Wednesday, January 31, 2007

Contributions of a Great Purchasing Manager

A subscriber to the FREE Purchasing Resources Program has an upcoming interview for a purchasing manager job and wanted to know how to answer the interview question "What will your contributions be?"

Now, I don't know what this individual's contributions will be. But I can tell you what contributions a great purchasing manager makes. They include:

1. Cost savings
2. Improved supplier delivery
3. Improved supplier quality
4. Better service to internal customers
5. Improved productivity of the purchasing department
6. Development of innovative solutions and out-of-the-box business improvements

To Your Career,
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, January 29, 2007

Direct vs. Indirect Spend

One of my students asked about the difference between direct and indirect spend, so I thought I'd post my reply here so that others may benefit from the definitions, too...

Direct spend refers to purchases of goods and services that are directly incorporated into a product being manufactured. Examples include raw materials, subcontracted manufacturing services, components, hardware, etc.

Indirect spend refers to purchases of goods and services that are not directly incorporated into a product being manufactured. Examples include computers, safety goggles, printed forms, office supplies, janitorial services, equipment, furniture, etc.

To Your Career,
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, January 25, 2007

Learn Purchasing A New Way!

Yesterday, we launched a new service to help you learn more about purchasing.

We've been offering audio and video podcasts on purchasing since August. And for those of you who can't listen or watch multimedia at your desk (even if it is educational), you can now purchase transcripts of these podcasts. The transcripts will be in PDF format so you can read them at your computer or print them.

To celebrate the launch of the transcripts, we are offering them for a limited time for just $5 (US) each, which is about 75% off of the regular list price of $19.99 each.

To purchase the transcript(s) of your choice, just go over to our page for the Purchasing & Supply Management Podcast Series. Transcripts for all five existing podcasts are available.

The next podcast and transcript will be available on February 6, so watch for it!

To Your Career,
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, January 24, 2007

What Does Football Have To Do With Purchasing?

This week has been massive in terms of sports news in Pittsburgh, primarily due to the hiring of the new Steelers' head coach, Mike Tomlin.

One thing that has been a frequent topic of sports articles about the hire is that Mr. Tomlin is the Steelers' first African-American coach and their first coach hired after the "Rooney Rule" was implemented in the NFL in 2002. The Rooney Rule, named after Steelers' executive Dan Rooney who pushed the NFL to adopt the policy, requires NFL teams to interview at least one minority candidate when they are interviewing for a vacant head coach position.

The Rooney Rule does not require NFL teams to hire a certain percentage of minority head coaches, only to give minority candidates the opportunity to interview for the vacant head coach positions. According to this Post-Gazette article, Mr. Tomlin "acknowledged that the so-called Rooney rule may have helped him get noticed, but not to get the job."

So what can we take away from this in the private-sector purchasing and supply management field?

It might be that, for purchases that exceed a certain dollar threshold, at least one diversity supplier must be given the opportunity to bid. Not necessarily that a certain percentage of business be set aside for diversity suppliers, just that they be given a fair chance on a level playing field.

So do you think that purchasing and supply management departments should adopt this type of adaptation of the Rooney Rule?

One of the next editions of PurchTips will delve more into the challenges of supplier diversity programs and will discuss whether or not actual-spending-with-diverse-supplier-goals should be used. So stay tuned!

To Your Career,
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, January 22, 2007

Cost Savings

I hope that you have enjoyed the article "Cost Savings: Tips For Recording Them."

Before I started Next Level Purchasing, I had worked on developing a software package that logged and reported cost savings. I think I still have the prototype on a old Texas Instruments laptop at home.

If I get the chance, I'll take a look at the prototype and see if there were any additional features of a cost savings log that I omitted in the article. I put a lot of research into how companies record their cost savings, so there may be a nugget or two that I've forgotten about.

I'll be sure to post here if I find anything worthwhile.

To Your Career,
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, January 21, 2007

Supplier Guarantees

With my job, I am practically thinking about procurement 24x7. And, often, procurement principles manifest themselves in my personal life.

Sometimes, the same principle pops up multiple times. That was the case in the past week with the topic of supplier guarantees.

There is definitely a difference between supplier guarantees in B2B and B2C. B2B supplier guarantees are more easily enforceable through the principles taught in Supply Management Contract Writing. B2C supplier guarantees, unfortunately, are tougher to enforce.

B2C supplier guarantees sometimes are irresponsible sales puffery. They are put out there to give consumers some type of unearned assurance that their buying experience will be good.

But once the supplier has your money, those suppliers stop caring about your buying experience. Let me share some examples.

A few friends of mine are getting ready to record some songs they wrote. So they are touring various local studios to determine which one would be the best location for their recording project.

At one studio, the general manager said "If you record here, I guarantee that you'll leave here with a smile on your face."

Now that type of guarantee just wouldn't fly in B2B.

What happens if they aren't satisfied? Do they get the opportunity to re-record at no charge? Do they get their money back? Do they get reimbursed for their time spent? What happens if they are happy but choose not to smile?

See what I mean?

Puffery. Pure puffery just to make a dumb buyer feel better about making a decision without adequate comparison shopping.

I've also had some questionable experiences with hotel and airline sites that offer a best price guarantee. Let's just say that I'll still check Priceline and Travelocity before making a decision to book through a hotel or airline Web site. Perhaps I'll share more about those experiences in a later post.

The bottom line is that suppliers who make guarantees should be prepared to deliver their promises or be ready to provide a hassle-free remedy if the customer feels they didn't deliver.

So the message for purchasing professionals is to sharply examine all guarantees by suppliers to see how reasonable they are. I'm sure that the lame B2C types of guarantees creep into B2B from time to time.

To Your Career,
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, January 16, 2007

Purchasing Magazine's Business Report

In this week's Monday Mid-Day Business Report from Purchasing Magazine, they share some of the statistics from the 2007 Purchasing & Supply Management Career & Skills Report regarding the most desired skills in purchasing. Check it out here.

The MMBR is definitely worth 5 minutes of your time once a week. It mostly focuses on changes in market pricing for several commodities. But, more importantly than just saying what direction pricing is going, Purchasing shares some insights as to why pricing is going in that direction.

As I noted on Supply Excellence a while back, it is important to "know exactly what factors affect the pricing and availability of the commodity for which you are responsible." The MMBR helps you do that. Even if you are not responsible for the commodities they are discussing, hearing about other commodities helps you think more about what truly drives cost.

To Your Career,
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, January 15, 2007

Career & Skills Report Facts: Part II

Another interesting statistic from the 2007 Purchasing & Supply Management Career & Skills Report is that the number of purchasing jobs preferring candidates with the SPSM Certification that were posted on our site doubled in the second half of 2006 as compared with the same period of the prior year.

Obviously, this is a good indication of the growing recognition of the SPSM Certification.

The global flavor of the certification is getting interesting with the various parts of the world where we've certified people in January so far. But those specifics are for a February blog post!

To Your Career,
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, January 10, 2007

Negotiation Strategies For Getting Cost Breakdowns

Yesterday's article, "How To Negotiate Price Increases," spawned some great discussion between myself and some subscribers to the FREE Purchasing Resources Program.

In this post, I'll share some paraphrased excerpts of one particular dialogue regarding challenges associated with obtaining cost breakdowns from incumbent suppliers who may be in a single- or sole-source situation. I have done a lot of negotiating for cost breakdowns in my career with a lot of success, so I think that you'll be able to benefit from my advice.

Subscriber: Under a Sole Source or Single Source situation, it is difficult to get a breakdown. Do you have suggestions under these circumstances?

Me: The more certainty the supplier has of having your business, the less interested they will be in giving you a cost breakdown.

However, it is a huge mistake to fail to ask for a cost breakdown because you "think" that the supplier will resist. Ask anyway. If you don't ask, you won't get.

If the supplier resists, which suppliers have done to me in the past, I've always appealed to them in an emotional-style of negotiation to get the results I've wanted, saying things like:

  • "We're spending $x with you each year. Why do you feel that we do not deserve to know what we are paying for?"
  • "By withholding this information, I am kind of getting the feeling that your management is trying to hide something. What's the big secret?"
  • "We've been doing business with you for a long time and consider you a strategic partner. In a true partnership, there has to be transparency and openness and I'm not feeling that right now. How much of a partner do you consider us?"

Subscriber: We ask for it all the time. We just do not “think.” Tried your suggestion numerously. We get “that is proprietary information and we are not allowed to share”” and other false reasons.

Me: That's great that you are asking for the cost breakdowns. You would be surprised at how many buyers simply don't ask because they assume they know that the answer is.

I will address this further with two different strategies for securing the breakdown...

================
Strategy #1
================
The one quote you've provided is evidence that you are hearing the answer from the wrong person. The "we are not allowed to share" response reminds me of the common situation I wrote about in the article "Negotiating With Suppliers Over Policies."

Every organization that has a policy has an individual who can waive that policy. You, or someone in your organization, needs to speak with that person because the supplier rep you are speaking with is too apprehensive to present your case to that person on your behalf.

This can get challenging because business etiquette in the situation may require that, if the supplier is going to escalate the request, you should too. That means it may take executive-to-executive communication (i.e., your president talks to their president). Obviously, you don't want to run up the chain of command unless the potential profit improvement would be significant (at least several thousand dollars). Your president or VP may even be asked to sign a confidentiality agreement if s/he is successful at persuading the supplier to share the breakdown.

The bottom line is that the greater the opportunity for savings, the harder you should push, adding executive firepower, if necessary.

==============
Strategy #2
==============

Psychologically, you have to consider the reason why the supplier is so reluctant to give you the cost breakdown. Basically, because when it is requested, the supplier is likely to assume that you are going to use the information against the supplier.

If you find fault with their breakdown or conclude that their profit margin is too fat, you are going to push them for better pricing. Giving you the breakdown will be a strictly losing proposition. From their point of view, they can see no benefit of giving you the breakdown.

However, if the savings opportunity is significant, you may present your request as an opportunity to pursue a savings sharing project. By getting the breakdown, your technical team responsible for specifying the technical requirements can review the breakdown to identify cost drivers and then consider re-specifying the product in terms of material used, standard items that could be used, etc.

And, if your team finds that they can take cost out, both your organization and the supplier can share equally in the financial benefits.

Let's use an example based on the cost breakdown in yesterday's article assuming that the unit price of the item is $100.

Wood = 20% ($20)
Aluminum = 7% ($7)
Other materials = 3% ($3)
Labor = 45% ($45)
Overhead = 13% ($13)
Profit = 12% ($12)
Total = 100% ($100)


What if your technical team found that they could eliminate aluminum and replace it with plastic at half the cost ($3.50 per unit) without sacrificing quality?

That would result in a reduction of the total costs of $3.50. Splitting the savings would mean that half of that price reduction would go to the supplier's profit and half would go to a reduction in your price. So the new cost breakdown would look like this:


Wood = $20
Plastic = $3.50
Other materials = $3
Labor = $45
Overhead = $13
Profit = $13.75
Total = $98.25

If you buy 100,000 units a year, that would save you $175,000 and give the supplier an extra $175,000 in profit a year - a true win-win.

===============

Now, you have to be realistic about using these more advanced strategies. The payback has to be there if you're going to involve top management or your technical team. Because each supplier and each sole source situation is different, there are no guarantees.

But the need for these advanced strategies is a great justification of the last paragraph in yesterday's PurchTips: "The key is to get that cost breakdown when you first obtain pricing from a supplier. Suppliers can be hesitant to share such information at times, but are usually more willing when they are competing for your business."

After a supplier has your business, you are less likely to get the cost breakdown. While you can't change the past, you can avoid having to struggle to get cost breakdowns in the future by always requesting them while the supplier is still bidding for your business.

To Your Career,
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


Career & Skills Report Facts: Part I

Earlier this month, we released our "2007 Purchasing & Supply Management Career & Skills Report." This report, which was based on a survey in which more than 1,200 purchasing professionals participated, shares many great facts about trends that are shaping the profession.

You can get the report for FREE when you sign up for the FREE Purchasing Resources Program, but I'll share a few facts from the report in blog posts over the next few days.

I'll start with my favorite fact...

Purchasing professionals who have the SPSM Certification earn an average of $13,634 (US) more per year than those who do not.

When I founded Next Level Purchasing, my mission was to help purchasing professionals who are struggling to have rewarding careers. This is evidence that we are succeeding by truly and measurably helping others succeed.

To Your Career,
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, January 09, 2007

Negotiation Article Related To Today's Article

Because today's article dealt with negotiation from the procurement perspective, I found it interesting that I received an article in my email inbox today about negotiation from the sales perspective.

The article, entitled "Why Using Tentative Words Will Reduce Your Profits," is definitely something that procurement professionals should read. It only takes a couple of minutes to read and it will help you listen for "tentative words" that clue you in as to how negotiable a supplier's terms are.

Of course, the article instructs salespeople not to use those tentative words. But, by doing so, it can teach you to look for them when you negotiate with salespeople.

Check it out!

To Your Career,
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

Saturday, January 06, 2007

How To Negotiate Price Increases

I hope that you have enjoyed the article "How To Negotiate Price Increases."

In the survey that produced the data for The 2007 Purchasing & Supply Management Career & Skills Report, the #1 topic that you wanted for future editions of PurchTips was negotiation, so I am all about delivering what you want!

The other topics rounding out the top three were global sourcing and fundamentals of purchasing. So stay tuned for articles on those topics soon!

To Your Career,
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, January 05, 2007

Random Purchasing News Items

I have many small purchasing news blurbs to share, so rather than make them separate posts, I'll consolidate them here...

1. Michael Lamoureux over at the Sourcing Innovation Blog has posted a two-part review of our online purchasing class Mastering Purchasing Fundamentals. You can check out Michael's reviews here and here.

2. The phrase "Senior Professional in Supply Management®" had officially earned registered trademark status last month. Man, I never really cared to learn all that I did about the trademark registration process. It is a very expensive process that involves hiring a specialized attorney much unlike what I thought it would be - fill out a form and pay a fee. But trademark registration is a necessary evil. Even once-venerable institutions are today engaged in intellectual property theft and trademark registration can only help an organization protect its IP and spank the infringing parties in legal proceedings.

3. My article "Office Supplies Sourcing Secrets" was republished in the current edition of Government Procurement Magazine.

To Your Career,
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, January 04, 2007

Purchasing Training Tidbits

I was asked a few questions by email today from some folks out in the field. I thought that I'd share with the rest of the world my answers for some purchasing training tidbits. Here goes...

Question: What is the difference between a bill of lading and a packing slip?

Answer: A bill of lading is a contract between the shipper/owner/seller of the goods (e.g., a manufacturer) that are being transported and the transportation provider. The bill of lading is generally initiated by the transportation provider.

A packing slip is a document that is enclosed with the boxes being shipped that the receiver of the goods uses to verify that the shipment is complete. A packing slip is generally initiated by the shipper/owner/seller of the goods.


Question: I would like to know where in a typical organisational structure the position of supply chain manager should be located and at what level. I also would like to know who should report to such a position.

Answer: First, I suggest that you read this blog post: http://tinyurl.com/yhsyjz

Second, in my definition of supply chain management, someone who manages the supply chain is responsible for the acquisition of materials, the conversion of those materials into finished goods, and the outbound distribution and transportation of those finished goods. Therefore, groups like purchasing, inventory management, warehouse, production, logistics, and shipping would report to a supply chain manager. Thus, the supply chain manager (or VP of supply chain) should be at the second tier of the organizational structure, under the president and on the same level as the CFO, General Counsel, etc.

I will caution you that, because the term "supply chain management" is used in various ways at various companies - some companies call their purchasing departments Supply Chain Management even though they are responsible only for inputs not conversion nor outputs - there isn't a true typical organizational structure.

To Your Career,
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, January 02, 2007

2007 Purchasing Predictions...Yawn...

This is the time of year when bloggers from every walk of life take to the blogosphere to share their predictions for the coming 12 months.

Well, try as I might, I wasn't able to escape the temptation of being cliche and making some predictions for the year in purchasing and supply management. My buddy, Michael Lamoureux, over at the Sourcing Innovation Blog gave me just enough prodding to contribute.

I'll keep it short, but here goes...

1. "China, India, and ____." When people in the field talk about low-cost country sourcing, they usually mention China and India. Well, I predict that, by this time next year, the twosome will be an inseparable threesome. What country completes that trinity is fascinating fodder for speculation. Will it be emerging hotspots like the Phillipines or Vietnam or a place not even on the radar screen? My guess...Mexico.

2. "You're Fired." The hot-off-the-press 2007 Purchasing & Supply Management Career & Skills Report indicates that cost pressures are growing in the lives of purchasing leaders. I think that these presssures will catch up in a newsworthy way with at least one major purchasing exec and s/he will find him or herself with a pink slip in hand by the end of the year.

3. "Extra, Extra, Read All About It." A major supply disruption - caused by a Force Majeure event - will make major headlines and managing supply risk will become something that every purchasing professional talks vigorously about for a few weeks until a new reality show, sporting event, or political happening steals the conversational thunder.

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

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