The Strategic Sourceror

Preparing Procurement for 2009

2008-11-19T08:32:00.004-05:00

“The only constant is change”

Greek Philosopher Diogenes Laertius (3rd Century AD) was the first to coin the phrase although he took the concept from Heraclitus’ Doctrine, penned a few hundred years earlier. Amazing how it stands true today.

As we turn the corner and head for the home stretch of 2008, it wise to start thinking of the dynamics to which we’ll be required to respond in 2009.

Rapid re-integration and de-integration of foreign suppliers
The recent and rapid descent of oil prices is no guarantee that overseas supply will remain competitive. Additionally, bank restrictions are leaving foreign suppliers unable to get foreign currency to pay for materials or freight. It’s important that organizations establish methods to or remain agile in moving from foreign to domestic suppliers and back again.
Interruption in Supply
Factors such as political instability, slow or negative economic growth and banking dynamics all mean that suppliers may slow or suspend production. It has never more important to be tuned in to your suppliers’ production plans than it will be 2009.
Supplier failures
Businesses are failing, which unfortunately will lead to more business failures. It’s sensible to ensure that every requirement has at least a short list of qualified and capable suppliers.
Reduced overseas competition for goods
Both the Euro zone and China are reporting recessions/slower growth. This means that some of the foreign competition for domestic goods will abate. That may lead to greater domestic supply and price advantages for market savvy buyers.
Frequency/Acceptance of reverse auctions will increase
Procurement staffs will be pressured to cut costs as deeply as ever, and reverse auctions are an effective, quick turn method. Businesses and markets that once turned away from reverse auctions will accept them as necessary to compete for sales.
Business cases for major purchase decisions?
The days of line-item, big ticket procurement may soon be a thing of the past. The Federal Office of Management and Budget is already requiring full business case presentations for major technology procurement. It only makes sense that the private sector businesses are embracing the same approach or will be soon to follow.
Shorter product lifecycles = new sourcing cycles
Sellers continue to upgrade to create competitive advantage, shrinking product lifecycles. This is most present in technology and electronics, but product life cycles are shrinking everywhere. The result, we must re-examine the depth, breadth and frequency of sourcing cycles to optimize value for the dollar.
Increased procurement outsourcing
The need to execute more robust and more frequent sourcing events will continue to drive (already thin) procurement teams to take on outsourced tools and manpower simply to remain current with day to day work.
Give a hoot, save a buck
New Recycling programs present opportunities to recover costs. Wal-Mart (Canada) has already partnered with Grace (Canada) to recover and recycle Styrofoam. To that same end, Poly-Pak (US) is embarking on a Grocery Bag recovery program.
Procurement staffing will continue to decrease.
Simplyhired.com reports that procurement jobs have decreased by 8% since May 2007. With more business contraction yet to come, there has never been a better time for those left standing

Argh Matey: Blu-Ray Pirates

2008-11-18T12:16:00.006-05:00

Since February, when the hacker Arnezami posted the code to crack the primary security DRM at the heart of every Blu-Ray and HD-DVD, the industry has been scrambling to “safeguard” their copyrighted materials from HD pirating. Despite, watermarks, the additional BD+ encryption system, and the randomization of Volume ID’s, the ever-expanding Asian-Pacific pirating ring has been producing knock-off HD discs.

These pirates have been cracking HD encryption codes, ripping new discs, and re-encoding them with a new format. While these HD rip-offs can actually be burned to regular DVD discs, and do not exhibit quite the same quality as true Blu-Ray and HD-DVD discs, the pirates are dressing them up well enough to full the average consumer.

According to the International Motion Picture Association, the pirated discs, which are encoded in AVCHD format, are the first of their kind to be seized. In my opinion, this should not come as any surprise to the film industry. From floppy discs, to cassette tapes, to VHS, to CD’s, to DVD’s, the pirates have always found a way.

It doesn’t seem as if there will ever be an unbreakable code that can be used for a commercial, mass-distributed form of saved information. The entertainment companies will always have their teams of programmers, but they will always be trumped by the vast network of hackers and pirates who both intentionally and unintentionally collaborate to tare down the walls.

While these failed security measures and the prosecution of the pirates responsible should certainly remain a focal point of industry executives, companies could also learn a lesson or two from operations like Apple’s iTunes. In this way they could begin to develop a network of systems, products, services, and accessories that can be paired and packaged together to create a kind of value that can’t be cracked.

Source Articles:
MPA-I
Wired Blog

Pre-Negotiated Contracts, Discounts, and Supplier Agreements

2008-11-17T08:59:00.002-05:00

Source One recently announced the launch of MasterNegotiator.com. Master Negotiator is a new Supplier-Cooperative Website. The site is a resource and tool for procurement professionals and business managers that are looking to find quick and easy savings opportunities in some of the most common spend areas.

For instance, Master Negotiator currently lists deals such as:

A Guaranteed 10% discount from local carrier's current line rates for local and long distance service,

Heavily reduced Merchant Account Rates (credit card payment processing), with no minimum commitments,

Free month(s) of service with Qwest, one of the leading providers of T-1 and Data Circuits,

Discounts of 60-80% off of published rates for most trucking companies (freight).

The site has a few more deals up already and promises to deliver deals in new categories soon, such as Uniforms and Office Supplies.

The site is a supplier funded cooperative and was created in response to increasing demand from small businesses and self-service strategic sourcing groups that were looking for direct contracts with suppliers and quick ways to reduce their company's expenses without hiring consultants or engaging in lengthy strategic sourcing initiatives.

Learn more and read the Master Negotiator press release.

Visit MasterNegotiator.com and find a deal for your organization.

Strategic Sourceror Welcomes Next Level Purchasing.

2008-11-14T11:46:00.004-05:00

The Strategic Sourceror is proud to welcome a new sponsor to our site, Next Level Purchasing.

For those of you that do not know, Next Level Purchasing is the provider of the Senior Professional in Supply Management Certification (SPSM Certification). Founded by Charles Dominick in 2000, but with roots dating back to the 90s, Next Level Purchasing has quickly made its positive mark on the industry and is widely considered one of the top certification bodies in the field of supply chain and spend management.

The SPSM Certification was founded around the principals that recruiting true "top talent" in procurement and supply chain was a very daunting task. The few certifications that were available were typically driven by "national" associations and it was difficult for an employer to weed through the thousands of similar resumes that all included some sort of national certificate. Employers needed a way to truly identify the best-in-class employees that had actual skills that they could bring to an organization, not just generic training on procurement, project management or supply chain processes.

So, what makes Next Level Purchasing unique?

First, the SPSM Certification was the first globally recognized certification in the purchasing community. In fact, over the past few years, the certification has now reached clients in over 90 countries, in businesses big and small.
Next Level Purchasing updates their materials with much greater frequency than most other training or certification courses. In fact, this year alone has seen a 15% increase in new content, without a raise in costs. After all, good purchasing professionals are always looking for more value for their dollar, so Next Level Purchasing delivers.
They provide a commitment to creative tools and techniques to make learning more effective, and more enjoyable. You can have fun while being trained, and Next Level Purchasing proves it with "mid-term games" that simulate popular game shows to the tune of purchasing lessons.

What else you should know:

Next Level Purchasing is more than just a source for training and certification. Charles Dominick also runs one of the most successful and widely read purchasing blogs out there: Purchasing Certification Blog
Mr. Dominick, his team, and students also run their own SPSM group on LinkedIn.
Next Level Purchasing takes a page from Source One's book and develops free content and tools for procurement professionals. Recently, they launched PurchSearch that is a Google-based search engine that limits results to relevant, approved and recognized purchasing and spend management publications.
And, there is more to come. Stay tuned for a new announcement from Next Level Purchasing in the next few weeks.

Please join me in offering a warm welcome to Next Level Purchasing.

Outsourcing Web Content Development – Be Careful of Plagiarism

2008-11-12T13:12:00.007-05:00

As someone that takes pride in their web and marketing content development, one of the most aggravating things that you may (will) encounter is plagiarism. Unfortunately it is a fact of life, especially with information and content so prime for the picking on the web.

After recently dealing with a company that literally completely replicated my corporate website, with the only changes being a “find-replace” of the company name and the overall layout, I decided I would put a quick tips/rant blog post here about it.

Why Website and Marketing Plagiarism Matters

From the Victim’s Standpoint

Most of the corporate web has been developed by hard working individuals and companies that have spent countless hours and money to develop marketing messages and original creative content. Any time you see your content, thoughts or ideas stolen and labeled as someone else’s it strikes a blow to morale and stifles future create thoughts and concepts.
Your image or your company’s brand is hurt. Your product/service no longer is unique, and you could potentially lose business directly to a competitor that will make profit off of your hard work.
Search Engines (Yahoo, Google, MSN) penalize YOUR SITE when they find other sites that have duplicate or similar content. This means, that your hard work and financial investment in getting top-ranked search results could all go away. Search engines are not yet sophisticated enough to determine who the content actually belongs to, or who had it first.

From the theif’s standpoint or a company that hired a thief

Ethics - The most intangible but important thing to remember is stealing copryighted work unethical. Not only is it unethical, it is illegal, someone that duplicates content from another site is a thief. They will cause the victim to reevaluate their commitments to delivering new and create content and will overall stifle the progress of electronic message delivery.
Money – Copyright infringement can cause you monetary damages. First off, in extreme cases, you can get sued for stealing content. Their have been many lawsuits that have been successful in prosecuting copyright infringement. On an equally important note, there are ways for victims to actually obtain your domain name/website legally, by filing with ICANN if you infrindged on their brand name or trademark. In most cases however, your site will simply be removed from search engines and hosting companies, meaning you spent money for a product/service that you can no longer market.
Lost Time – Even if you did not spend much time on the creation of your own website or content, you did dedicate at least a little time. Although cutting and pasting content is quick and easy, if a victim finds that content and has your content removed, you wasted all of your time and effort.
Lost Image – Leading companies actively search for copyright infringement and intellectual property theft. Even if you are compliant with their requests (and you were unaware that your outsourced provider stole the content) your company's brand and corporate image is still tarnished.

Hiring an Outsourced Web Development Company

First off, be very careful of offshore web development companies (particularly in Asia). Not that all of them are bad, but 9 out of the last 10 sites that I found that have plagiarized my content were either hosted in India/China or were “developed” by “companies” in those countries. Sure, you may save a few bucks, but when someone like me comes after you for theft of content, you will spend much more money recreating your site and redeveloping your content and could potentially lose your site altogether.

Secondly, when engaging a prospective web development company, treat it as any other supplier that you would hire. First, run a background check, how long have they been in business, what are their revenues, who are their customers, and the big red-flag, how many company names do they operate under. This may take some creative web searching, like finding their address or phone number and then searching the web for that same address and/or phone number. When a company has 2, 3, or 4 names that it operates under, and/or their email addresses are free services such as yahoo or hotmail, you should almost definitely look somewhere else. If a company cannot afford its own domain and email address, or has too many to count, something is wrong.

Third, review their work….carefully. Ask for examples of other live websites that they have done, not examples that they email you as a document, image or pdf. Then contact those companies, find out if they really did do the work for them. It is very easy for a company to take credit for a website that they did not even create, so reach out to their customers and do a reference check. Use search engines to copy random sentences from their example sites and see what other similar hits are out there. Also, use the tools I detail next…

One of my favorite tools, that is free to use, is http://www.copyscape.com/. CopyScape allows you to enter a full url to any page on the web and it will return other pages that it feels are duplicated content. When a prospective web developer gives you examples of their work, go to those sites, copy urls to various sub-pages and run them through CopyScape. Keep in mind that CopyScape only returns results for the single page that you queried, not the entire site, so you will want to manually test multiple pages for each site. If CopyScape is returning results of other sites with identical content, you must research it in much greater detail. Just having duplicate content by itself does not necessarily mean that the developer stole the work, they might have been a victim of plagiarism themselves. So use Whois searches and the Internet Archive to find out who had the content first.

Lastly, be realistic. If you engage a web development company (or any marketing company) to create original pieces of content and work for you and the price is too cheap, or the quality is over-the-top, dig in a little deeper.

Let’s be real, most of us are barely able to pitch a high-level message about our organizations in a one-hour sales call. But, the web developer has a few emails back and forth with you and a one-hour call and a few days later they produce a 10-15 page website that has your message clearly communicated in detail that you did not provide them. Something is wrong, and the content is almost definitely stolen. Take the draft site that they produced for you and run it through the tools mentioned above to see if it is original work or stolen from your competitors.

As a plug to my company, Source One, hiring a good Procurement Services Provider can help you navigate all of the above points and tips in hiring a web development or marketing firm.

Finding Website Plagiarism:

One of the best tools that I have found for identifying website plagiarism is http://www.copyscape.com/. I detailed the tool a bit above (under Hiring and Outsourced Web Development Company. But simply put, the tool allows you to quickly identify (on a page-by-page basis) duplicate content on the web. Cut and past individual page urls from your site into the tool and it will return other sites that it believes are serving duplicate or similar content.
Do search engine searches. Good old fashioned Google and Yahoo searches work best. Copy entire random sentences from your website and paste them into the search engine. See what comes back and go look at it.

Responding to Website Plagiarism:

Know your rights: Read the Digital Millennium Copyright Act of 1998 (DMCA)
Learn about the Internet Corporation for Assigning Names and Numbers (ICANN), in extreme cases, ICANN can help you revoke a website that infringes on your brand name or trademarks. These guys literally run the web. They control and have ultimate authority on domain names and public ip addresses.
File DMCA Complaints Immediately. Do this before you take any other steps. As soon as you find duplicate content or stolen content from your site, immediately file complaints with the leading search engines. Although the search engine companies may take a long time to respond (if at all) they have the ability to remove the offending sites from their search engine results. (Google DMCA Complaint, Example DMCA Complaint Letter, List of Multiple DMCA Complaint Addresses)
Go after the hosting company (the provider that actually hosts the website). Use a Whois tool to identify where the website is hosted and contact the host (typically an abuse@xxxxxx.com email address). Typically, most companies use a third-party to host their website rather than hosting it themselves. Hosting companies are usually the quickest to respond to complaints because they do not want to be responsible for monetary damages in a lawsuit.
Lastly, contact the company itself. I say do this last, because in many cases they already know they stole the content, and in many cases they will not respond anyhow.

Prevention of Website Plagiarism
Unfortunately, we will never be able to completely stop website and marketing plagiarism. However, you can at least clearly notify people visiting your site that it will not be tolerated. CopyScape recommends the four steps below to help prevent theft of your content:

Put a Plagiarism warning banner on every page on your website
Include Copyright Notices on every page of your site (©)
Use a service such as Copysentry to detect plagiarism as it is happening (this isn’t really prevention, but at least allows you to react quickly)
Address plagiarism immediately. Unethical developers that are stealing your content are unlikely to steal it again if everything they copy gets shut down right away. If they get away with it once, they will do it again and again.

I hope this rant/article was of some use to you. Please drop a comment if you have any other tips or you feel I missed something.

Ethics of Re-negotiation

2008-11-11T09:24:00.001-05:00

Justin Fogarty addressed an excellent question in his October 30 post on supplyexcellence.com. Fogarty addressed the oft raised question of the ethic of renegotiation, specifically during a recession.

While Fogarty raised the question of the ethics of re-negotiation, I left the piece feeling like he hadn’t addressed the ethics issue as much as provide a few options (collaboration, payment terms) to opening up discussions. Options are good, but let’s consider the real controversy.

Ethics, in the most basic terms, are a set of codes or practices geared toward socially responsible behavior. So the key question should be; what is the effect of re-opening negotiations on all of those involved?

Too often, the ethics card is pulled by procurement pros who use it as a device to avoid uncomfortable negotiations. It’s amazing how purchasing teams manage to live in a vacuum when their suppliers rarely raise the ethical question in determining to pass along necessary price increases.

It’s important not to take an adversarial approach to working with suppliers, and the Sourcerer never encourages antagonistic negotiations. Yet it’s equally important to understand the key ethical component at play. Timing is not the issue, businesses are faced with tough choices in good times and bad. Survival should not be the issue, implementing survival measures usually means you took action too late. There should only be one consideration in re-opening contract negotiations.

Procurement teams must ask themselves; are we being responsible business persons by going back to the table? Are we acting in good faith? Short of an agreement to the contrary, it’s difficult to imagine a reason that precludes the right to revisit a contract. While there are potentially negative consequences to the supplier side, we need to remember that a financially healthy client is in every supplier’s best interest. It’s also important to remember the ethics of responsibility to one’s own employer and co-workers weighed against the impact of negotiations on the supplier.

Re-negotiation is sometimes an easy choice and sometimes difficult, but it should be examined as an act of maximum utility. The best business decisions ultimately equate to the best scenario overall. With that Mantra in mind, we protect the interests of shareholders and stakeholders as well as the common good.

Given the current economic climate; are you renegotiating with your suppliers before the end of the contract term?

Reasonable Reactions

2008-11-10T09:05:00.007-05:00

In parts 1 and 2 of this blog series, I touched upon the challenges that many Purchasing Managers are currently facing in this dynamic environment. In order to react quickly to the frequent changes, many Purchasing Managers are inclined to respond as they often do.

The RF“X” process is used often to drive competition when the need for cost control or cost improvement arises. This process is a very valuable tool, but may become a great burden as well. This standard response could ultimately discourage suppliers from participating in the process if they are being asked to deliver a great deal of non-essential information and statistics. The biggest problem with the RF“X” process is an over-reliance on its results. It is very likely that suppliers will agree to additional concessions if they are engaged in a collaborative process.

Another reaction of some buyers is to agree to price increases with their incumbent suppliers. Buyers want to ensure that they will receive an ample supply of goods for their organization so as not to interrupt production. This type of decision is generally predicted upon a buyer’s assumption that they already know all of the available sources of supply and that they have good market visibility.

Another safe and commonly used tactic in an unstable economy is relying too much on purchasing technology tools and processes. Usually technology will only automate the inherent problems with the existing processes and will worsen results. Before investing in new technology, existing processes and tools should undergo a thorough analysis to identify opportunities for improvement.

Some Purchasing Managers who are concerned about the challenging business conditions may also take great pains to document to their senior management what the forces are that are driving less than optimum results.

In this series’ final installment, I will discuss how buyers can level the playing field with suppliers as they face a growing “buyer-side” deficit of information. Creative solutions using other available resources besides the lemon may exist. Stay tuned for ways to reach these creative solutions.

Shifting into Global Gear

2008-11-04T09:34:00.010-05:00

In part one of this series, I discussed certain challenges that many Procurement Professionals are currently facing. However, I did not touch upon what may be the most difficult aspect of the Purchasing world – the global marketplace.

The global marketplace and its increasing complexity have made Procurement more reliant on an escalating base of knowledge. With less time and resources to carry out their responsibilities, many Purchasing Managers are also expected to absorb new information about products and marketplaces. Sales teams are generally much better trained in their products and marketplaces than the Purchasing Managers they are selling to. After all, these sales teams are focused on a single product and single market while Purchasing Professionals need to concentrate on several products and several markets.

Another burden leading to more decisions and headaches for Purchasing Managers is the number of purchasing options available today. Many additional considerations must be taken into account. Examples include green packaging, minority suppliers, low-cost countries and rapidly shifting technologies.

As was discussed by the doctor in the blog post “Spend Matters on SCM: If The Prophet is Right ...,” it is essential to not just select the supplier who offers the lowest price available. Some suppliers are merely concerned with the rate at which they produce goods and the amount of orders they take in and nothing else. Sometimes, a slightly higher price right around the corner will benefit your company in the long run more than a lower price overseas will. This usually rings true with most goods. However, in order to fill a large order, only certain suppliers have the capacity to do so and choosing a supplier overseas may be the only option. Also, some companies who outsource their operations have considered moving production closer to end markets. Global energy rates and some raw materials pricing have fluctuated recently and must be monitored very closely.

Purchasing Managers, depending on where their suppliers are located, may be expected to interact with those located in different countries and different time zones, communicating in different languages and possessing very different cultures. The relationship between a buyer and a supplier is likely to suffer if a supplier’s country’s culture is overlooked and vice versa.

Purchasing Departments are also being asked to provide supervision in spending areas previously outside their purview. Some of the responsibilities that were once delegated to IT, marketing, HR, and finance departments are now burdens on Purchasing.

When under attack by this kind of dynamic environment and accelerating expectations from within our own organizations, it is understandable that many Purchasing Professionals default to traditional defensive tactics. This series will continue with the discussion of these reasonable reactions.

F and V, for Better Performance

2008-11-03T16:06:00.002-05:00

The US economy shrunk by .3% in the last quarter. Should another negative quarter follow, the government will have to declare what has been obvious to all but the eternal optimists; the US is in a recession. This most recent, long economic downturn calls the relevance of the “shrinking GDP” recession metric into question. The government tinkers with metrics for unemployment inflation and the S&P to obfuscate or forestall bad economic news, so one has to wonder why the GDP metric stands firm. Or maybe one need not wonder at all. The historical nature of the GDP metric ensures that the bad news gets a 180-day delay. That’s one heck of cushion for telling the truth. The moral to the story is “if you don’t like the answers, just change the questions, or at least put them off for a long time”.

But as they say, every cloud has a silver lining. The economic downturn is shining brightly on purchasers of fossil fuel/petroleum and petroleum based products. Those products, as we have mentioned in the past, have a deep and wide reach across price points from the most strategic to completely tactical buys. The shrinking economy will, as the law of supply and demand dictates, drive prices for goods and services down overall. It’s not unthinkable that procurement teams will gather the benefits of these shifts and market them internally as cost savings. But just like the delayed recession story, the cost savings story isn’t the most accurate report. It is important then, that procurement staffs and executive teams dig a little deeper into evaluating the hard dollar results of cost containment/savings efforts. Taking credit for cost savings that occur by incident is precisely as fair as being blamed for cost increases that arise by incident.

Rather than rate procurement performance respective of market shifts, it’s wise to live by the mantra that “only that which can be measured can be improved”. Accurately measuring procurement performance hinges the application of developing market indices and pricing formulas rather than accepting arguments against developing dependable baselines for commodity driven prices on finished goods.

It’s easy to become bogged down in the mindset that procurement’s pricing performance on commodity driven items cannot be measured in light of market fluctuations. But consider the sensibility of that notion from the producer’s side. For instance, take one of the most widely purchased items today, the corrugated box. Corrugated box prices are directly affected, lost often, by market price movements for 42 lb Kraft linerboard. Because linerboard prices are variable, how then does the box manufacturer set the pricing that will ensure profitability? In the most basic terms, the box manufacturer’s performance (profitability) hinges on its ability to accurately measure costs that are predictable or “fixed”.

It stands to reason then, that for procurement, the same rules apply. The fixed and variable cost equation is as fundamental a concept as exists in business (as president Bush would say, “It’s not rocket surgery”). Still procurement teams are loath to employ this methodology in measuring performance because the “code” that teams must crack often requires (insider) industry specific information and can be specific down to the site level. Still, even if the specific inputs vary, the formulas contain the same basic components and a probably just a handful of industry assumptions. Whether one is determining something as basic as the variable cost/ board foot cost for a simple RSC container, versus the fixed cost and thru put economies for that same box, or the volume of natural gas required to cook a gallon of ethylene glycol, side by side with the plant economics, the information exists. It exists and is as dependable a metric for procurement performance as it is for manufacturer profitability.

So for those who haven’t embraced the metric mindset for commodity driven purchase prices, the “make love not war” ethic we see in economic downturns represents a great opportunity to pick your suppliers brains and call them on that “partnership” they’ve been espousing. Their help in cracking the code can go a long way in accurately measuring and optimize procurement performance.

Do you have a commodity price driven purchase for which you need to construct a dependable baseline? Source One can help you. Please contact us for an in depth review.

Feeling the Pinch and Facing the Challenges

2008-10-31T09:30:00.010-04:00

The Sourceror basically took the words right out of my word document (pause to sing Meat Loaf) as the topic of supplier management was discussed in “Trick or Treat: Buying vs. Managing Relationships.” This blog will serve as the first of four posts diving into the challenges currently facing many Purchasing Managers and how to attain a happy medium with suppliers. As mentioned in “Trick or Treat,” a partnership is the most rewarding type of relationship for both parties.

Now, more than ever, many Purchasing Managers are starting to feel the pinch or have been feeling it since the summer. Sales are slow and anxiety is heavy as fewer resources become available and expectations heighten. Companies keep saying “gimme, gimme” with regards to cost reduction/avoidance and increased supplier value. The silver lining is that it is possible to achieve these demands without spending a whole lot of money or any for that matter. However, one can argue and say that time is money…oh well. The improvements may not be seen immediately, but will prove to be beneficial in the long run.

With an unstable economy and rising prices, it is difficult for many Purchasing Managers to deliver savings continuously. Their situation is complicated, but can be explained in simple terms – some individuals are forced to produce more with less, and this also goes for many who find themselves far from the world of Purchasing Departments.

The underlying problem sometimes lies in the reactive mindset. With a volatile economy, it is necessary to transition to a proactive approach. Back in July, I posted a blog titled “Quenching Your Company's Thirst” in which I briefly touched upon the topic of limited resources. We are all familiar with the phrase, “If life hands you lemons, make lemonade.” But what if you have only one lemon or no lemons at all? This is the dilemma that many Purchasing Managers are facing currently.

The perception that Purchasing Departments are costs centers and not profit centers creates the impression that no investment is needed. Better technology and outsourcing procurement services are rarely invested in them. Therefore, Purchasing Managers cannot wait for lemons to be handed to them. They need to go out and pick the fruit themselves.

Several hurdles need to be jumped first in order to become proactive and start picking. The first obstacle is headcount shrinkage. Many Purchasing Managers are swamped more than ever with tasks; and morale may also decrease as layoffs continue. The endless list of responsibilities for Purchasing Managers is also a burden as corporate strategies gear towards more centralized sourcing rather than plant purchasing. The importance of establishing standardized processes is also stressed as standardization allows for better communication across all departments.

Several more challenges exist when we take into account globalization. In my next installment, I will venture into the global economy’s impact on Procurement. Stay tuned…and Happy Halloween.

All Things Procurement - Reference Materials - Purchasing Expert Page

2008-10-29T10:33:00.002-04:00

For those of you that follow multiple blogs in the procurement/spend management/strategic sourcing space, here is a great reference page to help you get a snapshot of all of the top blogs currently in publication: http://purchasing.expertpage.net/

The page might take up to 30 seconds for you to see, but it aggregates the most recent 5 postings from each of 15 top procurement blogs. Rolling over a post with your mouse will also expand out the first few lines of the articles/posts.

I am not exactly sure why this site was set up (as it has no visable revenue model) but it appears that Robin Titus of Portum (IBX) put it together, and it is a great quick-reference tool that I thought I would share.

Thanks to Mr. Titus if you are reading this.

Trick or Treat: Buying vs. Managing Relationships

2008-10-28T08:13:00.000-04:00

While suppliers are most likely to deliver the message of “supplier value”, it’s incumbent upon savvy procurement pros to optimize the value of every supplier relationship. Too often the link between the pre-sale and post sale “value proposition” breaks once the order is placed and companies get back to business as usual. If anything, the recent financial trends in business scream for something more than business as usual however.

A veteran of 100’s of corporate environments, the Sourcerer has seen client supplier relationships that run from barely interactive order to cash cycles, to highly integrated strategic sourcing. We pause at the use of the buzz word partnership, because a true partnership includes a level of business intimacy rarely seen in business. Yet client supplier relationships that approach or at least include components of partnership are most likely to reach optimal performance.

The dividing line is often in how hard a client is willing to train a supplier to serve them. This requires a key partnership fundamental, trust. Firms must invite the supplier in to learn the components of their business that need supplier support to be successful. They need to develop a plan to integrate suppliers into their business and invest the time and effort to educate suppliers on how to function seamlessly within their environment. It’s important that they manage expectations as well, delivering clear and concise requirements that suppliers are enabled to meet. For some firms, firms that have already embraced the mindset necessary to optimize supplier relationships, this is business as usual at least on some level or in some areas. For other companies, the idea of training the supplier to succeed is as foreign a practice as dealing in wampum.

For those firms, it’s time for a fresh approach. Changes in the world market, both recent and not so recent, have left many businesses scrambling to survive. Contracting demand has made squeezing every last bit of value out of every dollar not a mantra but a mandate. The battle for survival and prosperity, as always, will go to those who achieve and maintain competitive edge. In order to maximize value, firms must optimize supplier relationships. That may require change, not only in process but also in company culture. Firms that have kept doors locked and information close to the vest will need to refresh their mindset. The era of functioning in a company vacuum has been ushered out by the information age. While it remains true that only business partners are actually partners, even the least complex buyer seller relationship is ripe for some level of supplier management. Buzzwords aside, supplier management is more critical than ever.

Broadband Competition Breeds Opportunity for Business

2008-10-24T13:28:00.005-04:00

Broadband competition is heating up as Comcast, America’s largest cable operator, announces an initiative to double bandwidth in many of its larger metropolitan territories, allowing the provider to better compete with Verizon’s FiOS offering. This is not only great news for consumers, but could also represent an infrastructure shift for many small and medium-sized businesses that do not have the budget for full blown, redundant, national private networks.

Many firms still need to replace old infrastructure. They are overpaying monthly recurring and usage charges on old ISDN BRI circuits as their backup or even their primary network connections to HQ. This type of infrastructure is costly and slow. Satellite offices failing over from their T1 or fractional T1 onto an ISDN circuit may be no better off than they would with no service at all. On top of that, many companies may be paying for T1’s where they could be paying much less for much more bandwidth, given that the site’s connectivity is less than critical.

In a related blog post about WiMax, I outlined how new wireless technology could change the way businesses look at their Wide Area Networks. That shift in conjunction with ever-increasing bandwidth speeds coming from big players like Verizon and Comcast could lead to increased savings, better performance, and higher quality network redundancy for many small and medium-size WANs.

The beauty of the broadband market is in the diversity. WiMax (wireless), Cable (coax), FiOS (fiber optic), and DSL (landline) all run on different media. No longer is your ISDN or DSL backup running on the same pole from the same telephone company point of presence as your primary T1 line. Failing over to a different type of service could mean less risk if a pole should go down within the last mile of your location. A few words of warning, however: diversity is not guaranteed except in the wireless realm, and provider private network circuits get the highest level of priority in the event of a failure. Despite this caveat, some low priority locations would certainly qualify as candidates for redundant broadband solutions, using a VPN to connect to HQ, versus private line connections to a provider cloud. An out of service condition on multiple infrastructures is highly unlikely and the savings potential is tremendous. Again, wireless will be the true game changer, but a world of options is becoming available for IT departments willing to invest in the research and effort to bring up and manage a location on a non-standard platform.

I’ll wrap things up by invoking some thought on potentially huge savings that will, again, add value to the network as a whole. Thus far, I have only focused on remote locations, but what about HQ? Many networks centralize Internet connectivity, allowing many sites to share a single high bandwidth Internet circuit such as a handful of bonded T1’s or a DS3. In some instances multiple, redundant, always-on, Internet circuits are configured, load balanced, and shared among all remotes. A less expensive alternative would be a dormant backup circuit brought into action by a failure on the primary. Why not load balance or failover to a 50Mb Comcast or FiOS circuit for a small fraction of the price?

The ideas laid out here may not be a reliable enough option for many companies but for those on a tight budget that does not allow for proper backups or any backups at all, solutions are on the way!

Americans Too Spooked to Spend?

2008-10-23T09:26:00.006-04:00

Not when it comes to Halloween items this year. Even though most Americans are trying to cut back and become more frugal with their money, many are letting loose on Halloween costumes and candy for trick-or-treaters. The National Retail Federation has predicted that sales related to the holiday will rise to $5.7 billion.

With Halloween only one week away and the economy puttering along, some thoughts may be “those Saw movies aren’t scary, our economy is.” With that being said, the economy is one of the main reasons why Americans are splurging on Halloween goodies. They want to forget about the economy and the election for one night, celebrate the holiday and enjoy themselves. This year, Halloween happens to fall on a Friday so some may be forgetting more than they were expecting to. However, it’s not going to be easy to fully escape the fact that this is an election year. There are going to be little kids and adults alike dressed up in McCain and Obama costumes everywhere you turn.

Another reason why Halloween sales are not suffering is because parents cannot deny their children a costume. If they do so, their actions will come back to haunt them. Children don’t forget something like that very easily. Many households also enjoy welcoming trick-or-treaters at their door, as it is estimated by The Nielsen Company that more than $1.9 billion will be spent on candy this season. It is difficult not to meet children’s expectations when they knock on your door wishing you a Happy Halloween.

So, if you are ready to pull your hair out over the economy or find yourself stressed about your decision in ‘08, take your mind off of everything and carve a pumpkin. Another alternative is to put a mask on and go trick-or-treating and then eat chocolate all night long. Not that I’ve ever done something like that. I’m considering going to see the fifth installment of Saw and leaving the scares at home.

E-ducation for Procurement Professionals

2008-10-23T09:15:00.000-04:00

Educational institutions such as the University of Phoenix and others have made getting a Bachelors or Graduate Degree more accessible than ever before. It only make sense that advanced business credentials would be available on line as well. Sites such as nextlevelpurchasing.com and onlinepurchasingclasses.com now offer online purchasing classes and certifications for the procurement professional with a tight schedule. The University of San Francisco offers a 1000 Online Master’s Certificate in Supply Chain Management. It’s an excellent way to expand one’s academic and business credentials without a commute to class. While it’s important to check the credentials of every institution, most will specify whether or not a course or curriculum is recognized by a leading organization or trade association (e.g. ISM)

Remember the Days of Large Firm Job Security?

2008-10-22T16:11:00.008-04:00

A CNNMoney article entitled Mass layoffs highest since 9/11 caught my attention. The government reported we are at the highest levels of mass layoffs since September 2001. It seems large firms are focused on cutting costs by cutting headcount first. Unemployment claims increased to a staggering amount and is the highest level since the wrath of hurricane katrina (I notably use a lowercase "k" as she does not deserve the rights of a human name).

I digress... while companies rapidly increase speed in reducing hours and jobs, they really should explore other options to retain quality employees. If only there was a way to scream from a mountain top, "There ARE other ways! Come check us out!"

Holy Outsourcing, Batman!

2008-10-21T07:52:00.000-04:00

That’s right Boy Wonder. Third party procurement is gaining traction.

If the constant push to enhance productivity wasn’t enough, recent market events will have businesses looking harder than ever to do more with less. While 3PP (3rd party procurement) has established itself as a sound option to reduce tactical/administrative spends, the move to expand the scope of 3PP partnerships has begun. Perhaps the best statement of this trend is the growth of 3PP teams within industry leaders IBM, Accenture and Ariba. As is the case in today’s rapidly evolving business climate, those firms that move first and best will gain competitive advantage. What was once seen as a risky strategy is now presenting itself as the sensible alternative to less efficient internal processes.

Nymex taketh and Nymex giveth away

2008-10-20T10:25:00.000-04:00

If the 25% drop in gas prices from summer has you breathing a sigh of relief, that exhale should be a call to action. It’s time for procurement professionals to make certain that they receive the benefits of the recent price movements just as they have shared in the pain. This doesn’t just apply to petrochemicals, or NG chemicals driven by comparative economics. Plastics and other purchases with considerable freight costs are targets for price reductions as well. Those who don’t already have their purchases tied to market indices would be wise to invest in doing so now. If you have questions about how to get the ball rolling, contact the Sourcerer.

Is Budgeting even Possible?

2008-10-20T10:20:00.002-04:00

With year-end fast approaching, and some of the most dynamic market turns in the last 75 years at hand, annual budget forecasts are as difficult to create as they have ever been. Fortunately, there are tools and intelligence available to smooth out the bumps in what has been a very bumpy ride. While it’s always best to invest in sophisticated tools and analytics to produce the optimal forecast, here are some tips to muddle through if you don’t have those tools at hand.

Bifurcate fixed price and spot buy purchases
Establish a detailed, 3-5 year, history of purchases with allowances for new and obsolete sku’s
Determine a realistic period for spot buy forecasts, short term (e.g. 90 day) may be the best possible scenario
Investigate historical and market pricing trends for finished goods and feed stocks for use in predictive pricing
Gather predictive data (e.g. “forward” contracts) on finished goods and feed stocks for use in predictive pricing

Fixed price, or contract buys are relatively less difficult to project in that costs should remain stable. The application of the above is particularly germane in establishing more realistic forecasts in spot/non-contract purchases.

Common Sense for the Credit Crunch

2008-10-13T13:13:00.002-04:00

In a few short weeks, the business climate with which we had become accustomed was no longer. America and the rest of the world are faced with the greatest crisis of financial confidence since the Great Depression. Recent turns in the financial industry are producing dramatic changes; reckless lending and speculation have resulted in “pennies on the dollar” sales of major banks and investment firms. Stock markets are plummeting. Bail outs have yet to have an impact. Without question, this is an uncertain and frightening time for many. Shifts in financial markets, like many other dynamics of change, will present a unique challenge to supply chain management.

The immediate impact of credit freezes may result in hardships to businesses small and large. Firms whose cash reserves are modest and may have relied on loans to purchase inventory or even make payroll are faced with difficult choices. Suddenly, suppliers who may have established a sterling record of dependability might struggle to meet order commitments or lack the personnel to process and deliver in a timely fashion. Stock outs and extended delivery cycles are on the horizon.

Dynamic shifts often result in dynamic, sometimes polar opposite, responses. Some supply chain managers will, no doubt, scramble to replace struggling suppliers immediately. Others will express their loyalty by hanging in to the bitter end. Neither response is in the better interests of sound supply chain management. The savvy supply chain manager will see these dynamic shifts as an opportunity to enhance supplier relations and better prepare for rough waters ahead. To that end, consider the following:

Investigate suppliers carefully before making transitions. While the rumor mill may be telling you that a supplier’s failure is imminent, and rumors often have weight, sound relationships merit informed decision making.
Direct and penetrating communication is your best asset in determining your suppliers near and far term viability. It’s often the case that fear and uncertainty result in decreased communication. Those who do not shrink from addressing tough issues will be ahead of the curve in responding to evolving supplier capabilities.
Pulling the plug on a valued relationship can have a rebound effect. Firms can quickly establish a business reputation as being capricious or even disloyal.
Patience and understanding now can result in leverage later. Procurement often turns a kind eye to suppliers who have given special consideration or expanded service under unique circumstances, even paying a premium for those benefits. It’s reasonable to think that suppliers will be so inclined for customers who are patient and understanding through tough times.
The current climate represents a unique opportunity to justify increased and expanded sourcing events. Establishing qualified alternative suppliers is critical to avoiding extended order cycles or even interruptions in supply.

While the hard dollar shifts in business represent serious challenges for all of us, we need to keep in mind that every challenge represents opportunity to gain competitive advantage. It is critical that supply chain managers remain undaunted by the emotional impact of an uncertain horizon and proceed with the vision of a strong supply base in the future. While the dynamics of financial changes are clearly measurable and quantifiable, the drivers behind the changes are, in many cases, emotional. Those who leverage change as means to tackle supplier interactions with clear, precise communication and work to expand their supply base will enjoy the benefits of enhanced existing supplier relations and a more robust supply base as well.

There’s no question that supply chain managers have some rough waters ahead. As always, the best sailors will manage to navigate the smoothest possible ride.

Curing Addiction

2008-10-08T09:06:00.005-04:00

You can't get away from it - credit crisis, falling financial markets, bankruptcies, job losses......... Addiction to credit and greed got us here. Withdrawal is painful.

The world has fueled the fire for years with easy credit. We ate it up buying consumer goods and enjoying the best quality of life on the globe. Financial executives got monster bonuses. Asset values exploded. We moved from one inflated bubble to another. Now there is no where left to go. No more bubbles. People are hoarding cash; if they have it.

Foreign governments are in a quandary. Do they cut off the drugs (credit) from their biggest customer who can't afford to pay? If they do, it will hurt them too. If they don't, the debt will continue to get bigger. Will we react irrationally when the supply is cut off? Will we use military action to continue to get oil and consumer goods?

How painful is withdrawal? Very. Dow 4000, 3000? More job losses. Global depression. Things will get worse before they get better.

I speak to many people that are frozen. They don't open their 401K statements when they come. They are trying to continue with business as usual. Don't maintain the status quo like AIG and Lehman and watch things go down the drain.

What can you do? Take action. Reduce your reliance on credit. Cut costs. Shore up your balance sheet. Be in a strong position when things hit bottom. There will be a lot of opportunity for people in a position to take advantage of it.

Source One has been helping leading organizations to reduce costs through Strategic Sourcing for over 15 years. Call us. We can help you weather the storm so you are prepared to strike when things bottom out.

What actions are you taking to weather the storm?

KPO of Make vs. Buy

2008-10-06T14:23:00.001-04:00

As BPO (Business Process Outsourcing) gradually gains traction, the make/buy decision continues to present itself in less traditional areas. One such area is a subset of BPO, KPO (Knowledge Process Outsourcing). Long past the era of diminishing returns for process re-engineering and personnel rightsizing, businesses are looking yet again to improve efficiency as a means for productivity gains. Training and the entire learning management process is quickly ascending to priority status in organizational development as a key element in enhancing per-employee productivity.

While KPO is in its nascence, firms should not ignore the opportunity to both enhance employee productivity and reduce costs while doing so. There are some hurdles to evaluating the benefits of KPO, as there are in any expense category. While firms can measure the reduction in hard costs and even soft costs, it’s difficult to ensure that outsourcing will produce a comparable benefit to that produced by internal resources. One can measure yield from training theoretically using learning/experience curve models, such as Bills’ or Wright’s, and these models have been validated by academia and industry. Researchers have used learning curve theory in measuring the limits of software development cycles as well.

Yet evaluation of the actual benefits of training is anecdotal at best. It appears that the post-mortem processes of training events are widely varied, subjective and lacking the hard metrics (e.g. testing) to evaluate the benefits of an event. Thus, measuring the cost of a widget, or even cutting a paycheck is far more evolved than post-event survey feedback that “the cookies were stale” or “the room was too bright”.

Yet with ever-increasing business dependence or workstation and infrastructure technology and coinciding training requirements, a process that was once seen as non-essential is crucial to everyday operation. The emergence of the CIO position in major corporations gave birth to training stewardship if not measurement. In many organizations, where technology and soft skills development are seen as operationally critical, even strategic in some operations, the CLO or Chief Learning Officer now stewards the knowledge process. With heavy investments in the tools and training necessary to enhance productivity through knowledge based initiatives, it behooves organizations to develop sound metrics to measure the relative value and effectiveness of the training investment. With these metrics in hand, organizations can gather, analyze and evaluate the data in order to optimize the investment.

Thus, the make/buy question wends its way back into the discussion. Of course there will be the instant objection that organizations can not measure something so subjective as learning. Even if that were the case, there are other hard metrics that serve as decision drivers in the make/buy of Knowledge Processes. Specifically, one can measure the cost of full time staff versus outsourced training. Typically, significant cost benefits are available in any form of non-core process outsourcing. Better still, part-time, contract training may further reduce costs, if carefully managed. Training firms typically use an average of 60% utilization of in house training resources as the cost case to outsource. While a 3rd party KPO may not yield the 40% savings one would think should be possible, it’s not unreasonable to think that 15-30% hard dollar savings are there for the taking in either outsource scenario. Additionally, there are 3-5% soft cost savings available, based on US DOL estimates for administrative costs per employee for small to large corporations.

It appears then, that the bogey in KPO equation is “quality”. Specifically, will your employees receive the same or better quality of learning experience from an outsource resource than they would with internal resources? Organizations will likely recoil at the loss of control over the program. As is the case in most outsourcing agreements, much of the quality issue is addressed by industry specifications. One such specification in technical and soft skill training is the courseware. Courseware, like fasteners or floor mops is produced by a short list of usual suspects and an array of specialists. As a result, organizations are empowered to control “quality” through the selection of courseware. Where the risk, if any, lies is in trainer selection. Courseware being equal, trainer selection is the key factor in the trainee’s qualitative experience.

One must consider though, the benefits of KPO trainers versus internal staff. It stands to reason that KPO trainers, in that training is their core business, will be more industry savvy having escaped the single institution vacuum. They’ll likely be better prepared to deliver the most current knowledge and possess a higher level of specialized knowledge in a given application, unlike their internal “jack of all trade” competitors. In essence, the same rules that apply to Business Process Outsourcing apply to Knowledge Process Outsourcing. It seems sensible then, that organizations seeking to optimize their training investment look hard at the benefits of Knowledge Process Outsourcing as a means not only to reduce costs but also to enhance employee productivity and ultimately, remain competitive.

Strategic Sourcing: Make vs. Buy

2008-10-01T08:19:00.000-04:00

It’s a common decision made in every part of every company every day. With the continuing presence of competitive demands forcing business to enhance efficiency, Business Process Outsourcing is expanding its reach beyond tactical functions. While the hard and soft dollar benefits of transactional process outsourcing are well documented, and often a no-brainer when considering outsourcing, businesses are already addressing the value proposition of outsourcing procurement, and in many cases handing over portions of their supply chain management to outsource resources.

While firms have been open to, if not eager to, handing over complicated tactical spends such as MRO and Telecommunications, the relatively low dollars in these spends (when compared to direct materials) typically represent modest bottom line gains. At the same time, top dollar, direct material/upstream spends remain the holy grail in procurement and executive regimes. When considering what’s at stake from the sales side, it makes sense that businesses have approached direct spends with great care. Nonetheless, the raw numbers make a compelling case for new methods in direct material procurement. When one considers that businesses have long been willing to engage consultants for recommendations on direct material purchases, the option of outsourcing the entire business process is not at all far-fetched.

The dividing line between paying for advice and actually outsourcing the function is the solitary issue of control. While control takes many shapes; e.g. cost, quality, service-level, R&D, it is ultimately the issue of management having to answer for its decision making. One can clearly see the discomfort in having to answer for the decision making of an outsourced resource. The fear of having to answer for the micro-decisions that spring from a macro-decision can be daunting. But, as costs continue to rise and price pressure intensifies and non-core spends are maximized, the arrow will eventually find its way to direct materials.

It is important then, that top management consider that the same efficiencies that apply to tactical spends, apply to strategic sourcing as well. Outsource resources will uncover economies of scale, they will leverage technology, they will enhance rather than sacrifice expertise, and most importantly they will not function in the preconceptions found in the “single business vacuum”. While a direct material outsource relationship will require a more intimate connection than indirect material sourcing, the benefits will merit the investment.

The crucial element to such a partnership is a many touch, “no surprises” format. 100% commitment and adherence by outsource firms to move strategically, only with prior consent; will ensure the advancement of direct material procurement from a make to a buy proposition. While businesses have been reticent to turn over the direct material procurement business process, the benefits of well executed outsourcing are incontrovertible, and the move to include direct materials is merely a logical extension.

MRO: Source One Mines for Savings

2008-09-26T13:54:00.004-04:00

A large publicly traded mining and minerals processing corporation was searching for ways to preserve profit margins in the face of general economic turmoil and rising supply costs. The company enlisted the services of Source One to help them leverage their spend and consolidate contracts across 44 locations in North America.

It turned out that Source One was also able to develop creative solutions to current sourcing problems, improve reporting, and elevate the client’s level of spend visibility in roughly fourteen MRO categories.

Through a combination of the introduction of competition, utilization of strategic relationships with supplier conglomerates, and extensive negotiations, Source One managed to produce an average annual savings of 14%. Furthermore, the sourcing effort helped the client company's managers hone their plant purchasers' ordering, inventory, and reporting methods.

For each product category, the client, various suppliers, and Source One worked as a team to develop and implement an effective change management program. Source One’s implementation efforts, which are included in the company’s pay-for-performance cost model, also provided the client with the resources it needed to get all of its various plant managers on board and up to speed. Source One also audits the client company’s purchases monthly for compliance to help ensure the program’s success.

Source One accomplished the initiative's primary goal of creating cost savings without any major disruption of the client's business processes. More than this, Source One provided the client with the tools, insight, and relationships necessary to continuously improve their sourcing procedures. As a result of this sourcing initiative, the client company is enjoying cost savings as well as better reporting systems, strengthened supplier relationships, and elevated control over total spend.

Full Case Study: http://www.sourceoneinc.com/strategic_sourcing_mro_case_study.html

Tea Leaves

2008-09-26T10:18:00.005-04:00

How much do you need? $700 billion. OK, what will you use it for? I'm not sure. Is $700 billion enough to solve the problem? I can't say.

Did you hear we had the largest bank failure in US history?

Sounds surreal doesn't it. This stuff is actually happening. What is it telling us?

$700 billion is not enough. More banks will fail. If history is any indication, things will get worse before they get better. How should purchasing professionals prepare themselves?

Now it is more important than ever to have deep visibility into your supply chain. In How Much are You Betting and What are the Chances of Losing, we discussed a methodology to determine the likelihood that one of your suppliers is in danger of failure. As the financial crisis spills over into an economic crisis, some of your suppliers will not have the financial capability to survive. The news will come as sudden as the bank failures. The word is that WaMu executives were on a plane when the government sold their company to JPM. Insiders didn't even know it was happening.

Don't wait to react, like the government and banks did. Know your suppliers. Know your supply chain. You know what's coming. Prepare for it during the 3 month window that is left. Even if the government passes the bailout this weekend, this is not the bottom.

What do you see in the tea leaves? How are you preparing?