An Interview with Peter Smith on ‘Bad Buying’ and ‘Procurement with a Purpose’
With Christmas fast approaching, now is a good time to consider those last minute book purchases for the Christmas stocking – and for any business enthusiasts in the family, we have the ideal recommendation: “Bad Buying — How Organisations Waste Billions Through Failures, Frauds, and F*ck-ups,” by Peter Smith.
HICX was pleased to welcome Peter recently to our interview series on data in Procurement, in which we asked him more about his book, as well as his other project, ‘Procurement with a Purpose.’ In this discussion, we focus more specifically on the role of data and how it can be used both to avoid ‘Bad Buying’ and to support ‘Procurement with Purpose.’
The role of data in ‘Bad Buying’
‘Bad buying,’ is the term Peter uses to capture the notion of corporations wasting billions of dollars through failures, frauds and f*ck-ups. His book, website and podcast are all designed to “shine a fearless spotlight on the things that go wrong with corporate buying and procurement.”
One of the major shortcomings that sits at the heart of ‘bad buying’ is the lack of robust, accurate data. As Peter Smith explains, “I think probably the number one aspect of procurement data coming through the book in terms of failures and frauds is in the fraud area because when you look at so many of the frauds, they are based on things like fake suppliers, fake invoices, or invoices not being checked – what we call invoice re-direction fraud.”
Peter recalls in the interview some of the examples of major fraud that he provides in the book, such as the scenario which impacted the Olympic Delivery Authority (ODA), responsible for procurement during the London Olympic Games in 2012.
As Peter concludes, “The point about data is that, if you had really good data about your suppliers, if you had checks on the suppliers coming into your orbit, if you were verifying vendor master data when you first started dealing with a company, then it wouldn’t be possible for someone inside your firm to just invent a company, or register their own company, and then get money paid to it. So, data is very significant when it comes to fraud.”
Improving use of technology
Peter explains that he has seen an increasing role for technology over the years, as he adds, “Now, the good news is, in terms of the future of procurement technology and systems, there is no doubt that, in the last ten years, things have improved – both in terms of the quality of the technology that is available and in organizations’ willingness to take it on. They have realized that just having an ERP system, with a bit of a purchase-to-pay side to it, doesn’t mean that you’ve done digital procurement by any means.”
Peter says he is seeing more firms investing in “anything from better supplier data management, to contract management systems and smarter sourcing systems,” adding that risk management is proving to be another growing area.
Procurement with a Purpose
In our discussion, Peter defines what he means by ‘Procurement with Purpose,’ a project that he is undertaking in association with Mark Perera, founder of Procurement Leaders. Peter explains that ‘Procurement with Purpose’ is all about, “how organizations can use their third party spend to help the world in broader and wider ways.” As Peter describes, it is founded on the United Nations’ ‘Sustainable Development Goals,’ (SDGs) to include environmental, social and economic challenges: “Everything from Human Rights, to destruction of the rainforest, from diversity in the supply chain, to climate change.”
Peter believes that there are two main drivers behind the move towards ‘Procurement with Purpose,’ namely the changing attitudes of consumers and the push for competitive advantage.
“A lot of it is because consumers are demanding to know, for example, more about how firms are handling issues such as deforestation; or the farmers in their supply chain, farmers who may be working for not a lot of money in developing countries. There is a demand there – and organizations are realizing that you can actually generate competitive advantage by doing some of these things. It means that they are both the right things to do in terms of the future of the world, but they also generate immediate advantage.”
Peter continues: “Many organizations, not just the consumer goods companies, have realized that they can achieve far more by having an impact on their supply chain, rather than what they can achieve by just ‘doing stuff’ internally.”
According to Peter, this is also having an impact on the role of Procurement, with the rise of, “individuals who are both the CPO, Chief Procurement Officer, and also the CSO, Chief Sustainability Officer. There’s quite a few of those individuals now, because, for them, the whole question about sustainable business largely rests in their supply chain as well as within their own business – or more than it rests within their own business.”
The role of data in’ Procurement with a Purpose’
Peter confirms that, for ‘Procurement with Purpose’ to be successful, there are huge data issues to be overcome. For instance, in order for ‘Procurement with Purpose’ to work, you have to have a deep understanding of your supply chain, which is not at all straightforward. Peter provides one example in relation to addressing deforestation in the consumer goods food and beverage area:
“You might have a small grower, who sells to some sort of local agent or middle man, who then sells [that product] on to a mill that does the first level processing. There might even be a bigger mill that does more work, then it’ll probably go to some large agricultural company, who looks to sell it, i.e. the trading company. So there’s different tiers in that supply chain. And if you really want to address deforestation, you have to understand that supply chain all the way through. Increasingly companies and their consumers want to know where things come from.”
Board level attention
The ‘Procurement with a Purpose’ mission is also driving conversations at board level, as Peter describes, “The board are actually very open to having this discussion and it is probably an easier route into getting board level attention at the moment than going back yet again, saying ‘can I tell you about my new category management strategy and how we’re going to save 6.3% on our consulting spend?’ They have heard that message for a long time and have probably got a bit cynical about it.”
Peter concludes, “If we want to be an organization (and a procurement function) that really leads on purposeful procurement, and that avoids bad buying, we’re going to need good people and good systems. If you can get that message across to the board, and they buy into the concept and the strategy, then investment should flow out of that.”