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Dear supply chain manager, don’t become a dinosaur

Dear Supply Chain Manager,

You are making the same noises that a number of the procurement professionals I talk to make when I suggest that the system, whilst not broken, is costing your industry money it can not only ill afford but also putting you at the back of the pack.

Digitalisation is happening. The world is becoming digital. This is not just applicable to teenage girls Snapchatting naughty videos to one another. It is a fundamental shift in the way traditional industries are working, for the better, and the productivity gains which you can make by adopting digital technology are going to help your business win. Creative destruction is baring its teeth. Winners are being made, losers are being lost.

Spending hundreds of thousands, or millions, on your own bespoke procurement or e-tendering software is madness. Are you really so special that you need your own bespoke software package? 

You DO NOT have visibility of enough suppliers. There is no digital network where you can find them easily. It is extremely costly for you to engage with new suppliers and make sure that they meet minimum standards. The industry feedback we get around this is overwhelming: procurement specialists we interview are completely aware that their approved vendors will charge them 1.5-2.0x more than non-approved vendors (who have all the requirements to become approved). And the most puzzling thing about it all is the oft proposed solution: to reduce the number of suppliers (!!!). Yes, because it costs to engage with each supplier, you will reduce costs by reducing the number you engage with. But two wrongs do not make a right. A broken system is leading you to reduce competition, reduce choice, reduce optionality. I get that you are a big boy and think that you can squeeze suppliers down to their marginal cost of production, but this is a sure fire way to stagnate the industry in the long term.

Are your pre-qualification standards so special? Do you know how much not adopting industry standardisation around pre-qualification, i.e. enforcing on your own bespoke pre-qualification standards for suppliers, is costing you in the long run? In the UK you have 150+ buyers in the oil & gas industry and 7,000+ suppliers. Assumption: running a due diligence process on a supplier is expensive to do (both actual cash, and time). Scenario A: each buyer runs its own individual due diligence on each supplier, based on their own standards that are marginally (arguably trivially) different to each other. Scenario B: a standardised approach is adopted, where all suppliers go through the same pre-qualification validation for the benefit of all buyers. Take this thought experiment one step further, i.e. outside of the UK. Asian manufacturers are now upping their game and competing with UK suppliers. Want to have a crack at finding and pre-qualifying them all in-house, or would a standardised network-based approach save you time and money?

I could go on and on.

I hope this makes sense. You can join DeepStream here.

Kind regards,

Jack.

 

P.S. our basic service is free, and open to all suitable buyers and suppliers in the energy infrastructure supply chain. This means there is more choice, more visibility, more transparency, more efficiency. The sooner you join the less it's going to hurt catching up with your competitors who joined before you.

Written by Jack Macfarlane

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