Thursday, August 31, 2006

Sourcing Innovation for Single-Customer Contracts

I've been watching on the sidelines as Michael Lamoureaux of Sourcing Innovation coordinated a series of posts across several purchasing blogs regarding the topic of the future of sourcing. I was pleasantly surprised when Michael asked me to chime in as well.

Specifically, Michael said of the continuation of the series: "Round two is a combination of discussion and how it will affect the purchasing professional. I was wondering if you’d jump in and let our readers know how the future of sourcing could affect them as well as their employers on the training needs you foresee ahead (and any predictions of your own you might like to add). "

So, in this post, I'll add some insights on the affect on purchasing professionals and the skill sets required for the future. I'm going to separate my response into two categories: those sourcing initiatives that only affect a single internal customer group within a company and enterprise-wide sourcing initiatives. In this post, I'll address the former. In a future post, I'll address the latter.

As I pointed out in the article "The Strategic Sourcing Plan of Attack," sourcing initiatives usually address three stages in a certain order:

  1. The Easy Wins
  2. Bread & Butter
  3. Non-Traditional Categories

Because most large companies have gotten through the first two stages, I'll talk about Stage #3: Non-Traditional Categories. Non-Traditional Categories are spend categories that have been traditionally managed outside of Purchasing & Supply Management. These areas include health benefits, advertising, travel, and fleet services.

I forsee major changes in how these categories are handled in the future. Specifically, I see a migration across a sourcing maturity model, meaning that sourcing of the categories will be handled differently and will require different skills. The four steps of the model are:

  1. Totally Decentralized - the sourcing process and decisions are handled entirely within the internal customer group (ICG) and Purchasing & Supply Management (PSM) is not involved at all. The work distribution is ICG=100%, PSM=0%.
  2. Totally Centralized - the sourcing process is executed by Purchasing & Supply Management with the internal customer group represented on a sourcing team. These internal customer group representatives usually have the opportunity to participate in the decisions, but Purchasing & Supply Management usually has ownership of the decision-making process. This seems to be where most organizations are today. The work distribution is ICG=10%, PSM=90%.
  3. Center-Managed - Purchasing & Supply Management will manage the process, still doing a lot of the work, but delegating some responsibilities to the internal customer group. The work distribution is ICG=25%, PSM=75%.
  4. Center-Led - The internal customer group will handle most of the sourcing work using templates, processes, and technologies provided by Purchasing & Supply Management. There will be a few checkpoints for Purchasing & Supply Management to step in and review progress, provide guidance, and perform some specialized duties. The work distribution is ICG=75%, PSM=25%.

Different skills are required at each step of this sourcing maturity model. Here are the skills required...

In a Totally Centralized situation, Purchasing & Supply Management must have strong sourcing skills (including skills in procurement negotiation). They do the lion's share of the work. But they also must have good relationship-building skills as their entry into the category will not be well-received!

A prerequisite to moving to the next step of the maturity model is mastering - absolutely mastering - sourcing skills. Before any sourcing work is delegated, the delegator must have sourcing down perfectly. Purchasing & Supply Management must be like Mr. Miyagi in "The Karate Kid" by preparing the internal customer group for every possible situation, so that the reaction is perfectly executed and automatic. Wax on, wax off.

In the Center-Managed step, Purchasing & Supply Management must be very skilled at project management. Now, instead of executing the sourcing strategy, they are utilizing resources to accomplish the goal. During this stage, Purchasing & Supply Management must also utilize best practices in process improvement and process quality control skills. The next step will require them to delegate even more, so it is important that they have the ability to identify efficiency opportunities, variables, and ways to keep the process in control, not unlike someone skilled in Six Sigma.

By the time that the organization has reached the Center-Led step, the prior sourcing initiatives should have built up quite a sourcing competency within the organization. Traditional sourcing techniques are unlikely to add significantly to the bottom line. So, Purchasing & Supply Management will migrate to being a source of business intelligence for incremental impact. This can involve a variety of skills such as:

  • Knowing where to find additional suppliers in previously untapped parts of the world
  • Identifying alternative materials and processes to take cost out of the purchased product or service
  • Understanding economic and geopolitical situations to identify opportunities for global source development, not just source selection
  • Knowing the cost drivers and how to reduce the associated costs through advanced sourcing techniques
  • Identifying opportunities to address sustainability concerns

But all of these new skill requirements doesn't mean that the purchasing professional should ignore traditional skills. These are, and will continue to be, valuable. For example, while an eSourcing solution will certainly eliminate the need for some negotiations, some of the more involved sourcing projects will necessitate the need for personal negotiation. And I would always feel comfortable having my negotiator be someone who is seasoned in the art of negotiation rather than someone who last negotiated three years ago when the contract was last renewed.

There is a danger in progressing down the maturity model. If progression is done too fast, a company could jeopardize its competitive position for years. It is absolutely key that the Purchasing & Supply Management master sourcing skills before moving from the Totally Centralized step. There is always a desire for speed and progress, but I believe that the quality of the sourcing process must be the priority. This quality is contingent upon having the skills for success today first:

  1. Purchasing fundamentals
  2. Analysis & spreadsheets
  3. Contract law
  4. Project management
  5. Purchasing best practices
  6. Sourcing
  7. Negotiation

Based on skills assessments that we've provided to hundreds of purchasers across many industries, there is a lot of opportunity for improvement in these areas. I hope that today's post encourages leaders to not try to make their organizations run before helping them learn how to walk.

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Sunday, August 27, 2006

Positive Purchasing News

I was happy to read an article where a purchasing department gets partial credit for record profits. The well-written article by Christopher Snowbeck, which appeared in today's Pittsburgh Post-Gazette, examined the University of Pittsburgh Medical Center and the "controversy" of it being hugely "profitable" despite being a not-for-profit institution.

In the article, it states: "UPMC is saving money by better managing the way it buys supplies from vendors. By using both its size and innovative ordering technology to get better deals, UPMC aims to avoid fueling even higher profit margins at the drug and medical device companies from which it buys products."

Too few "record profit" articles go into specifics on what cost savings ideas are fueling the profits. They usually say the organization is cutting costs or increasing sales, but fail to completely give credit where credit is due.

So kudos go out to UPMC's purchasing department. In purchasing and supply chain management, it's not the proverbial fifteen minutes of fame. It's more like only fifteen words of fame are the most one can expect for doing a good job. And UPMC Purchasing got nearly fifty words describing its contribution.

Well deserved, folks!

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Friday, August 25, 2006

Dell, and then Apple, Recall Supplier's Batteries

Well, I admit, I barely did more than bat an eyelash when Dell announced its recall of 4.1 million batteries manufactured by its supplier, Sony.

But when I read today's Pittsburgh Post-Gazette article about Apple recalling an additional million Sony batteries, I sat up and took notice! This, my friend, is a big issue for purchasing professionals!

This story (or combination of stories) is an example of how critical supplier performance can be. There is chatter about the reputations and stock prices of both Dell and Apple being negatively impacted - huge issues in the eyes of senior management.

I also found it fascinating that CNN quoted Dell chairman Michael Dell as saying "We have confidence that they have taken the right countermeasures and the process is now secure. We expect that Sony will continue to be a good supplier of batteries for us."

Think about that. A chairman publicly commenting on a supplier quality issue to the international press.

I've had a lot of diverse experience in my purchasing career. But, thankfully, I can say that I've never experienced a chairman commenting on a supplier performance nightmare for a supplier that was under my watch!

I have many questions about this situation and invite you to share your comments on these questions...

We know that Sony manufactured the batteries. But who designed them? Sony? Apple & Dell? Apple/Dell and Sony?

Do you feel that it would make a difference if the customer (Apple/Dell) designed them?

Who selected Sony as the supplier? If top executives are commenting about the supplier, was it a strategic partnership that was negotiated at the highest levels of both organizations? Or were single purchasing agents at both customers responsible for the supplier selection process?

Is the battery supply market so tight that the computer manufacturers stick with Sony where, if it was another industry, the supplier would be history?

How much should public relations influence supplier selection or the "firing" of a supplier?

Do you agree with Michael Dell that dumping Sony would be an ill-advised, knee-jerk reaction?

OK. Let your opinions loose!

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Thursday, August 24, 2006

European Procurement Survey

I've been asked if I would post a link to the Bradford University School of Management's survey for procurement leaders in Europe. I took the survey, feel it is relevant, and would like to see the results, so I agreed to post the link here for you if you, too, would be interested in the results.

Here's an introduction from Bradford University:

As part of an academic research being conducted at The Bradford University School of Management, they are gathering views and opinions from purchasing and procurement leaders from across the Globe and would love to include your perspective on the following themes:

• How the role of the procurement professional has changed
• The impact of e-procurement and technology on the negotiation function
• Development strategies that enable Procurement Professionals to operate and excel in the changing and dynamic marketplace.

They appreciate that your time is precious but your input to this study is extremely important. In return they would be delighted to provide you with a summary of this report once completed, which will provide a useful insight into Best Practice Procurement development. To take part and receive a free copy of the report, please click here:http://www.surveymonkey.com/s.asp?u=570532435504

If you wish to receive any further information or have any other queries, please do not hesitate to contact:
Andrew Moorhouse
Research Scholar
Bradford University School of Management
Tel + 44 (0) 113 380 4906
Mobile +44 (0) 7812 602242
a.c.moorhouse@bradford.ac.uk



Just an FYI - the survey is about 7 pages long with about 3 or 4 questions per page. I always like to know how much more work is left!

I don't usually post third party things here and I want to be sure that anything that I help promote is a positive thing. So if you have any comments or complaints about this survey, please contact me.

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Wednesday, August 23, 2006

Qatar Newspaper Features SPSM

The Gulf Times, a Qatar-based newspaper, published this article on Monday.



It is wonderful to see one of our students, who worked diligently through our purchasing training courses to earn his SPSM Certification, get some positive recognition.

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Friday, August 18, 2006

Supply Chain Technology

I hope that you have enjoyed the article "Supply Chain Technology: What's Next?" It sure was fun exploring the topic with Tim Minahan on our podcast.

One of the things that annoyed me as we moved from the '90's into this decade, was that what was once innovative suddenly became a commodity. I mean, c'mon, look how many reverse auction and eSourcing solutions there are out there now. And all of the vendors say "Our solution is so easy to use!" I think that every buyer has heard that line from at least 100 other vendors!

But now things are getting exciting. What supply chain technology vendor(s) will pull ahead? Will it be Minahan's Procuri, or Ketera, or another long-time player? Or will a new startup come out of nowhere to dominate?

Hang tight, it could be an exciting ride. Let's just hope the economy is solid enough to sustain the momentum that these supply chain technology vendors are generating!

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Thursday, August 17, 2006

Supplier Relationship Musings...

I had the chance to have a drink with the president of Next Level Purchasing's IT vendor last night. We have an excellent working relationship.

He remarked how much of a pleasure it is to work with me and how pleasantly I communicate with him. I may have shocked him by stating that not every supplier I've dealt with will share that view.

I told him that I communicate as a partner because his company simply does a good job. When they do something and tell us it's done, it's really done! We don't have to QA it for them and tell them to come back to fix this and that. They are committed to getting the job done right the first time.

Now other suppliers whose work is fraught with errors may not find me so cordial!

But, fortunately, I've gotten pretty good at supplier selection throughout my purchasing career, so I really don't have many problem suppliers any more.

So suppliers, take note: If your purchasing counterparts are less than cordial with you, maybe it's not because they are unseasoned purchasing professionals who don't know how to have productive supplier relationships. Maybe it's because you're just not good!

Think about it...

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Friday, August 11, 2006

Air Travel - Ugh!

Of course, everyone has heard the news about the air travel headaches (on a minor scale) and air travel security (on a major scale). It definitely has me contemplating exactly how much business travel I want to do.

Fortunately, I'm not traveling by air this week as I am taking a break from speaking engagements. My next speaking engagement isn't until September 14 at the Automotive Fleet & Leasing Association's Annual Conference in Rancho Mirage, California.

Though I'm not looking forward to the seven hours of air travel (including connection time) from Pittsburgh, I gotta admit that I'm really looking forward to the scenery in Rancho Mirage. Check out these photos...







For that scenery, I'd even consider driving there as one of my contingency plans should the air travel situation get more precarious!

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Thursday, August 10, 2006

Procurement eLearning in 1937?

Those who know me know that I am passionate about the fact that successfully completing an eLearning course communicates so much more about a procurement professional than getting through a traditional purchasing seminar.

Look, anyone can veg out and sit through a 7-hour live session with absolutely no accountability for learning. That's not the case with eLearning.

eLearning requires self-discipline. Successfully completing an eLearning course communicates that you are committed to success and know how to budget your time appropriately. And that purchasing certificate you get from us? It means that your knowledge was tested and you really did learn from our purchasing training.

Though eLearning wasn't around in 1937 when Napoleon Hill wrote his famous book, "Think and Grow Rich." But there is an excerpt that echoes the above thoughts on the impressiveness of the self-discipline required to complete a self-study program, as compared to traditional training:

"One of the strange things about human beings is that they value only that which has a price...It...is one of the major reasons why employers give greater consideration to employees who take home study courses. They have learned from experience that any person who has the ambition to give up a part of his spare time to studying at home has in him those qualities which make for leadership.

"There is one weakness in people for which there is no remedy. It is the universal weakness of lack of ambition! People, especially salaried people who schedule their spare time to provide for home study seldom remain at the bottom for very long. Their action opens the way for the upward climb, removes many obstacles from their path, and gains the friendly interest of those who have the power to put them in the way of opportunity.

"The home study method of training is especially suited to the needs of employed people who find, after leaving school, that they must acquire additional specialized knowlege, but cannot spare the time to go back to school."

Thank you Mr. Hill!

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Friday, August 04, 2006

Purchasing & Supply Management Podcasts

I am thrilled to announce the launch Next Level Purchasing's Purchasing & Supply Management Podcast Series!

I have a couple of podcasts in "the can." The first one corresponds with the article "Suppliers' Secrets For Negotiating With Purchasing." I admit that this first one shows how "green" I am in this new medium. But, the more I do, the better I get, so stay tuned!

While we're on the subject of the article, I'd like to share some thoughts I had when putting together this article.

One of the concerns that I had in putting together this type of article was that purchasing professionals would see purchasing negotiating tips from a sales professional to be self-serving. I believe that I addressed this in a couple of ways.

First, I chose to interview a sales professional that I trust.

Second, I filtered all of the content of the interview through my own purchasing mindset. As an example, Ken encourages purchasing managers to share information in a negotiating situation. But in the interview and the article, I am quick to point out that there are good and bad salespeople out there and that the purchasing manager has to use her judgement in deciding whether to disclose information and how much to share.

So, I believe with these two points in mind, we really put together an article that can help purchasing managers in their negotiating endeavors.

I'd love to hear what you think, which is why the comments link is right down there!

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Wednesday, August 02, 2006

VP of Purchasing Job

I just noticed online that Lakes Entertainment is seeking a VP of Purchasing and their job description says that the SPSM Certification is a plus.

So if any of you SPSM's out there are seeking a new opportunity, this may be a good one. Check out Lakes Entertainment's career opportunities page here.

Good luck!

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Tuesday, August 01, 2006

Government Procurement Ethics & The Slammer

I just read an article in Supply Management Magazine that detailed how David Safavian, a top US government procurement executive, was convicted for crimes related to breaches of government procurement ethics.

It appears that all of these charges stemmed from Mr. Safavian accepting an invitation from a lobbyist to go golfing in Scotland. Then, Mr. Safavian lied about the lobbyist's business dealings with the government.

So, Mr. Safavian faces up to 20 years in prison. It's hard to imagine the golf trip being that good, isn't it?

What's interesting is that Safavian had asked a government ethics officer for permission to go on the trip. If you were Safavian, wouldn't feeling compelled to ask an ethics officer for permission maybe give you a clue that perhaps something was a little dangerous about accepting this trip? Doesn't it make you feel like there was some doubt in Safavian's mind that accepting the trip was ethical?

The situation reminds me of a phrase that my driver's education teacher in Central Catholic High School used to state over and over. And it can be applied to procurement ethics as well...

"WHEN IN DOUBT, DON'T"

Any time I teach ethics in procurement courses, I always say that if you have to think about whether something is ethical or not, just play it safe and decline. The safer you play it, the less risk you expose yourself to.

Not everyone will be in a position where they could end up serving 20 years in jail for a breach of procurement ethics. But every procurement professional should use the same amount of care as if that possibility existed.

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

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