Wednesday, September 27, 2006

Politics in Purchasing & Supply Management

So what does Venezuela's President Hugo Chavez's references to President Bush as the devil have to do with purchasing and supply management?

At least a little, apparently.

7-Eleven has announced that it is ceasing to use Citgo as its supplier of gasoline sold at its convenience stores. Citgo is owned by the Venezuelan government.

This article on Yahoo News goes into more detail on the topic.

Events like these show how high-profile purchasing decisions can actually be. Gotta love 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

Tuesday, September 26, 2006

To Become A Buyer...

Matthew Grant over at the PurchaseRealm blog asked for guest entries on the subject of "A Day in the Life of a Buyer."

I contributed a post about common misconceptions of those who consider becoming a buyer. And I also shared some truths that should be understood by everyone who wants to become a buyer.

So I invite you to head over to Matthew's blog and check out "The Truth About Becoming A Buyer."

I'm sure that many of you will be able to identify!

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

Monday, September 25, 2006

Talent Management

Michael Lamoureaux over at the Sourcing Innovation blog is at it again…He’s coordinating a cross-blog series on the subject of talent management in purchasing and supply management.

Obviously, being the head of a company that offers purchasing training and a purchasing certification, this topic is near and dear to my heart. But I promise not to make this a commercial for Next Level Purchasing. I’ll focus on some other aspects of talent management.

In the book “Good To Great,” Jim Collins talks about “getting the right people on the bus” then “getting the right people in the right seats.” But I’d like to dedicate this post to “keeping the right people on the bus.”

I’ve seen so many organizations lose talented purchasing professionals in the past few years. What is disturbing is that these organizations often lose the replacements of those people quickly also!

Organizations often seek employees who are interested and able to deliver continuous improvement to the organization. What these organizations fail to realize is that a professional who is interested in delivering continuous improvement to her employer is also interested in achieving continuous improvement in her purchasing career.

So after two productive years at a job – after they’ve accomplished some nice things to add to their resumes – purchasing professionals know they are more valuable. So they want to move up.

In huge companies like Wal-Mart or ExxonMobil, this is not that big of a challenge. Their purchasing departments have hundreds of positions. Higher-level openings aren’t that uncommon.

But what about mid-sized companies (i.e., those with $100M to $1B in annual revenue)?

It’s more challenging because the purchasing manager may report to the CFO. Is it likely that a purchasing manager will make the jump to CFO? Probably not.

So the go-getter leaves the company after only a few years. And the mid-sized company is recruiting a new purchasing manager every two years. Continuity is always interrupted and the potential for world-class purchasing and supply management is never realized.

So what do you do?

Well, there are a few things for a mid-sized company in this situation to consider:

  1. If it is important to have a purchasing agent/manager remain in the position for the long-term, don’t hire a young hot-shot who just saved Ford a billion dollars. That person won’t be happy for very long in a mid-sized company with no upward mobility. You need to hire the “right” person, not necessarily the “best” person.
  2. Have a career development plan starting from junior buyer all the way up to VP of Purchasing. Make it foreseeable for someone to move up the ranks.
  3. If you have a career development plan in place, hire people who have the potential to move up. If you hire people with limited potential, you won’t want to promote them later.
  4. Once you document your career development plan, don’t change it without careful consideration. If it requires three years of experience for someone to be promoted to a supervisor’s role, one of your talented employees gets those three years of experience, and then you change it so that four years of experience is required, what’s that talented employee going to do? That’s right – go somewhere else before that additional year expires.
  5. It is your company’s responsibility to train your workforce to be world-class performers. If you have an open management position and feel that none of your buyers is qualified for promotion, it is your fault for failing to develop them. Talented people won’t stay in your organization for long if they keep getting passed up for promotions.
  6. Nothing is more damaging to morale (and, therefore, to productivity) than hiring from the outside when you could have promoted from within. People need to feel valued. If they don’t feel valued by your organization, they probably will go to an employer who does value them.
  7. Reward employees for their educational achievements. Accomplishments like earning the SPSM Certification make a purchasing professional more valuable in the marketplace. If you don’t reward them, they are probably thinking about how much more money they can get elsewhere. On our “SPSM Certification Success Stories” page, there are interviews with people whose employers gave them generous pay increases shortly after earning their SPSM’s. Smart move. SPSM’s know they’re more valuable in the market. If they don’t get rewarded by their current employers, they’re probably going to seek those rewards from new employers.

I hope that these tips help you retain your talent and deliver improvements on a continuous basis.

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, September 22, 2006

Supply & Demand Chain Executive Article

Supply & Demand Chain Executive Magazine has put together an article on the topic of supply chain certification. The article extensively discusses Next Level Purchasing, the SPSM Certification, and how the SPSM Certification benefits the companies who enroll their purchasers in the SPSM Certification Program.

You can check out the article at http://www.sdcexec.com/article.asp?article_id=9042

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, September 20, 2006

Services Purchases & Contracts

You may recall from my article "Purchasing Services: The Pitfalls, Part I" that I stressed the importance of clearly defining service completion time frames, citing how delivery in "30 days" could end up meaning that you could expect delivery in about 3 months depending on the interpretation of days.

Well, today's Pittsburgh Post-Gazette offered another real-life example of how differing interpretations of service completion time frames can cause a buying organization headaches.

The article describes how the City of Pittsburgh recently privatized its vehicle maintenance. The contract requires most vehicles to be repaired in 24 or 48 hours. According to the city, their repair vendor failed to meet the 48 hour (which the city interprets as two days) requirement about 1/3 of the time. The vendor said that there was a verbal agreement with a city executive to "count only the 13.5 hours per day during which the garage is open against the threshold, meaning that 48 hours is nearly four days."

Service buyers: There are a lot of pitfalls when purchasing services. At the very least, read the free article! Our online class, Supply Management Contract Writing can also help you avoid debacles like this one.

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

Monday, September 18, 2006

The GPO - Group Purchasing Organization

I hope that you have enjoyed the article "Demystifying Group Purchasing Organizations."

One additional item that I would like to add to the article via this blog is a quick list of the advantages and disadvantages of GPO's.

Advantages of using a GPO:
  1. Can give a smaller company "big company pricing"
  2. Can save a lot of work by having instant access to a favorable contract, rather than having to go through an exhaustive sourcing process
  3. Can offer an ally to work on complaints that would otherwise be "too small" or "too low of a priority" for some suppliers

Disadvantages of using a GPO:

  1. Can reduce the amount of control a purchasing department has over its purchasing decisions
  2. Can require an investment that may not be recouped if you are unable to get end users to use the GPO contracts
  3. Can highlight weaknesses in the purchasing department's processes (which can be an advantage if you capitalize on them and implement improvements)

But, all in all, my personal opinion is that using a GPO should at least be investigated. If the deal doesn't make sense, then by all means walk away. But, if management ever asks how your pricing is, you'll be able to provide a smart answer and demonstrate that you've investigated some options.

What are your thoughts on the use of a GPO?

Please comment.

NOTE TO PURCHTIPS READERS: Today was the first time in quite a while that I linked to my blog from PurchTips. If you haven't stopped by this space recently, I usually post to this blog about 3x per week. My posts here are less formal and of varying length than my PurchTips articles, but hopefully just as valuable to purchasing professionals like you. So, if you find PurchTips helpful, I encourage you to stop by regularly (or, if you're a more techy type, subscribe to the RSS Site Feed) to get even more frequent insights into purchasing and supply management.

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, September 15, 2006

Auto Industry Purchasing

Speaking at the AFLA conference was fun.

Prior to my presentation, an executive from Ford gave a presentation on the challenges that the automotive industry was facing. He briefly mentioned challenges with suppliers.

The specific supplier challenge was that so many automotive suppliers have gone bankrupt and this has hurt the OEM's. He, of course, didn't acknowledge that this may have been caused by the OEM's reputations for taking such a hardball approach with those suppliers.

He said that the result will be that there are fewer, stronger suppliers after the bankruptcies shake out. I agree. But will those suppliers tolerate the old-school treatment in a new age?

If the supply base does shrink, that means that supplier capacity will be limited. And there is speculation that purchasing capacity, rather than products, will become more common.

So, could GM purchase capacity and leave Ford out in the cold or vice versa if one of them adopts a collaborative approach to supplier relationships and the other doesn't?

If so, outsourcing becomes more risky. And this is a time when the US automotive industry cannot accept more risk.

Could this jeopardize the outsourcing trend? Could vertical integration return?

I think it could, but there are many variables involved that would make it difficult. Particularly, the union contracts that are in place with both the suppliers and the OEM's. If the OEM's are able to cut better deals with the unions, outsourcing could decline.

Of course, if the suppliers can negotiate better union contracts (and their bankruptcies could make this happen), outsourcing could actually increase.

And the already critical purchasing function in the automotive industry will become even more important!

We'll see what happens closer to the end of the decade.

I'm at the Palm Springs Airport now getting ready to head back to Pittsburgh. I miss my family and will be spending every minute of the weekend with them, so please excuse me from blogging til Monday.

Talk to you then.

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, September 13, 2006

Modern Forecasting in Purchasing

Well, after a long day of air travel out of Pittsburgh and a beautiful night swim in the desert heat of Rancho Mirage, I'm settling in to share some more purchasing thoughts with you!

Coast-to-coast air travel gives me lots of time to read business magazines. My laptop battery bites the dust after about two hours on the plane and my thumbs can only take so much microtyping on my Palm Treo.

One of my favorite on-the-road magazines is Business 2.0, though it rarely mentions corporate purchasing. But the September issue did! And it specifically related to a topic that I discuss from time to time in my purchasing articles such as "Tactical vs Strategic Purchasing" - forecasting.

The article "The Wisdom of the Corporate Crowd" gives a great example of how the purchasing function can be strategic by giving some background on how Hewlett-Packard's commodity managers play a key role in HP's profitability, specifically through their forecasting. It compares their traditional way of forecasting with their new way.

The article says "On the first Tuesday of every month, 10 or so commodity managers from across Hewlett-Packard's hardware divisions dial in for a conference call - but the civility often ends there. For an hour or more, they bicker, squabble, and joust over one seemingly innocuous question: What will the price of DRAM memory chips be in one month, three months, or six? 'Usually, it's the loudest, most obnoxious guy who gets heard, ' says HP research scientist Leslie Fine."

These meetings culminate with "an official forecast that 70 HP buyers rely on to price more than $50 billion in HP computers and other hardware - often months before the chips that go in them are bought. If the forecasts miss by even a few cents, the difference, which can add up to millions of dollars, comes out of HP's slim profit margin for hardware."

Strategic purchasing? You bet!

The article goes on to describe how HP is experimenting with an innovation in forecasting where they've developed an internal Web-based, game-like model that simulates a stock market style exchange and rewards the best players (the commodity managers) with cash prizes.

And how is it working?

It's beating the pants off of the traditional way!

Gosh, I love to see creative ideas break new ground.

OK. My room service meal of pizza and a $9 piece of cake should be here soon, so I gotta go.

Greetings from steamy California!

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

Monday, September 11, 2006

Job Requiring Supply Chain Certification

I was taking a break from preparing for my speaking engagement at the Automotive Fleet & Leasing Association's annual conference when I noticed that Diversified Graphics is seeking a Direct Import Specialist in their ad on MSN Careers. This job requires a supply chain certification and the description specifically mentions the SPSM Certification.

So, SPSM's take notice: this sounds like an interesting opportunity.

OK. I gotta get back to preparing!

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, September 07, 2006

Sourcing Innovation For Enterprise-Wide Contracts

In response to the request of Sourcing Innovation’s Michael Lamoureaux, I posted last week about the different skill sets required as sourcing for single internal customer contracts progressed through a sourcing maturity model. And I promised a second post on a contrasting topic: the skills required for enterprise-wide sourcing in the future.

Well, my good friends, here’s that post…

Strategic sourcing has shown signs of maturity. Best practices have been implemented and stabilized at the Fortune 100 companies. And the rest of the purchasing world is beginning to catch up.

Today’s strategic sourcing decisions are made by sourcing teams who are led by purchasing representatives. The more complex strategic sourcing decisions usually involve a total cost of ownership (TCO) analysis or, at the very least, a multiple-selection-criteria analysis using a weighted average supplier scorecard. It is not uncommon for this analysis to be done within the context of an eSourcing solution.

So project management and analysis and spreadsheet skills are indispensable skills for successful sourcing today.

Both of the aforementioned analysis methods take into consideration the differences in cost, quality, delivery reliability, and service of the competing suppliers. And this pretty much works well and has worked well, positioning today’s strategic sourcing on somewhat of a plateau.

But I believe that the sourcing world is ready to get to another level. In the not-too-distant future, we’re going to look back at today’s supplier selection methodology and consider it archaic.

The purpose of putting together a TCO analysis or a weighted average supplier scorecard is to give some acknowledgement of the potential impact of differences in suppliers on the buying organization. But anyone that has ever negotiated selection criteria or relative weights with an internal customer or commodity team knows that each team member’s own personal speculation of the results greatly impacts the internal negotiation.

In the future, I foresee this speculative bickering to be replaced by the widespread watching of simulations of various scenarios associated with the various supplier selection opportunities. The sourcing team will see the risks and the impact on the buying organization if those risks come to fruition. These simulations will be delivered through technologies that factor in all of the variables associated with a supplier selection: supply chain logistics, material availability, supplier financial health, competition in the marketplace, etc.

The simulations will show the impact and probabilities of potential scenarios, large and small, such as:

  • Materials getting caught in a customs delay
  • A supplier having a major quality issue (think Sony laptop batteries)
  • A supplier declaring bankruptcy
  • Chronic billing errors
  • Erratic lead times
  • And every situation you can imagine!

These simulations will give the entire sourcing team a more comprehensive, tangible understanding of the factors that should influence the decision.

So does that mean that purchasing professionals will need fewer skills in the future?

H*ck no!

The implication for purchasing professionals is that they have to be “smarter” than the simulators. Look, you can have a computer pick your suppliers for you and just quit your job. But, in jobs where levels of uncertainty are high, a human has to make decisions.

To be “smarter” than the simulation means understanding what factors the simulation considers and knowing how to evaluate those factors to arrive at the optimal decision.

What new and different additional skills will this require of purchasing professionals? Here are just a few…

  • Skills in quantitative analysis, with an understanding of statistical probabilities, decision trees, etc.
  • Knowledge of macro- and micro-economics
  • The analytical ability to quantify the total cost of the supplier relationship, not just the total cost of ownership

Before the world gets to this new plateau of sourcing, there’s still a lot of “current-style” sourcing to be done with the comprehensive blend of skills that are in demand today for the successful execution of a sourcing strategy:

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

I’d like to close by thanking Michael for the idea to coordinate this effort. I think that he has helped inject purchasing intelligence into the blogosphere and has inspired others to do the same.

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, September 06, 2006

Tactical Purchasing Definition

In the email version of today's PurchTips edition entitled "Tactical vs Strategic Purchasing," I included the wrong link to the SPSM Certification Success Stories page on our Web site. So I sent out a second email with the correct link and also thought it would be helpful to include a definition of tactical purchasing as the article focused mainly on describing the distinguishing characteristics of strategic purchasing.

Here's the definition of tactical purchasing that I included:

Tactical purchasing is simply executing routine administrative tasks (requesting quotes, placing orders, expediting, etc.) on a reactive basis, outside of the context of an enterprise-wide focus, and without pursuing continuous improvement or contribution to specific senior management goals.

Just thought I'd post it here, too...

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, September 05, 2006

Tactical vs Strategic Purchasing

I hope that you have enjoyed the article "Tactical vs Strategic Purchasing."

What I hope to accomplish with articles such as this one and "10 Signs of a Modern Purchasing Department" is to help purchasing managers develop a road map - a road map that they can use to transform their purchasing departments from what they are today to what they aspire to be.

For example, I'd like to see a purchasing manager say "Yep, we're active in strategic tasks like spend analysis, supplier relationship management, and development of productivity tools. But we haven't even touched technology implementation, involvement in spec development, or forecasting. I'd like to add those activities to our repertoire in this order by this date. And to do so, we're going to reduce these specific tactical activities by doing this."

How are you applying the lessons from these types of purchasing articles?

Leave a comment and share your success with the blogosphere!

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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