suppliers, you need a modern Supplier Management solution that focuses on supplier development, innovation, and collaboration.

B2B Marketplaces were created to help buyers find (new) suppliers to buy from and to help suppliers widen their potential customer base when buyers find their products in a search and check them out. They were not setup for collaboration and the extent of “collaboration” on the majority of these platforms is asynchronous messaging. That’s not collaboration! Not even close.

In comparison, a Supplier Management platform with

  • Relationship Management will not only support asynchronous messaging, it will also support collaborative project/product plans and a best practice/knowledge base for both parties
  • True Network Management and not just an integrated online marketplace will also support a true bi-directional graph, bi-directional search, classification, and anonymous (peer)
    reviews
  • Proper Discovery will not only support simple searches, but deep location, product, capability, and multi-factor searches; proactive web-search and web-site monitoring; anonymized ratings and reviews; and deep product sheets and history management
  • Orchestration Management will support multi-tier linkages, cascading onboarding, and multi-tier supplier support so that you can quickly and easily onboard the supplier onto your own personal Supplier Management instance that you can customize to your liking
  • Enablement Management will add an integrated supply-centric portal, sustainability guidance, and true supplier-led innovation support

In other words, this article, which could have focussed on the core value of B2B Marketplaces and introduced them as a first step into the Procurement world, with an entire suite of valuable tools to help an organization, missed the mark.

For more information on what a proper Supplier Management platform should do, as well as a list of vendors who offer these platforms, see parts 15 to 20 of our The 39 Steps … err … The 39 Clues … err … The 39 Part Series to Help You Figure Out Where to Start with Source-to-Pay.

Supplier Management

Part 15: Supplier Management is a CORNED QUIP Mash

Part 16: Supplier Management A-Side

Part 17: Supplier Management B-Side

Part 18: Supplier Management C-Side

Part 19: Supplier Management D-Side

Part 20: Over 90 Supplier Management Companies to Check Out

THE Sign That You Need a CPO

The Supply Chain Management Review recently published an article on the top 10 signs that your organization needs a talented chief procurement officer. They were all good reasons, but they kind of suggested that you needed multiple reasons to hire a CPO. The reality is that you only need one reason, it’s very straight forward, and it almost needs no explanation. In fact, most of you will get it right away, so we’ll give it to you straight away, and you can stop reading now if you like.

The Sign That You Need a CPO: Your organization spends over 10 Million a year.

That’s it. Easy, eh? No top ten list. No long winded explanations. No complicated requirements. Just one number. Just one check.

Why is it this easy? Simple. Good Procurement practices will save your organization at least 10% across the board, regardless of current market conditions. Why? Even if costs are going up, if best in class Procurement practices weren’t deployed in the past,

  • even previously sourced categories will not have maximized savings
  • the process will have been inefficient, which would have cost the organization time, resources, and opportunity costs on other categories
  • most tail spend categories would have been completely ignored
  • many orders would have gone out without POs
  • most invoices would not have been closely checked, resulting in over-payments
  • etc. etc. etc.

So, if you’re spending 10 Million, a CPO is going to save 1M at a minimum. That’s going to be 3X or more the CPOs fully burdened cost in a smaller organization. Simple calculation, simple rule.

Procurement Automation: Good. Automated Procurement: Bad.

We shouldn’t have to say this. It should be very clear by now. But given that a number of vendors are using the terminology interchangeably, possibly to convince you they have the right solution, maybe it’s not clear. But it needs to be. Because procurement automation is NOT the same as automated procurement and while procurement automation, properly done, is the best investment an average over-burdened and under-resourced Procurement department can make, on the flip side, AI-driven automated procurement is the absolute worst. To put things in perspective, downgrading Excel to Lotus 1-2-3 would be a better move. But let’s back up, and start with some definitions.

Procurement Automation is the process of automating certain procurement tasks that can be best accomplished by machines and procurement automation technology is the technology that automates the tasks that can be best done by machines. In simpler terms, it automates the “thunking” by doing all of the tactical, almost mindless, work that is a waste of a senior Procurement professional’s time.

The Source-to-Pay cycle is full of tasks that are best done by machines when appropriate rules and boundaries are defined. For each major area, we’ll outline some of these tasks as an example.

Intake/Orchestration

Procurement Automation will analyze the request, identify similar requests made in the past, identify the actions used to resolve those requests, identify the suppliers considered and selected, the products and services used, and other information. It will present that information to the buyer, including the suggested actions, and allow the buyer to one-click initiate any of the suggested actions, which might include a sourcing event, contract renegotiation, catalog purchase, etc.

Sourcing

Procurement Automation will, when a user kicks off a sourcing event for one or more products, automatically bring up the suggested suppliers, automatically suggest the appropriate questionaries and forms, automatically suggest the appropriate Ts and Cs to insist on up front, automatically send the RFP to suppliers, automatically analyze the responses to make sure they are complete, in the correct format, and in an expected range; automatically compare the responses to find deviations from the norm; automatically highly the lowest and highest costs, CO2 factors, etc. and present all that information to the buyer.

Supplier Management

Procurement Automation will, when a supplier is selected, automatically handle the onboarding; monitor the data for changes; monitor the performance metrics; monitor the OTD; monitor third party financial and risk metrics; and alert the buyer to any issues and performance changes that are detrimental or may indicate forthcoming problems.

Contract Management

Procurement Automation will, when an award is selected, push the award into the Contract Management system, automatically generate the draft contract, send it to the supplier, highlight any redlines the supplier makes when it comes back and automatically inform the supplier if any non-negotiable terms and conditions (including those they agreed to when they responded to the RFP), and automate the generation of the response email when the buyer does their redlines.

e-Procurement

For catalog buys, it will automatically generate the POs, route them for necessary approvals, distribute them to the suppliers when approved, automatically match the ASNs when they come back, alert the buyers if ASNs are not received in a timely basis, and match the invoices when they come in.

Invoice-to-Pay

When the invoice comes in, it’s automatically matched to the purchase order, it’s checked for price accuracy, identified as partial or full, verified to be non-duplicate, and if any checks fail, it’s bounced back to the supplier with a description of the issues and a request for correction and resubmission. If the resubmission deals with the problems, it’s queued waiting for goods receipt/confirmation if not present, or matched if present. If the match is made, then it’s automatically sent down the approval chain, and if it’s not made within a certain time period, an alert is raised.

In all cases, it’s automating the tactical tasks that don’t require any decision making and only involving the human when necessary.

In contrast, Automated Procurement is the process by where entire procurement processes are handed over to the machine to fulfill instead of the human. In other words, when an intake request comes in and the buyer marks it for sourcing, an Automated Procurement solution will handle the entire event up to and including the award and auto-generate and distribute the Purchase Order(s). The buyer is completely bypassed and the right inventory showing up at the right time at the right price is left entirely up to the machine. Sounds good in theory. Looks good in practice when it actually works, which it will some of the time. But grinds the company to a halt when it fails.

A machine that pursues lowest cost will select an unproven non-incumbent supplier for a critical part when the suppler, who has not supplied that particular part to the company before, outbids the incumbent. It will not detect that the bid was made in an desperate attempt to help the financially struggling supplier stay in business, that the bid is not sustainable, and that the supplier is not capable of producing the part at the indicated level of quality. Then, when the first shipment is mostly defective, and the promised rush replacement order never arrives because the supplier goes out of business, the production line for the 75K luxury car folds all for lack of a single control chip. (A similar situation has occurred in the past. Recently, chip shortages stopped Cherokee production in 2021, and that wasn’t the first occurrence. Or even the second, or third.)

Machines are not intelligent. Not even close. And expecting them to make a good decision every time with no logic whatsoever (as modern Artificial Idiocy algorithms just stack probabilistic equations on top of probabilistic equations almost ad infinitum) is lunacy. So while you should invest in the best Procurement Automation tech you can get your hands on, you should steer clear of any and all Automated Procurement Solutions those fancy new startups try to sell you. While those solutions may work 90% of the time, that last 10% of the time, they won’t work that great. And, in particular, that last 1% of the time they will fail so miserable that the disruptions and losses that result will more than cancel out any and all savings and efficiencies you might get from the 90% of the time the tech worked in the beginning.

Procurement Needs to Change for the Better … But it is Currently Stalled!

A recent article over on Supply & Demand Chain Executive noted that Procurement is Changing for the Better, but if you look at the 5 most strategic objectives from the recent APQC survey they referenced, two of the five focus on costs — specifically, #2 on reducing procurement costs and #5 on maintaining of improving margin. Just like the recent Ivalua/Procurement Leaders survey, cost is the focus, and all the real value they could be delivering is being ignored — and the doctor would argue that while Procurement may have been changing for the better before the pandemic, the supply disruptions and successive inflation that resulted since has not only stalled that progress but reverted Procurement back to its early days.

The reason, as indicated in an article over on CIPS, which also references the Ivalua/Procurement Leaders survey, is inflation. Rapid inflation, which has not only wiped out prior savings for many organizations but resulted in the Procurement department blowning past budgets, has resulted in the C-Suite ordering Procurement to contain costs through any means necessary, and, as the CIPS article has noted, this has resulted in the ESG agenda, along with other agendas, being pushed to the sidelines, if not thrown out entirely.

This is very sad. Not only because ESG initiatives are critical, but because the other three priorities from the AQPC survey are also more critical:

  • avoiding supply disruption
  • improving social responsibility in supply chain
  • improving supplier relationships

First of all, the number one focus of procurement should always be supply, not spend. Doesn’t matter how great the negotiated savings are, if you don’t get the goods, you don’t get the savings and, more importantly, if that was product to sell, you don’t get the revenue. No cash-inflow, no business. (Or, as we say up North, No Sale, No Store.)

Secondly, with carbon emission limits and carbon taxes coming in globally, ESG needs to be a top priority, especially in jurisdictions where you are responsible for all of the carbon in your supply chain.

Thirdly, your quality and capability is limited to that of your suppliers, so you want to improve your suppliers, and that requires good relationships. Furthermore, suppliers can be a source of innovation and creativity, but you won’t get access to any of it without good relationships.

So how do we get Procurement over the hump and back to strategy and not cost reduction regardless of the true price that is paid? It’s a good question, especially when the focus is always short term and not long term. Long term, innovation, responsibility, quality, and sustainability will result in the best value for money, but this never happens in the short term. So, focus on long term sustainability, get back to value, and show the organization what Procurement can really do.