Friday, September 28, 2018

Selection criteria for Vendors

There are different types of vendors that organisations deal with such as suppliers of materials and equipments, service providers, consultants and contractors etc. 

It is essential that before shortlisting a vendor (for calling for negotiations), proper evaluation of vendor is done systematically on important parameters ,particularly for inducting vendors for high value recurring buying of materials or services or for construction projects. 

Giving below important aspects that must be followed either through personal visits to vendors plant/office or through dialogues to assess vendor's capability:-

  1. Technical  infrastructure  ie use of suitable equipments, tools, jigs & fixtures & appropriate licensed software for production, installation & servicing of material to be purchased.
  2. Process controls at vendor‘s end for ensuring quality during production, installing & servicing or for rendering services under scope 
  3. System for compliance with reference standards/quality plans
  4. Monitoring & control of process parameters & end product requirements or for services requirements
  5. System for approval of  manufacturing or service rendering processes & equipment
  6. Criteria for workman ship & documentation  
  7. Equipment maintenance system to ensure process capability
  8. Leadership profile
  9.  International /National Quality certification of the company and it's products and services 
  10. Global footprint in terms of manufacturing operations or offices or customers or vendor associates.
  11. Ability and reputation in meeting legal compliances
  12. Skill & knowledge of vendor ‘s teams
  13. Experience in supplying similar materials or services  to corporate clients/exports etc 
  14. Industry standing/reputation /brand name etc

Unethical / Fraud prone practices

  1.    Missing  out assesment on many parameters by Assigning junior team members or inappropriately skilled persons thereby potential induction of non capable vendor/consultant or contractor .
  2.    In collusion with potential vendor, suppressing actual observations in vendor assessment report by assesing team member and giving biased opinion to shortlist   preferred vendor are unethical practices 
  3.   Senior management instructing vendor shorlisting  team to include vendor / consultant/relative who are their friends or relatives  and asking them to skip their formal  techno-commercial  evaluation.

Shortlisting a vendor is as critical and important as calling an  employee for interview without assesing his/her  qualifications and capabilities. Shortlisting and calling a vendor for negotiations ,without proper evaluation is all the more important if the vendor/consultant or contractor is going to be associated for  medium or long term supply of inputs /products or rendering of services.

Tuesday, September 18, 2018

Sales and Distribution - Pricing

In this post, I would like to share thoughts on potential unethical and fraudulent practices in Pricing aspects w.r.t Sales & Distribution as one of the key important process out of 30+ key  key processes identified for this function. Pricing is one of the most important decision sales team has to take for end product or its spares or for rendering after sale services. We'll first understand how pricing is determined and then talk about potential unethical and fraudulent activities that can happen there

I. For the customised products/spares for corporate customers or export, pricing is governed by factors such as actual costing, contribution & degree of customisation and intense negotiations between company and such clients.

II. Pricing, in the case of end products/spares sold through channel partners like authorised distributors, dealers, retailers & service providers prices  lists  are arrived after summing up following parameters:-
  1. Updated input-landed material costs of bought out material, required to be further processed by manufacturing team
  2. Manufacturing variable costs like direct power, tools, consumables and labour
  3. Marketing variable costs like packing, outward freight & insurance  
  4. Channel partner wise margins
  5. Expected costs of material supply of essential spares & consumables for running or operation of the end product during the free  warranted period
  6. Expected Costs of labour for rendering free services during the  free warranted period 
  7. Minimum desired company margins to avoid negative contribution arrived as per following formula
  8. Taxes (state wise)
III. Further following aspects are also considered relevant:-
  1. Competitor’s pricing
  2. At what stage of product life cycle, currently the product is
  3. Market segment
  4. Statutory restrictions
  5. Market situation in terms of political & social aspects

Potential unethical & fraudulent activities
Following are some of the unethical & fraudulent activities that can happen and we should be aware of:-
  1. Not factoring all above aspects while arriving at price/MRP
  2. Factoring incorrect taxes
  3. Deliberately not updating input cost elements in the pricing software  , while inputs costs changes are shared by finance or materials or manufacturing teams periodically  
  4.  Configuring incorrect algorithms w.r.t pricing conditions in the customised software or ERP module  vis a vis above listed   aspects  
  5. Deliberately not configuring limited period , approved incentive scheme or pricing procedure in price computation software
  6. Conniving with competitors and pursuing cartel approach for pricing of the products/spares   and servicing
  7. Deliberately missing out review of the prices of fast moving items
  8. Suppressing highlighting of negative contribution items  from price review team
  9. Colluding & making unauthorised circular changes in price lists or & effective date by accessing software (to oblige some channel partners /customers) due to non -monitoring of  audit trail
  10. Not sharing  transparently with customer , updated price lists/MRP by the  channel partner
  11. Valuable comments are invited from sales & distribution team on the above

Monday, September 10, 2018

Welcome to ethical business processes

The purpose of this website is to enable knowledge sharing about the potential unethical & fraud prone activities in key business functions and initiate  measures to prevent occurrences of such practices.

This becomes all the more critical & relevant in organisations having implemented ERP solutions or function specific softwares, in the present day business environments. 
The key business functions in any organisations include:-
  1. R&D or New product or service  development   
  2. Sales, distribution & marketing 
  3. Materials management  
  4. Manufacturing & Engineering      
  5. Project management
  6. Quality control & Quality  assurance     
  7. Finance & accounts    
  8. Legal
  9. Human resource management     
  10. Information technology & systems    
  11. Corporate services      
  12. Administration 

For identifying unethical or fraudulent activities, in each of the above twelve key functions, the key business processes need to be studied closely. As per 40+ years hands on professional experience of this author in private industry, about 300 key processes are  performed across any organisation, having all these functions. The number of key activities performed and work flows/transanctions in the  ERP environments, for these 300+ key processes, of course  run into  thousands. The author has experienced that for performing various roles across these functions, employees have to interact with and perform business transactions with  following 
  1. With in organisation : company promoters, board members, share holders &     employees (white collar and blue collar).
  2. Suppliers:  vendors, contractors, service providers, collaborators, consultants (technical, commercial, legal etc),marketing agencies
  3. Customers: authorised distributors, dealers, after service providers, end customers
  4. Business associates : Bankers ,financial institutes, investors, statuary auditors
  5. Statutory bodies : Licensing & tax authorities, law enforcing agencies ,regulators
  6. Others :  industry specific bodies, international trade  bodies and import/export regulators, shipping & transporters, insurance, media, social and political bodies and public at large   
These  thousands of  business activities  & transactions must be watched closely ,at the granularity level, to ensure that unethical or fraudulent activities are identified and prevented. Some of the root causes, identified by this author, that can trigger  unethical activities or frauds to occur  include following :
  1. Colluding amongst the stake holders (vis a vis each business process) to secure personal gains of the stake holders
  2. Granting business favours to business associates
  3. Sharing confidential information with unauthorised persons 
  4. Performing business activities not assigned to one's  role
  5. Gaining unauthorised access (in application softwares in various functions ) to work flows,configueration tables,masters ,data tables, designs & plans  ,financial documents,reports  etc and making  changes in these with no audit trails 
  6. Performing  functional activities without exercising due dillgence 
  7. Inappropriately  configuring  authority norms  in softwares  for creating, modifying, viewing, approving, deleting documents and data tables in ERP environments, vis a vis each function or  lack of these in manual environments
  8. Doing activities which are unlawful or prejudicial to the interest of the organisations
  9. Deliberately providing misleading information or suppressing material information to stake holders (promoters,share holders,investors,business associates, bankers/financial institutes,customers) or and statutory authorities with intent to deceive them 
  10. offering and taking bribes 
Valuable comments are invited  from professionals to share their experiences so that industries can benefit from their experiences and initiate countermeasures to prevent occurrences of unethical &fraudulent activities 

Arvind Dang