Guest author: Ben Shute, FCIPS , Chief Executive Officer Comprara & Purchasing Index
Sales Trend 3 from the Barrett 12 Sales Trends Report for 2019 looks at how trust influences procurement and how changes in the industry are affecting this relationship.
What does it mean to trust someone? It certainly does not mean that we know everything about them. Indeed, after a certain point, further information is meaningless. Studies have shown that once an impression is made, new facts don’t necessarily trigger a reassessment. If our trust is formed based on first-hand interaction, we are even more resistant to change based on other people’s experience. So when it comes to trust, there are two types of errors we can make. We trust when we shouldn’t, or we don’t trust when it is perfectly safe to trust. Procurement is about trust. But trust is the one thing that’s in low supply in today’s world.
Why don’t we trust anymore?
The great oxymoron of our time is that we live in an age where trust in institutions is low, but at the same time, we are putting more trust in strangers as individuals. We live in a global village that’s powered by apps. We get in unmarked cars with strangers because an app tells us that “it’s the Uber you ordered”. We let strangers into our guest bedroom, trusting Airbnb not to send us someone unsavoury. Yet, the 2018 Edelman TRUST BAROMETER reveals a world of seemingly stagnant distrust. What is going on?
There is no consensus on the reasons why the sharing economy is taking off in a climate of stagnant distrust. But it does put those of us in procurement in a tricky position. The consumer wants to trust us. Just like they want to trust their Uber drive is going to get them to their destination without incident. But that trust is fragile.
On the supply side, we operate in the global marketplace. There are always new emerging markets, new potential partners and new potential clients. To get the best deals, we sometimes have to go with someone new. But how do we trust someone on the far side of the world? How do we get them to trust us? What about the end-point consumer of a supply chain?
We Trust that you are trying to do good
In procurement, we have to think about supply chain efficiency, cost-effective purchasing, and the stability of vendors. We also have to think about the overall integrity of the procurement process, and all this relies on trust. Thanks to the rise of social enterprises, we are now asked to consider a new one metric: use procurement spends to have a positive social impact. The rise of social procurement is a call to be mindful of the types of vendors we choose to deal with. But if our clients are asking this of us, we have to trust that our supply chain partners are as ethical as they say. In turn, our clients trust that when we make claims of social impact, we are truthful.
Procuring from a social enterprise is usually no different from commercial vendors, because social enterprises are for-profit ventures. But choosing to deal with a social enterprise means that your procurement spend has a positive impact on society as a whole.
The difference between a social enterprise and just a commercial enterprise usually rests with the company’s mandate. The mandate can take many different forms. For example, some social enterprises pride themselves in providing a pathway out of poverty, homelessness or some other social disadvantage by providing training and meaningful employment to at-risk groups. Others have a pay and support model, where X number of paid goods and services, sees the donation of goods and services to social-economically disadvantaged groups. Other types of social enterprise are simply about sustainability with the emphasis on the circular economy. But in all cases, we have to trust that the social enterprise is what it claims to be and not simply jumping on the bandwagon without substance. But to know if a business is trustworthy, we need data. But with data comes privacy concerns and a whole new set of legislation.
Data, privacy and the law
Data is the new oil. Data is driving everything from agriculture to manufacturing, to the service industry. However, even as data is fuelling everything from grassroots activism to viral marketing campaigns, the gathering and use of data have come under increased scrutiny. So it should because data is a powerful tool and like any tool, it can be used for good or evil. Data has value, and thus it is worth stealing and owning. But so new is our data-driven world that we are still working through questions of ownership, usage, governance, ethics and more.
Procurement has always had a storehouse of data. Every contact with a potential vendor, even if the contact is an exchange of introductions, is data. Every successful and unsuccessful negotiation is a new data point. Every execution of a contract is another data point. Without even trying, procurement can build up a valuable cache of data.
2018 was a landmark year for data related legislation. Fuelled by undeniable proof of social engineering through data individuals freely shared on platforms such as Facebook. On the heel of many high-level data breaches, and just growing concern and awareness of data issues, governments around the world have enacted multiple legislations. In Australia, the Privacy Act 1988 was used to establish the Notifiable Data Breaches (NDB) scheme that dictates organisational obligation when a data breach happens. The scheme is a response to some high profile data breach incident in recent years. Not all the breaches were reported in a timely manner. Meaning, any storehouse data within procurement departments have to be well guarded.
The European Union, meanwhile, is rolling out the General Data Protection Regulation or GDPR. Europe has always had one of the strictest data protection provisions centred more on privacy, and many of them are codified under GDPR, including the “Right to be forgotten”. GDPR will impose stringent penalties for non-compliance. 4% of annual turnover could be sacrificed due to non-compliance, but the cost of compliance is also high. Especially since one of the key provisions of the GDPR is that the data held is current and up-to-date. The latter is likely to result in many companies purging older customer data, instead of archiving the data. I.e. procurement has to lose some of the data is built up over time.
However, there is a downside to purging data and forgetting history so to speak. If done incorrectly, we leave ourselves open to losing valuable insights and foresight that a complete dataset could provide. But at the same time, we have to understand that neither the NDB nor the GDPR is meant to hamstring us. Treated properly, they can form powerful cornerstones of the house of trust.
In Technology we Trust
With the global marketplace, the increased complexity of doing business, we are turning more and more to technology to help us trust. Two technologies that have come to the forefront are blockchain and smart contracts, which are often fuelled by blockchains.
The blockchain is a distributed digital ledger that records transactions with copies shared amongst multiple unrelated parties. Entries cannot be deleted or amended only added to. The “trust” in the blockchain comes from its immutability, and it is this trust that confers much of the value associated with bitcoins. Blockchain can work with GDPR and other legislation that requires data deletion. But compromises must be made in the short run.
The “smart” part of the smart contract is reflective of the fact that a computer algorithm is involved in the process of creating the contract. Smart contracts can have the added element of being written into a “block” of a blockchain and thus gaining a few other technology-enabled properties that make them superior to their paper counterparts.
The block of a blockchain is a data store. So a contract can be “written” in a block. The power of the Blockchain is in its simplicity. A contract in a block would be copied hundreds of times. Meaning that it is harder to falsify or collude to alter terms. It is certainly more difficult to misplace the data in the shredder. The idea is that a thousand years from now, you would still be able to follow the chain of blocks back and get a good idea of what contract was entered into, today. Also, because of repetition, the chances of a blockchain surviving to thousand years is much greater.
It is important to remember that neither smart contracts nor blockchains or any other technology create trust. It’s an event bigger pitfall to think these technologies allow us to conduct business without trust. Most would argue that blockchains neither create nor supersede trust but merely ask you to trust in the technology. So in the end, we return to the simple question, “Do you trust me because I am in procurement? Or do you trust procurement because it is me?”
Remember everybody lives by selling something.