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Theranos and FOMO as a Cause of Bad Buying

(Two posts in a row about blood – that’s a bit weird)!

Earlier this month, Elizabeth Holmes went on trial in San Jose, California, accused of six counts of fraud.  That relates to the blood-testing firm she founded and ran, Theranos, which was claimed to use unique technology to perform a range of tests with just a small sample of blood. The claims were later revealed to be largely nonsense and in some cases the results might even have proved misleading or dangerous to the user. When one of the Theranos laboratories was inspected in Newark, California, in November 2015, the inspectors concluded that “the deficient practices of the laboratory pose immediate jeopardy to patient health and safety.”

The cautionary tale has been turned into a best-selling, award-winning and definitive book, Bad Blood by John Carreyrou and is going to be the subject of a film with Jennifer Lawrence playing Holmes.  But in real life, it seems that her defence during the trial may claim she was under the influence of her older and more experienced business partner and one-time boyfriend, Ramesh Balwani.  They may also claim that she really did believe in the product and it was others within the firm who misled her about the actual way it worked (or didn’t).

Although some experts warned from the early days of Theranos that there were questions to be answered about the product, Theranos raised hundreds of millions in investment from famous people such as Henry Kissinger and Rupert Murdoch.  Perhaps they were dazzled by this confident, smart young blonde woman, who seemed to be particularly effective at persuading older men to stump up large investments!

But as well as the investment aspect to the story, there was also a Bad Buying link to the events. Here is how I described it in my book (“Bad Buying – How organizations waste billions through failure, fraud and f*ck-ups)”.

“Buying failure comes into this because the pharmacy chain Walgreens spent $140 million with Theranos over seven years, hosting around forty blood-testing centres in their stores. They got very little benefit from that and recovered some $30 million after a lawsuit and settlement following the eventual disclosure of the issues. Amazingly, as Bad Blood reports, Walgreens’s own laboratory consultant, Kevin Hunter, had seen early on that something wasn’t right with Theranos. But the executive in charge of the programme at Walgreens said that the firm should pursue the pilot because of the risk that CVS, their big competitor, would beat them to a Theranos deal.

Again, buyers wanted to believe that something was real, even in the face of mounting evidence that it wasn’t. This relates back to comments around believing the supplier– those earlier examples weren’t demonstrating fraudulent behaviour, but the principle is similar. It is easy for a naive or gullible buyer to be sucked into believing what the supplier wants them to believe.

Suppliers will take advantage of this tendency – whether it is the relatively innocent ‘Yes, we can install this new IT system in six months’ or the more dangerous ‘This equipment will find hidden bombs’. And FOMO – the fear of missing out to the competition – is something else suppliers will use, and that can lead to bad decisions. It’s not just physical goods, either. The top consulting firm selling its latest ‘strategy toolkit’ will mention that the potential client’s biggest rival is also very interested”.

So the message is – treat claims made by suppliers about their products with caution, maybe even with a touch of cynicism if they seem unique, outlandish or truly earth-shattering! And don’t let FOMO take you into the realms of Bad Buying.

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Procurement Ethics – Dealing with Conflicts of Interest

Conflicts of interest as a ethical topic has always been relevant in procurement, both public and private sector. Here is a quick quote from my book, Bad Buying.

“At a local level, I’ve worked with organisations whose top management didn’t even want to put in place a clear “conflict of interest” policy. That would mean staff having to disclose any interest they (or close family / friends) have in another business that might be a supplier or a customer of the organisation for which they work. But there’s usually a reason for that hesitancy.  Where you see organisations that won’t support anti-corruption activities, then you might draw obvious conclusions”.

Conflict of interest is a key issue within the fight against procurement-related fraud and corruption. We want buyers and everyone involved in the process to select suppliers, negotiate and manage contracts without being biased because they have an external interest that affects their behaviour.

We’ve seen these issues come up a number of times over the last 18 months through the pandemic with spend on products such as PPE (personal protective equipment) being in the public eye. So some recipients of huge contracts for PPE have had links with politicians and other powerful people, which has led to suggestions that decisions were impacted by these conflicts of interest.

The standard approach when developing procurement policies and practices is to ask those involved in the process to declare any potential conflicts upfront. Somebody can then decide if that is significant, and if so, how to handle that. At the extreme, I’d suggest it might eliminate a potential supplier from consideration completely. That doesn’t happen often, but appointing a small consulting firm to do a procurement review when that firm is run by the Procurement Director’s wife might not be a good idea.

But more frequently, it is a case of making sure the person with the conflict does not play a central role in key stages of the process, such as selecting the supplier or negotiating the contract. Suppose a senior executive who has an interest in the service being purchased discloses that their sister is a senior manager in one of the bidding firms. I would not expect that firm to be disqualified, but the executive should not be involved in the key aspects of the procurement. There are potential issues of confidentiality as well as bias of course – so if the exec is going to have access to confidential information, then they need to understand that any breach will lead to disciplinary action! Or you may simply choose to keep such information away from them.

There are questions however about how far we can and should go. That came to mind with the revelations around Mathew Hancock, the UK Health Minister who resigned because he broke covid rules with his ”friend”. But another part of that report claimed that his friend’s brother runs a firm that has won NHS contracts.

Is that a worry?  If your friend’s brother is bidding for a contract with your organisation, do you need to declare that as a potential conflict of interest?  That probably depends on just how close the “friend” is. If they are in effect a partner (legally or secretly) then it probably should be declared. But frankly, I would very rarely have known what any of my friends’ siblings did for a living!  So we have to be reasonable in terms of how meaningful the risk is.

A similar argument applies to shareholdings. Most of us hold shares indirectly through pension schemes or investment funds and we may well have direct holdings too. We can’t be expected to know exactly where “our” money is invested in every case. But what about if I have just a couple of hundred pounds worth of shares held directly in a potential supplier? I’d suggest that it is sensible to declare that, but I would not necessary exclude someone from the process for that level of “conflict”. However, if it were several thousand pounds worth, or if we were considering share options in a start-up that could prove valuable one day, the position might be different.

These are tricky issues.  The key is to impress on everyone that if they are in any doubt, it is better to declare the potential conflict and let others decide how serious it is. That is much better than having to plead later on that “I didn’t realise it mattered”. 

And if you want to hear more about this and related topics, I’m speaking as part of a CIPS (Chartered Institute of Procurement and Supply) webinar on July 13th, 2021, at 12.30 pm. It is all about ethics and is titled “50 shades of Procurement – an Ethical Perspective”.  It should be interesting – and it is open to CIPS members AND non-members, so anyone can book here.

(The picture shows my cycling friends enjoying an outing with me last year – no contracts were awarded!)

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Here it Comes – How to Avoid Inflation-Driven Bad Buying!

Have you seen the price of compost this spring? I reckon it has close to doubled – three large bags from Longacres garden centre last year cost £10 (for 180 litres). Now, you will get just 100L for the same price.

Talk to a local builder, or gardener, or fencing expert, and they will tell you of shortages in markets such as timber, cement and other basic but vital materials. In another market altogether, farmers are complaining about a lack of workers to harvest crops, and restaurants of a lack of waiting and kitchen staff. Some are having to increase wages or other benefits to attract staff.

Without going into all the causes (Brexit, pandemic, lockdown-influenced career decisions), there is one very likely outcome here – inflation. There are already some warning signs, and consumer prices in the US jumped 4.2% in the 12 months through to April, up from 2.6% in March and marking the biggest increase since September 2008.  That seemed to take inflation from warning mode into “this is actually happening”.  But many economists believe the effect will be short-term, a blip rather than anything that becomes established.

But we can’t be sure of that. One test is whether price rises for materials and commodities then drive wage inflation, which can result in the sort of inflationary spiral we have seen in the past. But in any case, it seems likely that many procurement professionals will be facing a difficult time in terms of the cost of what they are buying. And for the younger members of the procurement community, this might be the first time they have faced suppliers coming in with demands for significant, maybe double-digit price increases.  

Those of us of an earlier vintage may even remember the days of the mid-70s, during which UK retail prices doubled over about 5 years. After moderating slightly, inflation picked up again and in 1980, my first full year as a graduate trainee with Mars Confectionery, inflation hit 18%.  Great for making your pay rise look impressive, less good for buyers. Suppliers often demanded massive price increases, and buyers would go to their boss and say, “good news, I’ve negotiated a great deal – the price is only going up 10%”!

If inflation does take off, it will also put pressure on all those procurement functions that aren’t really that capable, but have had an easy time over the recent years of low inflation, when claiming “savings” has been relatively easy. However, “cost avoidance” is never a totally convincing argument and will be even harder in an inflationary world when the CFO can see real bottom line costs spiralling.

There will also be a dilemma around locking in prices. If you think inflation has further to run, this might prove to be a very good time to negotiate long-term contracts and lock-in prices now with suppliers. On the other hand, if this is a “blip”, agreeing £5 a bag for compost now might look really silly if it is back to £3 by Christmas!  There is no right or wrong answer to this – but you will need to think carefully about the right approach, which in many case means balancing risk, cost and security of supply.

So this will be a real test for many procurement people and teams. If you want to avoid inflation driven “bad buying”, then here are three quick tips. There is much more that can be done of course, but these strike me as useful and sensible whatever your situation.

  • Market and supplier research is more important than ever in this situation. Suppliers will tell you all sorts of “facts” about the market, prices and so on. You need to be as well informed as them (better, if possible) so you can respond and understand what the real situation is.
  • Think carefully about your negotiation strategy – and if negotiations get tough, go back to basics. As well as research, look carefully at your BATNA (best alternative to a negotiated agreement), try and improve it quickly if it is week, and look at the range of negotiation preparation and approaches that might work. You don’t have to accept price increases – but you need to know how you would respond if your hard-ball negotiation really ends up with the supplier walking away.
  • That includes looking beyond price – are there other benefits you can offer the supplier maybe in return for better pricing? Or if you end up accepting some price increase, can you agree some other wins for your organisation (payment terms, additional services, etc).

There is a lot more we could say, of course, but that’s a start at least and might stimulate some thinking. Meanwhile I’m redoubling my efforts to create home-made compost. (We do have no less than four large compost bins and two “heaps”)!

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Supply Chain Finance Fraud Isn’t New, Neither is Dodgy Accounting

(But a Government procurement leader joining a supplier while still working as a civil servant is!)

In my last article about fraud related to supply chain finance (which came to mind because of the emerging Greensill / Gupta developments), I said that I hadn’t come across that type of fraud previously. There are plenty of other variants on invoice-related fraud in my book, however.

That brought a call from a friend. He told me of a case he had seen where a business created fake invoices to “clients” and used those invoices to obtain funding from their supply chain finance (SCF) provider. The amusing angle was that the finance provider was a major bank, and the fake invoices included a number that were supposedly issued to the same bank!

So the finance was provided by a bank on the basis of non-existent delivery of goods or services to the same bank … you might have thought that someone would have spotted this or checked to see if the supposed supplier was in their AP system. But perhaps they did, given the fraud was discovered eventually! You also wonder whether the fraudster was stupid, secretly wanted to be caught or was just having a laugh at the expense of the bank itself.

Exploring this theme further, it is clear that supply chain finance related fraud is not new. Just last year, a major scandal in Singapore saw the Him Leong oil trading company collapse. Part of that was down to false invoicing and over stating of receivables, which enabled the firm to obtain financing based on these invoices.

As the spglobal website reported, “financial statements for the year ended 31 October 2019 grossly overstated the value of assets by “an astonishing amount of at least $3 billion” comprising $2.23 billion in accounts receivables which had no prospect of recovery and $0.8 billion in inventory shortfalls”.

There are also cases that are not overtly “fraudulent” but are misleading. When leading UK construction and facilities management firm Carillion collapsed in 2017, the use of supply chain finance was one of the ways it concealed its problems until the final reckoning.  Carillion worked with Santander bank to offer its suppliers payment earlier than its ridiculous 120-day standard payment terms (in return for a fee, of course). Santander then retained the money it owed for the full period.

Globalconstructionnews website reported that “Carillion tucked the cash managed through reverse factoring into the box labelled “trade and other payables”, to which it had added “other creditors”. This, believes S&P, allowed it to show a modest increase in working capital from 2012 to 2016, because “working capital” does not usually include trade payables.  After 2012, the growth in money owed under trade payables ballooned from £263m that year to £761m in 2016. Reverse factoring, said S&P, allowed Carillion to “hide a substantial part of its debt from view”.

To widen the discussion to fraud generally, I believe that Boards, CFOs and CPOs should regularly ask themselves, “how would I defraud this organisation if I was an evil criminal genius”? Or maybe employ an actual evil criminal genius consultant to do that for them (I’m available at very reasonable evil genius rates). Read most of the cases I quote in the Bad Buying book, and you realise that any intelligent insider could have spotted the flaw in process that allowed the fraud, if only they had spent some time thinking about that.

However, the problem with much SCF related fraud or dubious practice is that it is almost always an internally generated fraud. It might involve third parties, innocent or not so innocent, but it is often driven by very senior people in the business, or even owners and founders. So there would not have been much point asking the Board of Carillion to look at the use of SCF if they were complicit in the  bad practice. If it is found that the Gupta companies did issue fake invoices to generate SCF funding  from Greensill, then no doubt that will have originated at a pretty high level in the business.

Meanwhile, back to other aspects of the Greensill affair, and yesterday we saw newspaper revelations that Bill Crothers actually joined Greensill two or three months before he left the civil service, while he was still Chief Commercial Officer for the UK government. Such a move seems very odd but it was all signed off within the Cabinet Office, apparently.  That seems to show very poor judgement at best from Crothers, and perhaps the judgment of the experienced top-level civil servants who approved this was even more suspect. More to come on all this, I’m sure.

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Greensill / Gupta – Might this Be a Whole New Type of “Invoice Fraud”?

We’ve written a couple of times about the Greensill affair, and now more is emerging about another key player in the financial scandal. Greensill in effect lent billions to Sanjeev Gupta, creator of the GFG Alliance of steel businesses.  That appears to have been based on both financing the invoices where GFG owed money to their suppliers, and also making early payment to gupta’s firms where GFG invoiced its own customers.

But the Financial Times, which has been instrumental in exploring matters, reports that Grant Thornton, the administrator for Greensill, has contacted some GFG “customers”.  Clearly, they in theory owe Greensill money. However, “some of them say they did no business with Gupta”.  In other cases, there are allegations that the customers were friends or associates of Gupta.

If this is true, it seems that Greensill was advancing money to GFG based on their invoices which had in theory been issued.  Greensill would collect the money owed from the customers in line with payment terms. So note this is financing Gupta based on its sales, rather than improving its cash flow by helping on the purchase side. But if these invoices – or some of them – were fake – then we have a real fraud, and Greensill obviously won’t be able to collect its debts. Maybe Greensill was an innocent victim, being told by GFG these were real customers and real debts. Or maybe not.

Anyway, this link with supply chain finance is for me potentially a new type of invoice-related fraud. I must admit I did not cover this in Bad Buying, but it might be in the 2nd edition / follow-up!

The more usual invoice frauds that I describe in my book fall into three categories.

  1. Fake invoices are created, submitted and authorised by someone inside the organisation. The money is paid to firms (probably set up for this purpose) which the insider(s) controls.
  2. Fake or inaccurate invoices are submitted by an external party, either “on spec” in the hope that the internal systems are poor and they get paid, or to be authorised by an accomplice internally. The supplier may even be genuine, but the amount invoiced may not reflect the actual goods supplied or work done.
  3. Invoice mis-direction, where the fraudster persuades the firm to pay a genuine invoice to the fraudsters bank account rather than to the real supplier’s account.    

“Fake invoice” fraud by insiders happens in the private sector, in government, and even in the charity sector. And it can be the most unlikely people – as in this case (taken from my book), where the former head of counter-fraud at Oxfam, the charity that fights poverty globally, was jailed after stealing more than £64,000 from the organisation.

Edward McKenzie-Green, 34, defrauded the organisation while investigating fellow charity workers in earthquake-hit Haiti. He filed fake invoices from bogus companies, making £64,612 in nine months before resigning because of unrelated disciplinary proceedings. The scheme was discovered after an internal inquiry was launched to investigate allegations that he’d behaved unprofessionally while leading a team in Haiti in 2011.

He agreed to resign, was given a £29,000 “golden handshake”, but then investigators unearthed 17 fraudulent invoices from two companies under his control.  An audit of his own counter-fraud department revealed payments to “Loss Prevention Associates” and “Solutions de Recherche Intelligence” in 2011. Investigators contacted the supposed head of one company, Keith Prowse, for an explanation of invoices for ‘intelligence investigation’, ‘surveillance equipment’ and ‘Haiti Confidential’. But there was no Mr Prowse – that was, in fact, Mackenzie-Green.  (The “real” Keith Prowse founded a very successful corporate hospitality firm in the UK).

McKenzie Green got two years in jail and Judge Wendy Joseph QC told him: “You have taken from those who desperately need it substantial sums of money. Worse, you have undermined the public confidence in a charitable institution. You were head of a department set up to counter fraud. This was a profound abuse of the trust invested in you.”

We suspect that the magnitude of the Gupta / Greensill affair might dwarf the Oxfam case and most of the others in the book, except perhaps for the Petrobras / Odebrecht scandal in Latin America, where fake invoicing was only a small part of the wider fraud and corruption picture. In any case, it will be interesting to see what emerges in the Gupta case over the coming months.

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Greensill Capital – When Good Supply Chain Finance Turns Bad

Readers of the Financial Times (or the Sydney Morning Herald) will be well up to speed with the events at Greensill Capital, a leading provider of supply chain finance funding and solutions. Other broadsheet newspapers and websites are also getting increaingly interested in the story.

Lex Greensill is the son of an Australian watermelon farmer. After an early career at Morgan Stanley and Citibank, he made a big impact in the UK as a “crown commercial representative” in Cabinet Office and supply chain finance tsar for David Cameron’s government. When Cameron stepped down, Greensill made him an adviser with (allegedly) a barn-full of share options.

Greensill also recruited Bill Crothers, government’s Chief Commercial Officer (the top procurement man) from 2012-15. Crothers was deputy chairman of Greensill for a while but resigned as a director in February, and has perhaps sensibly dropped all reference to Greensill now from his LinkedIn profile. Greensill also incomprehensibly got a CBE from the Queen in 2017, whilst Crothers got a CB in 2013, the equivalent award for civil servants.

However, in a few short months, Greensill Capital has gone from planning a flotation that would have valued the firm at $7 to basically going under. We don’t have the time or space to go into all the details here, but broadly, the Greensill proposition was this. A firm such as Vodafone might offer suppliers payment terms of, say, 60 or 90 days. But the suppliers have another option. Instead of waiting for payment, they can get immediate cash from Greensill – at a small discount. So if Vodafone owes you £10,000, then you can get paid now by Greensill for perhaps a 2% discount (£9,800).

Then of course Vodafone pays Greensill the £10K after 60 days, so Vodafone benefits from a cash flow perspective. Greensill makes its money on that margin (the £200).  Nothing wrong with this conceptually or ethically. Another version of this sees the finance provider making their offer to a supplier (rather than a buyer). So the finance might cover immediate payment against a wide range of invoices that the firm has issued.

Where does the cash come from?

In both cases, Greensill has to find the money to pay out up front to suppliers. Historically, the banks have offered this sort of service, because they have easy availability of money. But Greensill had to find a way of raising the cash. So they packaged up the offering into bonds, offering investors a decent rate of return, in return for providing the funding for the scheme. If you can turn over that funding 6 times a year based on 60 days payment cycle, making 2% each time, that is 12% – plenty to offer bond holders a decent return and make millions for Greensill too.

Just to make it even safer, the bonds were insured, so an investor knew that even if Greensill somehow didn’t get all the money owed to them back from the buyers, they were protected. So what went wrong?

The unravelling started with Greensill’s insurer refusing to continue covering that risk. The firm failed to find an alternative – so no insurance meant they couldn’t raise finance and could not continue to offer the service.  But the big unanswered question is this. Exactly WHY did insurance companies refuse to provide insurance? I mean, blue chip clients such as Vodafone aren’t going to renege on their agreement to pay Greensill (which for Vodafone is in effect simply the equivalent of paying their suppliers)?

So there must be more to it. Maybe Greensill has offered the service to buyers or suppliers who were less solid and secure than Vodafone, so the risk of default was greater. The position also gets murkier if you consider this possibility. What if the buyer / supplier relationship at the heart of the transaction was an inter-company relationship?  So one part of my business supplies another, and the supply side gets the payment from Greensill based on those invoices. But what if my sister company doesn’t really have the cash on the buy-side to then repay Greensill? It could be a way of raising money for a struggling firm, but maybe the underlying transactions aren’t even genuine?

One client of Greensill in particular has cropped up as a concern, and represents a pretty large proportion of the total business – do a bit of Googling and you can read more (it’s NOT Vodafone, I should stress)!  That might have got the insurance firms worried, to say the least. Then there was the alleged extravagance from Greensill. For what was still a pretty young business, running four corporate jets seems a little questionable.

So we will see what emerges in coming weeks, months and probably years. The reputations of Greensill, Crothers and Cameron are on the line, as well as potentially real jobs and businesses. There is nothing wrong with supply chain finance per se – but we might see the accountants and regulators looking harder at how firms report on their use of the technique.  And in the next edition of Bad Buying, will this go down as a failure, a fraud or a f**k-up? Time will tell.

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Be Careful with Social Value!

Bad buying takes many forms, and there is a risk we might see a new driver for poor procurement emerging in the coming months and years. The problems are avoidable, but we need to be aware of the risks.

Social value has become a very hot topic in the public sector in many countries. Recently, I wrote two articles (here and here) on the topic for our Procurement with Purpose website.  That is my other major interest at the moment, alongside “Bad Buying”, and we might consider those aspects two sides of the procurement coin. Procurement with purpose is all about how (if we are smart) the money organisations spend with suppliers can contribute to environmental, social and economic improvements that go beyond the specific contract. That is exactly the same as “social value” in the public sector.

So we are now seeing public contracting authorities incorporating social value factors with quite significant weightings in the evaluation process. Indeed, this is not just relevant to the public sector. Vodafone announced recently that they were going to use similar factors in their supplier selection models. Choosing a supplier is then not just about price, service and quality, but can also incorporate a range of other factors, from emissions, to employment of disadvantaged people, to support for local sub-contractors.

That’s fine, and we applaud the concept. But one fear is that we could see firms being selected based more on their social value offering than on their actual ability to do the job.

Scotland has led the way in many senses in terms of applying social value, and we interviewed one of the key leaders in that effort, Julie Welsh, for the Procurement with Purpose website a while back. But there is another side to the story. The Ferguson Shipyards case is an example of a firm that was supported with public contracts, in part with a view to supporting Scottish business and employment. Unfortunately, it appears that the shipyard may have been incapable of building the two ferries for which the government contracted, and costs to the taxpayer will run to over £100 million more than planned.

Reports suggested that the bid “was the highest quality bid received, in other words the highest specification, but also the highest price” of all the six yards competing for the job.  It seems likely that a high mark for social value contributed to the shipyard being the top score on “quality” and winning the bid – yet in fact, it failed to actually do the work, as well as being the most expensive bid. Without knowing the full story here, it does illustrate the need to maintain proper procurement processes and a commercially sensible approach. Suppliers must not win work on social value alone. 

That means social value weightings must be proportionate, and not outweigh what is the core goal in all public (and indeed private) sector procurement – finding the best supplier to meet our needs and provide the best overall value. Incorporating social factors in that “value” is fine, but it should not  come before the supplier’s capability to do the work properly and cost effectively.

Another key issue is how we can ensure that the social value offered is meaningful.  It should not become skewed by politics, or relate to factors that are immaterial to the contract or the needs of the buying organisation. It should also be capable of some sort of tracking and measurement to ensure the supplier does deliver on their promises; a focus on social value makes the need for effective contract management stronger than ever.   

There is also a risk that fraud and corruption could emerge as social value becomes more important in terms of winning contracts. I won’t go into that here, but it is discussed in my articles on the Procurement with Purpose website.

So all in all, incorporating social value or procurement with purpose factors into supplier selection  has the potential to be good news. On the other hand, if it isn’t handled with care, it could actually drive more “bad buying”. Our advice therefore is to implement with care and thought.

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The Explosion in Beirut Highlights Major Procurement and Supply Chain Failings

The explosion and resulting disaster in Beirut this week is a tragedy for all the people affected and for the entire city, as well as for the country of Lebanon.

According to the BBC, the ammonium nitrate which seems to be the cause of the blast arrived in Lebanon “on a Moldovan-flagged ship, the Rhosus, which entered Beirut port after suffering technical problems during its voyage from Georgia to Mozambique, according to Shiparrested.com, which deals with shipping-related legal cases. The Rhosus was inspected, banned from leaving and was shortly afterwards abandoned by its owners, sparking several legal claims. Its cargo was stored in a port warehouse for safety reasons, the report said”.

The ineptitude and corruption that taints Lebanese public affairs then led to years of inactivity. Apparently, the head of the port and customs authorities had warned the judiciary about the dangers of storing such dangerous material in the middle of a busy, industrial area, and asked for action, but nothing was done. Were backhanders and bribes involved at this point? The end result in any case was this disaster, which has killed over 100 people and devasted a city that was already on its knees because of the Syrian refugee crisis, the pandemic and economic collapse.

We have written previously about the dangers of corruption, and how it can lead to endemic problems in an organisation or even a country.  Lebanon appears to be an example of that, with corruption at the heart of its decline into virtually “failed state” categorisation. That’s why, if we are lucky enough to be in a country where corruption is not so much of an issue, we have to be really vigilant to make sure it stays that way.

Giving the odd low value government contract to a firm run by our friends without a competitive process might not seem like a big deal – but it is the “slippery slope” argument that I find relevant here. If that is OK, then what is  the next step? And the next? And the next? And before you know it, those in power are saying, “who needs public procurement rules really … just trust us”.

Anyway, there is more around corruption in my forthcoming book of course, which doesn’t mention Lebanon actually but does have stories from Brazil, Russia, the US, the UK and many other countries. But aside from corruption, and indeed the issue of who had purchased this marial from whom and what commercial deals lay behind it, there are two other important Bad Buying lessons to be learnt from this event.

  1. Supply chain risks, problems and even disasters don’t just occur in the core supply chain processes (farming, mining, processing, manufacturing). They can also happen during the logistics processes that are also key to the overall supply chain cycle – shipping, storage, transportation and so on.
  2. Bad Buying and bad supply chain management can affect a much wider group of stakeholders than simply the buyer and seller in the transaction. In this case, hundreds have lost their lives, and thousands have had their lives changed in a terrible way. All because the management, storage and shipping of the products involved were not managed properly.
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