Deloitte in its CPO Survey of 2019 argues that CPOs should eliminate complexity that “introduces risk and hampers procurement performance … where possible” while exploiting so-called “good complexity.” They see complexity as the catalyst for transformation of the status and influence of procurement.

“Complexity can be exploited to expand procurement’s influence beyond traditional sourcing-centric spend management toward a broader engagement model and service offering. This includes efforts to more broadly influence business stakeholders in strategic areas (e.g. capital expenditures, enterprise risk management), as well as to more deeply influence stakeholders through demonstrated leadership in areas such as corporate development.”

AT Kearney descries the disparate spread in outcomes between the haves and the have-nots, quantified by something they call the Return on Supply Management Assets score.

Those who get it right are two to three times as efficient as the average company and more than ten times as efficient as the weakest performers.

The overarching problem is that supply chain is not plugged into the C-Suite the way it should be.

“Procurement executives at the leading companies see themselves as strategic business partners. They are aligned with the CFO. They maintain strong credibility and visibility within the enterprise. And they work collaboratively with business units – not just to reduce basic costs, but also to evaluate trends and identify new drivers of value. As a participant at our CPO Roundtable explained, ‘CPOs get fired for not delivering high-impact cost reduction, and promoted if they also deliver strategic value that goes beyond cost reduction.’ … While 80 percent of leaders focus more than 70 percent of their procurement team on strategic activities, only 17 percent of other companies do the same.”

It may well be that strategic value is far more important than cost reduction. Procurement may be optimizing for the wrong objective.

Here’s Accenture on what they call the “strategic disconnect:”

“The strategic disconnect between supply chain and the C-Suite can have negative consequences. At many enterprises, the business as a whole simply doesn’t see the supply chain as a driver of differentiation and aggressive growth. Chief Supply Chain Officers, meanwhile, blame the absence of a clear business strategy, together with an inadequately skilled workforce, and incompatible legacy systems for their function’s failure to drive value.”

A combination of complexity and C-Suite bias means that most procurement departments lack the teams and the technology to do anything more than keep their heads above water, in a self-reinforcing cycle of tactical reaction leading to being discounted strategically. 

And that was before Covid.

Covid is an opportunity for procurement (as part of a broader supply chain organization) to reset its relationship with the rest of the enterprise, but particularly with the C-Suite. To do so, they will need to emphasize two lessons:

• Procurement is risk, not cost: We have written about this elsewhere. Cost minimization is indistinguishable from a conscious decision to take additional risk. It is no different than an investment manager who writes options on his portfolio to juice his returns. It works until it doesn’t work. Procurement risk can make or break a company in times of crisis where the winners win big and the losers go away.
• There is upside risk, as well as downside risk: The Covid crisis with its K-shaped recovery in which there are big winners as well as desperate losers demonstrates that risk is opportunity for those who are exposed to benefit from it, or who are nimble enough to recognize it early and adapt.
• To manage risk, we need data and tools: McKinsey summarizes it well when they write “… digitizing supply-chain management improves the speed, accuracy, and flexibility of supply-chain risk management. By building and reinforcing a single source of truth, a digitized supply chain strengthens capabilities in anticipating risk, achieving greater visibility and coordination across the supply chain, and managing issues that arise from growing product complexity.”

The good news is that we don’t have to reinvent the wheel.

Again from the McKinsey note:

“Organizations should build financial models that size the impact of various shock scenarios and decide how much ‘insurance’ to buy through the mitigation of specific gaps, such as by establishing dual supply sources or relocating production. The analytical underpinnings of this risk analysis are well understood in other domains, such as the financial sector – now is the time to apply them to supply chains.” [emphasis added]

If there were ever a moment for procurement to step up and claim its rightful piece as a strategic function within the enterprise, now is the time. Part and parcel of this aspiration has to be to show the rest of the management team that procurement has the tools and the approach to deliver. They will want to see data. They are already familiar with financial risk management. Put those two together and procurement leadership can shine.

This is precisely why we built EdgeworthBox. Our background is in financial services as risk managers and developers. We saw the need to build a layer that could enable risk management in strategic sourcing the way investors look at and shape the risk profiles of their portfolios. We bring tools from financial markets including central clearing of vendor administration, central clearing of structured data, and social networking with which the enterprise can assess and mould its exposures, in a way that complements whatever they use today. 

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Axios reports that “the COVID-19 outbreak has caused supply chain disruptions for nearly three-quarters of U.S. companies, and many are already pricing in revenue losses this year as a result, according to a special ISM survey.”

Here’s the Financial Times on March 8, 2020:

“Peter Guarraia, who leads the global supply chain practice at Bain & Co, estimated that up to 60 per cent of executives have no knowledge of the items in their supply chain beyond the tier one group.”

“Lora Cecere, founder of Supply Chain Insights, a research group, said two-thirds of businesses do not even know the locations of their second and third-tier suppliers, let alone the factory names and critical details needed to make a solid assessment.”

In the pursuit of ever cheaper inputs, American companies have put the country in a strategically difficult position.

“About 72% [sic] manufacturers of pharmaceutical ingredients supplying the U.S. are overseas, including 13% in China, according to FDA testimony last year.”

“’The problem we are facing is: What is the risk? We just don’t know,’ Pocan said in an interview.”

This is terrifying. To put things into an economic perspective using the framework developed by Frank Knight, “risk applies to situations where we do not know the outcome of a given situation, but can accurately measure the odds. Uncertainty, on the other hand, applies to situations where we cannot know all the information we need in order to set accurate odds in the first place.”

You know who doesn’t like uncertainty? Capital markets. They despise it. US equity markets entered bear market territory on March 11, even as credit markets were panicked with the yield on the 10-Year US Treasury Note trading down below 0.4%, briefly on March 9, 2020.

Corporations globally were self-insuring the risk of supply chain disruption without any real sense of how bad the checks could be that they might have to write.

Imagine if someone were willing to write hurricane insurance on a house without bothering to take the time or energy to check out where it was located, or what the history of tropical storms had been in the area, merely asking the broker about how much premium they could earn. Is it really a surprise that the homes with the highest rates were the ones in harm’s way? Or that when the Big One finally came, the collected premia didn’t come close to covering the damages?

U.S. News & World Report summed it up well:

“In a way, one central question for supply chain dynamics moving forward seems to be greed versus safety. Stockpiling, redundant suppliers – these prophylactic measures cost money, Broadman says.

“’The reality is that many of these manufacturers and retailers have experienced disruption in the past and agreed that the cost savings were worth the risk,’ says Steve Agran, a managing director with Carl Marks advisors, a middle-market investment bank and advisory service.”

What are the problems in sourcing that led us to this point and what could sourcing staff have done differently?

Sourcing Has to Change and It Has to Change Now

In the context of sourcing, full supply chain visibility means knowing who your suppliers are, who your suppliers’ suppliers are, and so on all the way through to the original input.

Let’s consider a simplified, fictitious example: a fabless analog semiconductor company called HypeCom. HypeCom designs chips and outsources manufacturing to a third party. HypeCom uses Taiwan Semiconductor as its sole Tier 1 supplier a semiconductor fabrication facility. (HypeCom isn’t big enough so they concentrate all their volume with Taiwan Semiconductor to get the best pricing.) Taiwan Semiconductor would, in turn, source blank silicon wafers from one set of companies as well as electric power and semiconductor manufacturing equipment from various other companies. These suppliers to Taiwan Semiconductor would be Tier 2 suppliers for our fabless semi company. The wafer companies would need to source sand from yet someone else who would be … a Tier 3 supplier for the fabless semiconductor company.

If HypeCom is like most companies, they know everything there is to know about Taiwan Semiconductor. They have visited the plant in Taiwan where Taiwan Semi produces the chips and spent time with senior management. They parse the quarterly financial statements and public disclosures religiously to understand and quantify the risk that Taiwan Semiconductor presents to HypeCom operations.

What they don’t do is research who Taiwan Semi sources from. They don’t know where they get the wafers or the power or the equipment. Even if they did know some of the names, they have no information or follow through in conducting a diligent investigation into these suppliers, many of whom are private companies. They haven’t asked Taiwan Semi for this information either. Everyone other than Taiwan Semi in this contrived case is said to be an “invisible” supplier, from the HypeCom perspective.

Yet, HypeCom is exposed to weaknesses in these Tier 2 and Tier 3 suppliers. What if there is a run on wafers that causes Taiwan Semi to slow down production for all its clients, giving preference to its largest, most strategically vital customers? Or, if there is a quality issue with the sand that leads to plummeting yields in the fab? This can negatively affect HypeCom’s ability to fulfill contracts to its own customers who may be using HypeCom chips to make smartphones.

These kinds of cascading, unintended consequences are indicative of complexity. Designing analog semiconductors is a complicated art at the best of times. But, HypeCom’s business exhibits a fragile vulnerability to factors not only beyond its control, but outside of its awareness.

The funny thing is it keeps on happening!

Tom Linton and Bindiya Vakil write for Harvard Business Review, “While most companies could quickly assess the impacts that Fukushima had on their direct supplies, they were blindsided by the impacts on second- and third-tier suppliers in the affected region.”

The tsunami that hit the nuclear plant in Fukushima took place on March 11, 2011.

There are even cases when people know that they are taking a risk, but they do it anyway because the upfront economics are irresistible. Consider the HypeCom sourcing officer who sole-sourced a large contract with Taiwan Semiconductor in order to concentrate volume and ensure that they get the supply when things are tight.

Those cost savings are the insurance premium HypeCom collects for the house in the Caribbean with the good view of the beach.

Why does sourcing not pursue full visibility into their supply chains?

On the face of it, there don’t seem to be any good solutions other than brute force labor. But, good procurement staff are difficult to find. Procurement departments are short-staffed. They are struggling to keep up with the massive bureaucracy that is the RFP business process. (Even then, they fall prey to “shaped” RFPs.) Depending on what they source, companies may have a ton of small suppliers, who have their own suppliers. Everyone thinks that they need to keep their cards close to the chest. There are lots of reasons.

Sometimes people just don’t comply with the procurement policies. Sourcing has become such a complicated endeavor that people end up treating it as a pro forma exercise in compliance instead of executing it the way it was intended.

It is often not about getting the right thing from the right supplier at the right price as much as it is about appearing to follow procedure.

Over time, sourcing on paper has come to look like a belts-and-suspenders process, but in practice is more of a clothing optional affair, to Buffett’s point.

Procurement expert Sigi Osagie is spot on in Spend Matters:

“Purchasing processes that are cumbersome or entail too many worthless activities drain value from Procurement’s work … If your processes (and any related systems or tools) are arduous, don’t expect high levels of compliance.”

These Kinds of Shocks Are Going to Keep Coming

The Wall Street Journal refers to the accelerating pace of global pandemics (or, at least, our heightened awareness of them) “including SARS in 2002 and 2003, Swine Flu (also known as H1N1) in 2009, MERS in 2012, Ebola in 2014-2016, Zika in 2015, and Dengue in 2016.”

“Epidemics of infectious diseases have become a regular part of the global landscape in the past quarter-century, thanks in part to economic trends including urbanization, globalization and increased human consumption of animal proteins as society becomes more prosperous, these experts say.”

“Mr. Daszak estimates pandemics could cost as much as $23.5 trillion over the next 30 years. That estimate includes not just lost economic activity and property, but also the statistical value of lost human lives.”

Investors are going to demand that companies have more robust supply chain procedures in place and they are going to incorporate an assessment of supply chain risk increasingly into corporate valuation.

Staffing Constraints Make the Problem Worse

We have written previously about the difficulties of getting the right procurement staff in place.

Combine this with the nature of the process and it’s no wonder that people cut corners. There is a reason why so many RFPs are “shaped.”

The Procurement Office has a good note on this dimension of the problem. They highlight the vicious spiral in which it is difficult to recruit, train and retain staff, leading to a constant under-staffing of procurement functions which, in turn, places even greater stress on those still in their jobs, motivating more of them to leave.

In fact, being short-staffed can lead to people to take the path of least resistance. “The GAO found that the high rate of sole-sourcing was caused by staffing shortages since the ETA had insufficient staff to properly administer the required tendering processes.”

Furthermore, “… the failure to properly staff a procurement department can have a significant adverse impact on an institution’s ability to properly manage its contracting practices. Public institutions should be careful to avoid normalizing staffing shortages since this can create a significant spiral effect of further staff departures that result in recurring cycles of sub-optimal contracting processes.”

As Baby Boomers and GenX employees approach retirement or restructuring, this may worsen, as experienced hands take their institutional knowledge with them to be replaced by a new generation of contracting staff who are impatient with bureaucracy and skeptical of bad technology.

What Would a New Approach Look Like?

The role of procurement is bound to evolve. As CIPS puts it, ““Procurement will play a key role in the management of these critical suppliers and supply chains. We might even get renamed ‘risk managers’ or ‘supply chain protectors.’”

Procurement staff will focus on complexity. “Future employees may expect to self-serve the majority of their procurement needs through established systems, leaving purchasing and supply professionals to concentrate on solving complex issues, partnering and sustainability.”

First, sourcing has to understand the problem. Staff need to be able to convert the uncertainty of an invisible supply chain into the known and understood risks of a visible supply chain. You can’t manage what you cannot see. Linton and Vakil suggest active management of company’s Tier 1 and Tier 2 suppliers with knowledge of the risks of every other supplier. Understand your exposure to get a sense for how to mitigate risks that your investors are not paying you to take. This means knowing what is happening operationally and strategically for these suppliers. Are their corporate restructurings in the sector? Is there M&A? Have companies been reporting poor financial results? Is there litigation in the sector?

This isn’t going to be free. As CIPS points out, “During this crisis, companies are recognizing the value of supplier relationship management programmes – especially when a supplier treats the organization as a priority customer if stocks are limited. However, buyers also understand the need to accept price rises as part of the relationship while the supply/demand equilibrium changes.”

Second, sourcing needs to diversify its supply. We need to redefine the concept of value-for-money to be “the right thing from the right suppliers at the right price and an appropriate level of risk.” Diversifying sourcing by spreading the business across multiple suppliers, in different geographies, is a prudent first step. Ensure that your suppliers don’t rely on the same set of Tier 2 and Tier 3 suppliers. Such overlap defeats the purpose of diversification.

Third, lay off the risk of business disruption that your firm cannot or will not manage itself to third-parties who are willing to insure your firm in consideration for a premium. Perhaps, there are “natural” hedgers out there, including in the firm’s customer base. Understand the fundamental commodity markets. Try to make sure your customers are paying you for the risk you are taking.

For example, Pilgrim’s Pride filed for bankruptcy in 2008 because their pricing model had them manage the underlying commodity price risk on behalf of their customers. Extreme volatility in the prices for key input commodities and poor management of this price risk combined to force the restructuring. When the company exited from bankruptcy, they had changed their pricing model to put the commodity price risk onto their customers (as did the other producers in the chicken industry).

Fourth, build up inventories of key parts, especially for those items that the firm must purchase on a sole source basis.

Fifth, collaborate, collaborate, collaborate.

Here is Supply Game Changer on the pervasive sense that collaboration with suppliers will become necessary, ““Sixty-five percent of procurement practitioners say procurement at their company is becoming more collaborative with suppliers, according to The Future of Procurement, Making Collaboration Pay Off, by Oxford Economics.”

Get this right and it’s not just about securing supply, it becomes a much deeper relationship. “Suppliers don’t just collaborate with you to provide a critical component or service. They also work with your engineers to help ensure costs are optimized from the buyer’s perspective as well as the supplier’s side. They may even take over the provisioning of an entire end-to-end solution. Or, co-design with your R&D team through joint research and development.”

This kind of fundamental change in the buyer-supplier relationship is enhanced by bringing in others from across the buyer firm to the conversation.

“Supplier relationships, like every aspect of the integrated supply chain, have grown increasingly complex. To achieve a competitive advantage it’s important that you approach sourcing as a strategic, systematic, cross-functional and cross-enterprise process. By establishing active collaborative relationship, sourcing evolves beyond pure transaction management to a networked, mutually beneficial partnership.”

The more that procurement staff know about the priorities of the business units, the better poised everyone is to assess and weight the risks involved. Procurement becomes strategic, as this CPO rising article points out:

“In the field of international relations, the parable of the stag hunt is used to describe and explain the dynamics, opportunities, and risks of collaboration versus competition. If countries (or in this case, buyers, line-of-business users, and suppliers) collaborate to hunt big game, like deer, the reward can be mighty: if they are successful, every member of the hunting party will take home their fair share. But if party members break off to pursue small game, like rabbits, then the rewards will be smaller and each party will be a competitor. In the realm of sourcing, going it alone may seem like the natural and rational thing to do, but the risks often outweigh the rewards. Meanwhile, sourcing organizations that have adopted a more collaborative approach are, among other things, helping to develop both new products and lower cost products, identify new markets to enter, and find M&A targets in the supply base. There’s something for every one to gain in the hunt.”

That is to say, it’s not just collaboration with suppliers, though. Collaboration with other buyers has benefits, too. There is collaborative procurement, for example, in which buyers jointly purchase items. Get this right and you can purchase in larger volume (producing greater cost savings), even as you diversify your supply, while reducing the duplication in effort of your already hard-pressed procurement staff. And you just might learn something about the category from another procurement officer at a different organization.

Sixth, find and use good quality, structured data. Data is the key to making procurement part of strategy, interfacing with other parts of the buyer enterprise, and measuring and managing sourcing risk. This article sums it up well.

“When procurement data is combined with data sources such as operations, finance and even human resources, new insights into cost control, cash flows and even fraudulent transactions can be generated. I firmly believe that the procurement team can play a central role in the data transformation of a company.”

Key to enhancing supply chain visibility and managing supplier risk is going to be data about the suppliers, located accessibly in a structured, preprocessed format. Supply Chain Brief gets it right.

“In another recent report, Gartner predicted that by 2023, organizations that don’t really tackle the issue of supplier master data management will very likely have the wrong information for half of their suppliers. When you think that many CPOs are looking to Supply Chain professionals in their organizations for data which will be used to make strategic decisions on AI, IOT, blockchain and contract automation, there is definitely a compelling reason to get this right. But it’s not easy.”

Combine this with staffing shortages and demographically driven turnover in procurement officers, the need for good quality data becomes more urgent as automation solutions can drive actionable intelligence. Per McKinsey:

“For deeper insights into purchasing data and trends, we find that advanced analytics-based systems beat traditional models every time—and the capabilities require little added investment. In most cases, all it takes is a change in mind-set. Since the potential savings from better-informed negotiations are so substantial, procurement functions have no excuse for delay.”

How Do You Implement a New Approach?

What we’re talking about here is re-engineering a business process and giving the team the tools to make that happen.

The best way to implement this change is to focus on the right technology.

At EdgeworthBox, we have taken a holistic approach to building a platform with this kind of process re-design in mind. We have layered three sets of tools on top of a marketplace that matches buyers and suppliers. The tools come from financial markets where these kinds of questions about sourcing and risk are routine for participants who trade millions of times daily in a compliance-intensive environment. We designed our 21st century app-like user experience to appeal to the changing, younger workforce.

We have a central clearinghouse for administration focused on making supplier risk management much easier for both buyers and suppliers. EdgeworthBox converts the traditional cumbersome one-to-one supplier onboarding into one-to-many vendor management using our version of a common application. Suppliers can just give potential buyers access to the relevant answers and supporting documentation with the flip of a switch. A process that IBM takes more than a month to execute (with seventy steps!) can be reduced to a minute, once the documentation is uploaded. Suppliers also benefit from only seeing relevant RFPs, avoiding the noisy stream in which they live now and missing fewer opportunities. With EdgeworthBox, a buyer can ask its Tier 1 suppliers to have their Tier 2 and Tier 3 suppliers join the platform for ready access to their underlying information.

We have a central clearinghouse for structured data, in two repositories (one private with restricted access to the firm user, and one public with government information). This data shows information about live RFPs, historic RFPs (and the interactions around them such as supplier responses), and historic contracts (including prices paid).

We have social networking to promote shared information on profile pages as well as a messaging platform that connects buyers to other buyers, suppliers to other suppliers, and buyers to suppliers. Collaborate, collaborate, collaborate. With Tier 2 and Tier 3 suppliers on the EdgeworthBox platform, particularly in times of crisis, buyers can get direct information from their full supply chain.

Our business model is such that buyers pay a small monthly SaaS fee for this functionality, a fraction of what they pay for their existing solutions. In fact, one way to think of EdgeworthBox is as a service that augments the existing investment in ERP services or cloud-based P2P or S2P systems. With the buyer’s organizational license, they get an unlimited number of seat licenses so that individuals from Finance, Operations, Product, Marketing, and Sales can join in the procurement conversation. Suppliers join for free.

Take a free trial. See what it’s all about for yourself. If you like what you see, give us a shout.

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Part of this is demographic. As Baby Boomers retire, they are being replaced by Millenials and, soon, Gen Z. The intergenerational friction associated with this transition is no different in purchasing than it is anywhere else.

There is also the phenomenon in which people from different functional backgrounds are joining procurement departments.

“Instead, the challenge of managing the new procurement workforce lie in the assimilation of functions now called on to support my efforts in managing the global supply chain. The individuals and groups that join procurement may include planning, transportation and logistics, customer service, operations, and other functions directly or indirectly supporting supply chain operations.”

This is complicated further by the fact that much of procurement ends up decentralized, as divisions and units take acquisition into their own hands, either as part of corporate strategy or just organically.

How do you integrate people with different backgrounds and levels of experience into a culture of procurement? How do you ensure that people behave ethically if they don’t know the ethical issues associated with buying? How do you train them on best practices? What if they don’t like the systems you use?

All of this is taking place against a backdrop of technological disruption. Legacy systems and ERP installations are migrating to the cloud, often with different tools.

Perhaps, the best way to think of this is as a grand opportunity to revisit the business process itself, especially for the cumbersome Request for Proposal process.

The intention of the RFP process, as with all of the business processes in procurement across the acquisition spectrum, is to put in place a protocol that raises the likelihood of obtaining value-for-money in the purchasing decision. By surfacing competition on price and service, buyers can get the best solution for their problems, at the best price, from the right vendors (typically those with the least risk).

However, the process has become so difficult that purchasing departments run this as a pro forma exercise, genuflecting to the compliance department, even as their actions discourage competition on price and service and potentially put their companies at risk.

EdgeworthBox takes tools from financial markets and grafts them on to the traditional RFP, ensuring a compliant approach that surfaces more proposals from suppliers by lowering the frictions that keep them from bidding. Our “network-based sourcing™” approach enables buyers and suppliers to update the way they do business with one another, with a 21st century data-intensive user experience. Reach out to us for a consultation. Or, better yet, sign up for a free trial.

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The US Department of Justice announced “the formation of the new Procurement Collusion Strike Force (PCSF) focusing on deterring, investigating, and prosecuting antitrust crimes, such as bid rigging conspiracies and related fraudulent schemes, which undermine competition in government procurement, grant and program funding.”

It is an interagency group made up of people from Justice’s Antitrust Division, 13 US Attorneys’ Offices, the FBI, the DoD Inspector General, the USPS Inspector General and “other partner federal offices of Inspector General.”

They are targeting those who would “cheat, collude and seek to undermine the integrity of government procurement.” This fits right in with the traditional role of the Inspectors General in identifying and eliminating “waste, fraud, and abuse” in government, at every level.

By the historical examples they cite in the release, the Strike Force presumably addresses suppliers acting in concert to defraud the government buyer based upon the “five South Korean oil companies,” and “seven individuals for conspiring to rig bids and to defraud the government.”

Consider these terms: fraud, abuse, conspiracy. The dictionary definition of conspiracy is “a secret plan by a group to do something lawful or harmful.” Or, fraud: “wrongful or criminal deception intended to result in financial or personal gain.” Or, abuse: “use (something) to bad effect or for a bad purpose, misuse.”

Notice that the description of the mandate is, in the way of bureaucracy, purposefully broad with the intent to investigate “bid rigging conspiracies and related fraudulent schemes, which undermine competition in government procurement …”

Here’s an interesting question for the Strike Force and any other commercial buyer, too. When a supplier “shapes” an RFP so that other buyers decide not to bid (because they conclude that the buyer has pre-determined the winner of the competition, signaled in the description of work and other rules around the procurement), does that constitute a fraudulent conspiracy?

Is it abusive? Yes, shaping is abusive if it turns the RFP bid solicitation into a pro forma exercise in compliance that defeats its central purpose of getting as many bids in competition on price and service as possible.

Is it a conspiracy? Yes, if we refer to the interaction between the buyer and the supplier who “shapes” the RFP. The buyer saves time and energy by getting the supplier to “write” the RFP for him. And, as I have been told countless times, everyone just knows that this is the way the RFP process works. You can be certain that they don’t tell anyone else that this is how things took place. The buyer may not be sophisticated enough to understand that this has happened himself.

But, is it a fraud? Or, is it just good salesmanship? After all, people do business with one another every day for the purpose of financial or personal gain. The critical test here has to be “wrongful or criminal deception.”

Here’s a blog post talking about the elements of fraud:

“Generally, in order to state a cause of action for fraud or fraud in the inducement, the complaining party must allege (1) a false statement of fact; (2) known by the defendant to be false at the time it was made; (3) made for the purpose of inducing the plaintiff to act in reliance thereon; (4) action by the plaintiff in reliance on the correctness of the representation; and (5) resulting damage to the plaintiff.”

Let’s imagine a scenario. Company XYZ decides that they want to buy trucks because they have determined that trucks are the solution to a problem they have. The XYZ C-Suite appoints an internal team to manage the procurement of the fleet of trucks: a procurement officer (“Jill”) and a line manager (“Bob”), in this case someone who uses trucks in the department he manages.

Bob and Jill are tasked with conducting a process that solicits as many bids from people who solicit trucks as possible so that XYZ can see a diverse array of possible truck solutions and so that XYZ can drive competition on price. They want to find the right truck at the right price, sold preferably by a supplier with low risk (and ideally one owned by someone from a historically disadvantaged group).

Bob doesn’t know anything about buying trucks. Jill may or may not know anything about buying trucks. They are under pressure to make this purchase happen sooner rather than later. Management doesn’t understand what’s involved; they just want to wave their hands around and get the answer. Bob has a day job and no time or budget to conduct market research.

So what does Bob do? He calls Company 123 whom he knows makes trucks, tells them that he is in the market for trucks, and asks for their (free) advice.

But nothing is free. Company 123’s salesperson, Devin, emphasizes all the factors about trucks that 123 is good at and de-emphasizes everything that 123 is bad at. Devin even offers to write up what a sample statement of work might look like.

Bob has his answer! He doesn’t have to do much work. He writes the RFP with Jill, who wraps it in the rules that compliance expects them to have for conducting this kind of auction. Jill emails a number of potential truck suppliers the RFP and she tries to get them to respond.

But when the other vendors see the statement of work, they know that 123 wrote the RFP, which means that 123 is going to win. This is now, as far they can surmise in the asymmetry of information, a done deal. So, why spend tens of thousands of dollars and tens of man-hours putting together a proposal that will fail with virtually perfect certainty.

Maybe XYZ receives proposals from a couple of vendors who don’t get the joke, smaller, scrappier companies that think they might have a shot.

Here’s the argument that one of those small scrappy suppliers might have to argue fraudulent conspiracy.

There was a false statement of fact: submit your proposals because we here at XYZ haven’t made up our minds yet. The RFP lists all the procedures XYZ will use to score and rank the bids in competition, the presence of which reinforces this impression of a level playing field. Bob knows who he is going with and is going through the motions with this exercise. Bob knew that statement of fact was false when he made it.

Bob issued the statement for the purpose of inducing suppliers to act in reliance thereon. If Bob and Jill don’t get enough bids (“three bids and a buy”), then the whole process might fail (depending on the XYZ procurement rules). It will certainly make Bob and Jill look bad if only one or two suppliers submit bids, in any event.

The vendors act in reliance upon the correctness of the representation that it’s a fair fight. What supplier would submit a proposal if he knew he didn’t have a chance of winning?

The resulting damage to the supplier is the time and money he spent on the RFP and the opportunity cost of business he missed by focusing on Bob’s opportunity instead of another opportunity that might have been actually fair.

It’s not hard to make a reasonable case that a “shaped” RFP is a rigged RFP.

What percentage of RFPs are shaped? It’s hard to say. Many of them are won by incumbents, for example. Do you think the incumbent isn’t shaping that RFP continuously? Do a search on Google for “shape the RFP” and you’ll see plenty of instructions on how to do it.

By this logic, any shaping of an RFP is bid rigging. It doesn’t matter if it’s government purchasing or a commercial buyer. Is this way your organization wants to do business as a buyer? Are you serving your stakeholders and obtaining the best value-for-money? Are you willing to take this kind of legal risk?

Does shaping help your organization get value-for-money? The answer is obviously no. Your employees cut corners and your firm pays the price.

EdgeworthBox makes shaping of the RFP irrelevant and unnecessary if the underlying cause is speed and access to data. Our central clearinghouse of data gives buyers access to plenty of examples of statements of work for any conceivable purchase. Our social networking tools give them access to other buyers so they can get market information from unbiased, neutrally disposed individuals who have no interest in shaping an RFP. The user experience makes it easy and simple to access a wider variety of suppliers and to lower the frictions for them in responding to an RFP so that they don’t have to respond only to those they think they can win with near-perfect certainty. And our audit trail of communications means that compliance can rest easy. Give us a shout or take a free trial.

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Yet, today, services make up the majority of what large organizations spend their money to acquire, according to this fascinating webinar from SirionLabs entitled, “Is Procure-to-Pay Destroying Value?” Taking data from Forrester and the US Bureau of Economic Analysis, SirionLabs points out that services make up 58% (or $21.6 Trillion) of “global third-party expenditure.”

Goods are straightforward. If you want to buy 100 pounds of C20000 copper, buyers negotiate a price, suppliers invoice the customer, buyers agree to the invoice, suppliers deliver, buyers verify the delivery of the correct amount and the designated grade, and buyers process the payment. This is procure-to-pay.

Services are their own beast.

They have different business models. One could structure the contract around designated outcomes (“you built the house”), performance (“your call center met the designated service levels during this economic period”), or on a resource-price basis (“you supplied five people to work for three months as developers on our project at a designated hourly wage of $100/hour”).

Services are complex and dynamic. Goods have a single dimension (or maybe a couple of dimensions) to deliver: quantity and perhaps some minimum level of quality, as in the grade of copper above. Services have potentially multiple dimensions of service levels to meet, some of which can change over the course of the contract, as buyers and suppliers adjust the contract to reflect the way in which their ultimate customers behave. And services contracts may be tied to other services contracts or services deliverables for the buyer organization, leading to potentially cascading outcomes. This explodes the complexity of the sourcing and subsequent contract management problems.

Services are not discrete. They are delivered continuously and irregularly. When a buyer engages with a service provider such as a cloud-services provider, they are turning on the pipe. The buyer may consume more or less of the service over time, irregularly and possibly unpredictably.

Services may be difficult to measure. How do you, as a buyer, even know if the supplier has delivered what they said they would deliver? How do you know that you are not overpaying on the invoice consequently? What are the spillover costs to your organization’s growth and other plans from not having been delivered (but still paying as if you did) the full level of service in the invoice?

All of which has two implications.

For sourcing, collaboration between service providers and buyers must start before the contract is signed and extend continuously through the life of the contract, enabling dynamic optimization of the service from both perspectives. Contemporary tools do not contemplate this kind of interaction.

Contract management and downstream services such as invoice processing and payments are much more complex, requiring AI tools such as SirionLabs to extract and reconcile the multiple dimensions of performance in these contracts.

EdgeworthBox is a SaaS-enabled marketplace that is built for this new world. We have layered three sets of tools on top of a marketplace engine: a clearinghouse for administration (primarily consolidated vendor management so that suppliers only must register once); a clearinghouse for data (regarding live and historical RFPs and contracts, enabling market research and more accurate opportunity search); and social networking tools (messaging and profile pages). Coming from financial services, we have built an approach called network-based sourcing™ that revolves around collaboration and dynamic trading environments. It is designed to be used as a standalone service or as a complementary layer on top of existing ERP and P2P systems. Let’s talk about how to improve procurement.

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Core to the six types is conflict of interest. Procurement staff have a duty of loyalty to their organization. But, in an age of cost cutting and layoffs, in a time of conspicuous personal consumption, it can feel as if the organization’s loyalty to the individual is diluted. In that light, some people fall prey to the Faustian compact and prioritize their personal needs over their company’s requirements. They use corporate resources in ways that have negative consequences for the buyer over time.

“SAS research shows that almost 31 percent of businesses in the UK have fallen victims to contract bid rigging, and over 43 percent have been given fraudulent invoices. Besides, the PwC has ranked procurement fraud as the second most prevalent economic crime since 2014.” That quote comes from this CIOReview article entitled, “How to Avoid Procurement Fraud?”

The Gordian knot of rules and procedures that buyers employ hasn’t prevented procurement fraud. If anything, one might argue that these processes and their attendant complexity and opacity have enabled procurement fraud.

My sense is that most organizations may feel lulled into a sense of complacency that the putative rigor of procurement is a protection against malfeasance.

According to this framework from James R.S. Gayton in his MBA thesis at the Naval Postgraduate School, there are six classes of procurement fraud.

1. “Defective Product/Product Substitution”: Supplier promises a good that meets the buyer’s requirements but delivers something inferior and cheaper-to-deliver, pocketing the difference in cost as pure profit.

2. “Defective Testing”: Supplier doesn’t perform the required tests to the standard agreed upon in the contract.

3. “Bid–Rigging”: The buyer pays a higher price because either the buyer, the supplier, or the two of them set up a bid scenario that artificially limits competition.

4. “Bribery and Corruption”: This involves a supplier paying someone with influence or control over a purchase to sway the decision in their favor, potentially at a higher price than a truly competitive dynamic would produce.

5. “Defective Pricing”: When suppliers certify a price during the bidding for a contract, only to raise those prices in the delivery phase (citing ostensibly unanticipated cost shocks), this constitutes misrepresentation.

6. “False Invoices”: Either submitting an invoice for goods or services not delivered or submitting a full invoice when delivery has been incomplete is outright theft.

It’s easy to imagine the bribery and corruption cases. Here are a couple of great examples from Supply Chain Dive.

“A manager showing everyone the keys to a condo in Florida he borrowed from one of his suppliers, bragging about the family trip he had planned during school vacation. But he was upset that he couldn’t find anyone to pay for the airfare … and meals.”

“The buyer who yelled at the supplier for bringing a case of liquor to the buyer’s desk at holiday time, and for not putting the bottles in the buyer’s unlocked car trunk as directed. It seems as if the trunk was already filled with some new golf clubs and there wasn’t room.”

Our belief is that bid-rigging and defective pricing are likely the two most common types of fraud.

Some of the experienced procurement hands reading this article will read some of these classes of fraud and recall specific instances where they have seen this.

For example, imagine an IT services contract where the dominant criterion is price. It might be to supply three Java developers for three months to bolster the in-house development team on a new website. One supplier strategy might be to lowball the price below any reasonable price, undercutting all the competitors, subsequently raising the price to levels that exceed the total cost of delivery that the reasonable competitors would have ended up charging. This is not an unusual scenario. It is fraud. Do people identify it as such? Or, is it so commonplace in the context of the archaic RFP business process that people fail to recognize it as such?

How angry and frustrated does it make suppliers who submit ironclad bids to get undercut on price by a competitor they know will raise the price exorbitantly once they have won the contract?

And what happens to the people get caught doing these things? Are they prosecuted? More likely, they move on to the next buyer … and nobody knows. They pull the same defective pricing “act” with an unsuspecting newbie.

Whenever we tell laypeople that we want to adapt the RFP business process for the 21st century, we get the same earful.

“Oh, it’ll never work. The whole thing is political. It’s about the supplier who gets to write the RFP.”

That’s exactly the problem! What these laypeople are describing is bid rigging. This is what they think of procurement.

Imagine that you are an honest supplier and you see this kind of activity. I can guarantee you that it keeps suppliers at bay. Why invest all the time and money in developing a proposal if you think that the fix is in and the buyer has picked the winning vendor already, executing the RFP as a pro forma gesture for the compliance Gods?

When you start to think of instances like this, it’s no wonder that PwC characterizes procurement fraud as “the second most prevalent economic crime since 2014.”

In the case of “wired” RFPs that have been “shaped” by a supplier salesperson (as they are trained to do), this sort of kinder, gentler bid-rigging is a result of the fact that buyers don’t have the time or the money to conduct diligent, independent market research. Suppliers get to write the RFP for the buyer because buyers just ask salespeople to educate them about the marketplace, in the absence of any quick, inexpensive ways to acquire this knowledge.

One possible solution to the problem of fraud is to use data to try to identify unusual relationships or red flags. CIOReview sums it up well, “The analytics approach leverage [sic] machine learning to balance the behavioral anomaly detection.”

Things are compounded even more as procurement becomes decentralized.

Again from Supply Chain Dive,

“Where it all breaks down is in the decentralization of the procurement process. “Do it yourself purchasing” is becoming the procurement strategy at many organizations now and likely others in the future. As a result of enterprise level supply management software, and an effort to control staffing, procurement gives up significant control of buying to engineers, lab managers, facilities staffs and assorted requisitioners across the company, each with their favored suppliers.

“While there may be established contracts and approved supplier lists, maverick spend outside of those constraints continues to be an issue, leading to the potential of bad behavior for buyers and sellers. “Some sellers look to the unsophisticated buyer as an opportunity to infiltrate a company, bypassing the purchasing department and gaining direct access to the customers. The new “buyer” may just assume gifts (or more) are considered business as usual, given the traditional reputation of the purchasing agent.

“There are also those in the supply chain management function with increasingly unsupervised supplier communication, including planners, expediters, transportation managers, warehouse managers and anyone with direct supplier communication as a result of changes in the supply management process. They have direct and unmonitored access to suppliers, for better or for worse. Increased supplier interaction by those with limited ethics training, or even malintent, provide an opportunity ripe for unethical behavior by customer and supplier alike. This can undermine ethics related compliance and put a company in legal jeopardy.”

So, an ideal solution would combine analytics for behavioral anomaly detection, an audit trail even in a decentralized context that permits people from across the organization to access procurement directly, and tools that made the six types of corruption less likely to happen.

EdgeworthBox attacks these three problems head-on. Analytics are impossible without quality data in a structured format. We enable companies to organize all of their procurement data in a private repository for live RFPs, historical RFPs (and the attendant responses), and historical contracts using a structure promulgated by the Open Contracting Data Standard that was developed to fight corruption in emerging markets public procurement. We also give buyers and suppliers access to similar data in a public repository, typically related to government purchasing. Buyers can also use or social networking tools to connect to other buyers for market intelligence. Our business model charges organizations a license and then offers an unlimited number of seat licenses within the organization. This brings in different functions such as Finance, Operations, Sales, and Product to the sourcing conversation, making it truly strategic. It also reflects the entropy towards decentralized procurement, bringing with it an audit trail. Give us a shout at sales@edgeworthbox.com. We’d love to talk to you about what we’ve learned.

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Templates are a way to impose order and accelerate the timeframe. They superimpose a structure on the document for buyers who write them.

See this article from The Procurement Office which, in turn, refers to the UNCITRAL protocol.

http://procurementoffice.com/newsreel-for-september-9-2019/

Some of these relate to the procedure. For example, every RFP will have a procedure for suppliers to contest a decision, the “Bid Protest Procedure” from the chart above. In this framework, there are elements present in every process, elements that are determined by the type of format one is executing, and elements that vary from instance to instance.

Sophisticated procurement organizations may have templates for the first two; it is much less likely that they have a template for the third.

Specifically, I refer to the description of the Statement of Work. This is the idiosyncratic element of the RFP that marries the buyer committee’s work to gather intelligence about the specific category market with their individual requirements.

More than this, it often requires finding information about what the buyer organization has done in the past.

This data is often unavailable to buyer committees. It may be siloed, or difficult to find. Dark data refers to the way in which this data tends to be locked up in systems and not used.

Ideally, buyers would have one place where you could see examples of recent RFPs written by other organizations for the same category.

Think of it as a template for setting up the Statement of Work. Given enough examples, despite the idiosyncratic requirements of the buyer’s situation, there should be enough commonality to provide the framework for the Statement of Work. The professional procurement staff can take care of wrapping the procedural parts and finishing the RFP.

EdgeworthBox enables this database. It is a platform for transforming the RFP business process to drive cost reduction efficiencies (including cost avoidance), to promote enterprise-wide strategic engagement with purchasing through an easy-to-use interface, and to enable the use of data and social networking to obtain better outcomes. Our platform, borrowing features from financial markets in an interface we deem to be like a “Bloomberg machine for procurement,” enables much easier search for and vetting of suppliers while also facilitating communications with our contemporary messaging platform. We call it Network-Based Sourcing™. Drop us a line. We would love to talk to you more about your individual situation and how we can help you.

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The Hackett Group has an excellent article entitled “World-Class Procurement: Redefining Performance in a Digital Era” published earlier this year that talks about some of their findings.

“The Hackett Group defines digital transformation as ‘improving customer experiences, operational efficiency, agility and business value contribution by fundamentally changing the way services are delivered, using digital technologies as the enabler of holistic transformation.’”

Fundamentally changing the way services are delivered.

Procurement is a service organization within the enterprise. It is subject to the same forces of change as every other part including a shifting fabric of risk, massive technological disruption, rapid development of new business models, intensified competition, changing social mores, demographic trends, and political disruption.

It must change the way it does business to adapt to these volatile conditions.

Key to this transformation, as Hackett notes, is that “Procurement organizations are moving beyond inward-focused KPIs to also measure the experience of their key internal and external customers.”

That is a powerful statement.

When it works, the effect is profound: “… world-class procurement influences 93% of spend versus 64% for more typical organizations (i.e. the peer group) and generate 75% more savings.”

There is a circle of trust here. If you engage procurement in the strategic conversation, then procurement can help the enterprise obtain its strategic goals more effectively. But, first, the organization must trust procurement. Are they reliable? Can they deliver? Do they have the human capital and the right tools to add value? Are they easy to deal with, or is the customer experience painful and bureaucratic?

In world-class organizations, procurement strategy is viewed by 75% as aligned with overall business strategy, compared to just 40% for the peer group, per Hackett. All of this is even more critical when one considers the ongoing tendency to centralize purchasing.

When they get it right, Hackett estimates the Return on Investment for world-class firms is 11.0% compared to just 5.0% for the peer group, with cost avoidance making up 24% of total cost savings. 95% of survey participants see the objective “Elevate the role of procurement as trusted advisor” as either “highly important” or “critically important,” on par with “Reduce and avoid purchase costs.” Of course, when procurement measures its performance, it is still tilted towards buying the “right goods and services AND at the right price” with “Value management,” “Demand management,” and “Total cost of ownership” taking a back seat.

This is all true even as savings as a percentage of spend falls as procurement’s influence increases. When procurement gets involved for the first time, they can obtain large savings of 8.3% on average, but these taper to 4.7% as they have a more persistent influence and the easy one-time gains at the beginning are no longer available.

This means that the raison d’etre for procurement must become more strategic in driving value creation at the enterprise-wide level.

This is compounded by the changes in the workforce as Millennials come onboard. See our earlier comment on the difficulty in finding and keeping good procurement talent.

How do you engage people in procurement in a world of beautiful user experiences, immediate response, and data-driven decision-making?

EdgeworthBox is a platform for transforming the RFP business process to drive cost reduction efficiencies (including cost avoidance), to promote enterprise-wide strategic engagement with purchasing through an easy-to-use interface, and to enable the use of data and social networking to obtain better outcomes. Our platform, borrowing features from financial markets in an interface we deem to be like a “Bloomberg machine for procurement,” enables much easier search for and vetting of suppliers while also facilitating communications with our contemporary messaging platform. We call it Network-Based Sourcing™. Drop us a line. We would love to talk to you more about your individual situation and how we can help you.

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It can be a contract for sub-contracting, or something more primitive like a letter of intent bridging the parties to the signature of an eventual contract should they be successful in bidding.

One company performs the role of prime contractor and there may be one or more subcontractors. The prime contractor may execute some of the work while also acting as the overall project manager, using the subcontractor to extend capacity or capabilities.

On its own, the subcontractor may not be able to win the business but can still participate in the contract and gain experience, while also potentially increasing their capacity or gaining new skills and relationships. Often, buyers require extensive experience that subcontractors, including startups, just don’t have.

It is intended to be mutually beneficial.

It doesn’t always end up that way, depending on the power dynamic between the prime and the sub. For example, imagine a complex project with a large prime contractor whose principal focus is on management of many subcontractors. Complexity here means that there are intricate inter-dependencies between the work of different subcontractors, leading potentially to cascading failure if the orchestra conductor doesn’t do a good job.

Given the length of the bidding process, which in the case of government RFPs can take years, there are important dimensions to the teaming arrangement. Can the prime lock up the subcontractor exclusively, or can the subcontractor work with other primes? Does the contract with the buyer need to mandate terms related to the subcontractor relationship? Does the subcontractor have a seat at the table in negotiating the contract with the buyer? How much can the subcontractor trust the prime with intellectual property and other confidential information? How do the parties propose to allocate risk among themselves? What kind of transparency should the parties provide to the buyer as part of the bidding disclosure?

There are two critical problems that the prime contractor faces in developing a teaming arrangement.

First, prime contractors must find the subcontractors. This is a search problem. Often, primes will work with subcontractors with whom they have worked before. This may cause them not to seek out potential partners with whom they have not worked in the past. Search costs are high because the primes must ensure that they vet the subcontractors for risk.

Second, primes and subs need to collaborate. This means collaborating on winning the RFP, or the task order in the case of an Indefinite Delivery, Indefinite Quantity contract, including coordinating resource availability. This is complicated further when buyers don’t communicate well themselves. Problems cascade.

Another way to think of teaming is that as a response to category management.

Category management refers to the way in which some large buyers will consolidate internally their purchases of items, or will work with other buyers, to purchase in scale, thereby obtaining price economies for themselves. It is used commonly for indirect spending. We have written elsewhere how category management leads buyers to purchase from large sellers. It is fundamentally difficult for smaller sellers who lack the scale or the scope of large sellers to compete. This discriminates especially against businesses owned by women, minorities, and members of other disadvantaged groups.

Teaming, especially when it involves smaller suppliers teaming with one another, effectively acting as their own prime contractors, enables these firms to form large enough cooperatives to compete with large suppliers.

Category management with its consolidation of buyer activity within and across purchasing organizations feeds income and wealth inequality. Here is Professor Nathan Wilmers from the MIT Sloan School of Management:

“… I found that, over time, as a company becomes more reliant on sales to big buyers, its wages and labor costs tend to decline. I also looked at what happens when big buyers merged together. I found that when big buyers consolidate, wages at their manufacturing and logistics suppliers go down. And this phenomenon — the increasing power of large buyers — explains around 10% of wage stagnation since the late seventies.”

EdgeworthBox enables teaming, in all its applications, by solving both the search problem and the collaboration problem. Our platform, borrowing features from financial markets in an interface we deem to be like a “Bloomberg machine for procurement,” enables much easier search for and vetting of suppliers while also facilitating communications with our contemporary messaging platform. Prime contractors can act as buyers on the platform, demonstrating to their ultimate clients a similarly disciplined process for soliciting subcontractors to the one the buyers use to decide upon prime contractors. We call it “network-based sourcing™.” Drop us a line. We would love to talk to you more about your individual situation and how we can help you.

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“Dark data is data which is acquired through various computer network operations but not used in any manner to derive insights or for decision making. The ability of an organization to collect data can exceed the throughput at which it can analyze the data.”

It is data that enterprises collect, but don’t use to its full effect.

This likely understates the problem. It is also messy, unstructured data.

To say that data is messy means that it needs to be preprocessed before it can be used.

“Data preprocessing is a data mining technique that involves transforming raw data into an understandable format. Real-world data is often incomplete, inconsistent, and/or lacking in certain behaviors or trends, and is likely to contain many errors. Data preprocessing is a proven method of resolving such issues.”

Whereas, unstructured data “is information that either does not have a pre-defined data model or is not organized in a pre-defined manner. Unstructured information is typically text-heavy, but may contain data such as dates, numbers, and facts as well.”

Large enterprises today have large, growing pools of messy, unstructured data that nobody is using. It’s not a data lake. It’s a series of loosely connected cesspools. This unused data is sitting in legacy systems, often, accessed by too few people.

In the case of procurement, access typically means procurement officers. When a large organization executes an RFP or RFQ, the company pairs up a businessperson, like a program manager, with a procurement officer. The function of the procurement staff is to make sure that the RFP complies with the rules while the program manager is focused on making sure that the acquisition meets the organization’s business requirements.

Practically, this means that the only people that access sourcing data are the procurement staff. Sure, the program manager and whatever committee there is put in place to review the acquisition get to see the proposals that suppliers submit.

But, often, they don’t get to see information from their own organization’s prior RFPs directly; the businesspeople need the procurement staff to get that for them.

Businesspeople also don’t get to see the RFPs issued by other buyers, or the contracts signed by other organizations. Procurement staff often don’t get to see that information. And even if anyone did, they would be hard-pressed to see it in a usable preprocessed, structured format.

The solution to this is to have a layer with a 21st-century user interface that sits on top of the incumbent system, extracting the dark data, preprocessing it, and presenting it in a structured format accessible to a wide constituency across the organization.

For years, people have spoken about the need to make the strategic sourcing process actually strategic, as opposed to the functional backwater it is in practice in many organizations. Here is Ayming talking about the issue in this July 2017 Procurement 2020 report:

“’Procurement continues to become more strategic,’ says Alejandro Alvarez, director of operations performance at Ayming. ‘Companies that have seen the value that can be driven from good procurement would say it is now a strategic priority. Savings are not a particularly high focus. It’s more about service delivery.’”

If procurement staff really want to engage at a strategic level across their organizations, they need to make the information practically usable and available to the point that it influences the way decisions are made about product design, sales and marketing, and finance.

EdgeworthBox is a platform for exactly this purpose. It sits on top of the incumbent procurement processes and brings information to bear for use across the organization. We combine a marketplace with features from financial markets including a central clearinghouse for administration; a central clearinghouse for data; and social networking tools. Think of it as a Bloomberg machine for procurement. We call it “network-based sourcing™.” The data sits in a structured format, adhering to the Open Contracts data standard, partitioned into a public repository and a private repository. The public-side data is shared information about live RFPs, historical RFPs, and historical contract awards, typically from government agencies. The private-side data is organization-specific information about live RFPs currently being considered, historical RFPs and responses, and contracts the organization has signed. Users also get access to one another and to counterparts in other organizations on the EdgeworthBox platform. Let’s talk. We’d love to hear about what you’re doing and how we can help you get more out of your existing processes and infrastructure.

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