Friday, April 27, 2007

Purchasing Salaries

I hope that you have enjoyed the article "Your Purchasing Salary: Is It Fair?"

What I'm hoping even more is that you noticed the free offer to get a copy of "The Guide To Benchmarking Your Purchasing Salary." If you didn't, go here.

What I'm hoping most of all is that you have gotten "The Guide," used it to compare your salary, and will use the comments section of this particular post to tell me how close the calculation was to your salary, if you feel underpaid, what you're going to do to bring your salary up to a reasonable level, etc.

I'd love to hear how the article and the guide help you get paid what you deserve!

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

Best Value Definition

A subscriber to PurchTips asked me how the term "best value" is defined in procurement.

Best value is one of those terms that is defined differently by different people. I'll give you my take...

Best value relates to systematically identifying a measurable monetary difference between a winning supplier's proposal and all other suppliers' proposals. The term implies that more than just price is taken into consideration.

Most commonly, best value (which I sometimes call "net profit impact") is determined by completing a total cost of ownership (TCO) analysis. However, when suppliers' work can have some type of impact on revenue, both revenue and cost are factored into an equation determining best value/net profit impact.

Beware though...I've seen government purchasing organizations use the term best value to mean that they've simply used a weighted average supplier scorecard to evaluate proposals based on a number of variables rather than just price. In these cases, no true TCO analysis nor profit impact calculation was performed.

If you are unfamiliar with TCO analysis or weighted average supplier scorecards, these topics are covered in depth in our online classes "Mastering Purchasing Fundamentals" and "Microsoft Excel For Purchasing Professionals" respectively. You can learn more about what is covered in these classes at the following links:

Mastering Purchasing Fundamentals - http://www.NextLevelPurchasing.com/fundamentals-purchasing.html

Microsoft Excel For Purchasing Professionals - http://www.NextLevelPurchasing.com/classesexcel.html

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, April 23, 2007

Smackdown: Blanket P.O.'s vs The P-Card

Blanket P.O.'s and Procurement Cards (P-cards) are two tools that non-eProcurement environments can adopt to reduce tactical activities in a purchasing department. Professional purchasing staff should rarely "cut P.O.'s" for orders under $100 when a vendor and pricing have already been determined by the purchasing team. When trying to decide which of these two tools to use, here are a few things to consider...

Speed of Implementation

If your company does not currently have a P-card program in place, it can take some implementation time to research the market, select a provider, strategize a rollout, train users, etc. In contrast, your existing purchasing system may already have blanket order functionality giving you the opportunity to implement blanket orders immediately. If P-cards are your long-term solution across multiple categories, you can always start with blanket orders and migrate to P-card later.

Chance of Paying For What You Didn't Get

With both P-cards and blanket orders, there is a risk of paying for what you didn't receive. It's no secret that use of stolen credit card numbers is widespread and P-cards are not exempt from fraudulent transactions. But, if you use a 2-way match (P.O. matches the invoice) instead of a 3-way match (P.O. matches the invoice matches the receiving records), a supplier could invoice you for more line items than they shipped and still be paid. You have to simply determine which of these two methods represent the least risk as well as which is easiest to audit.

Transaction Cost Savings

It is widely acknowledged that one of the best benefits of P-card is the reduction of administrative costs associated with paying invoices. So, while blanket orders do not provide any of this type of cost savings compared to having the purchasing department place orders, P-cards definitely do.

Ease of Use

Most of your end users should know how to use a credit card to place orders. However, they may struggle with remembering a purchase order number and other relevant details when placing a release against a blanket order. Not a big deal, but something to consider. Because this change affects end users (and may not be popular), you might want to create a team and invite end users on the team so that they feel they have control of their destiny which leads to greater buy-in.

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, April 20, 2007

Requisitioning Practices

There are four common practices as related to how requisitioners put their requests through. Here they are from best to worst...

1. The company has an eProcurement system implemented featuring pre-approved items from contracted suppliers. When requisitioners want one of these items and their total order is under a certain value, they use the eProcurement system to place the order directly with the supplier. Purchasing staff is not involved in these routine transactions, freeing them up to focus on more strategic purchasing work. For larger value transactions, the eProcurement system distributes requisitions to buyers based on customized criteria (e.g., category, end-user department, vendor, etc.).

2. When companies do not have an eProcurement system and/or do not allow their end users to place orders directly with suppliers, they often have an electronic requisitioning module within their ERP system. The requisitioning module allows for tracking of the status of requisitions and also can electronically distribute requisitions as the eProcurement system does.

3. For companies that still use paper requisitions, a common practice is to have them sent to a central location where an administrative employee will distribute them to buyers. In some cases, the administrative employee will log the requisitions and time stamp them to help track requisitions as well as to measure cycle time for continuous improvement efforts.

4. Some companies allow end users to deliver requisitions directly to buyers. In many of these cases, there is no tracking system in place, resulting in the chaos of lost requisitions. Buyers are often interrupted, every request is labeled a "rush order," and productivity and efficiency is far from optimized. Companies that use this approach often do so to promote internal customer service as a priority over productivity.

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, April 19, 2007

Procurement Card Questions...

After sending out Tuesday's PurchTips article "Procurement Card Pros & Cons ," I received a suprising number of emails asking what the heck a procurement card is!

I forgot that procurement card use (and credit card use, in general) is not as common in other countries as it is in the USA. Some folks even asked me to send a picture of a procurement card.

I've referred these folks to MasterCard's site, which has some nice, simple, bulleted information and, yes, a picture of a procurement card. If you're one of the folks who was wondering what a procurement card is, here's a link that will take you to MasterCard's site: http://tinyurl.com/2bmcq3

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, April 18, 2007

Change Orders: Different Than A Changed Order?

One of our students asked if there is a standard practice for when to issue an official change order rather than simply making the change to an existing purchase order.

Actually, there are no standard rules for a change order vs. amended P.O. across companies. A lot of it depends on your company's own systems and procedures as well on any contractual requirements your company may have agreed to with its vendors.

If I had to make a recommendation on some guidelines where there are no system/procedure/contract constraints, I'd say that numeric changes, such as to price or quantity, can be done by changing the P.O. as long as you have clear communication of the change with the supplier. Most times, these changes are easily communicated verbally and are often just made so that there are no hang-ups when the supplier's shipment or invoice arrives.

Any major change to the items ordered or the scope of work can be done on a change order. In my opinion, change orders generally imply that something major has changed.

Many purchase order systems track the revisions of the order, which can be helpful if there are a lot of changes after the original order placement and you find yourself trying to later do an autopsy on a messed up situation.

Do you find this type of information helpful for your job? Then our online class "Mastering Purchasing Fundamentals" may be a good fit for you.

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, April 13, 2007

The Good Ol' Procurement Card

I hope that you have enjoyed the article "Procurement Card Pros & Cons."

While on the topic, I thought that I'd use this blog post to describe some of the many decisions that must be made when implementing a procurement card program. These include:
  • Should there be one standard spending limit for all procurement card holders, should each card holder have a customized limit, or should there be several spending limit categories?
  • What is the standard spending limit per day? Per transaction? Per month?
  • What categories should be restricted from purchase using a procurement card?
  • Who gets a procurement card and what are the criteria used to determine eligibility?
  • How many FTE's are required to administer the procurement card program? (NOTE: The procurement card administrator position is usually staffed by someone who does other things, too. I've usually seen about 20 - 30 hours per week dedicated to procurement card administration.)
  • Should the procurement card only be usable with contracted suppliers?
  • How will you train procurement card holders with regard to logging transactions, distributing charges, security practices, etc?
  • What type of transaction information do you need to be made available centrally?

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, April 11, 2007

Kick A Supplier When It Is Down?

Sometimes suppliers run into rough times, even when they are performing adequately for you.

So what do you do?

Stick with the supplier you like? Or read the tea leaves and find a new supplier before things get bad?

These types of questions were running through my mind when I read the article "Ruling Bans Vonage From Signing Up New Customers."

Vonage, as I understand it, is not yet profitable. And with the inability to sign up new customers in the near term, their future looks very bleak.

So what are their customers to do?

Should they hope that things will get worked out and everything will be fine? Or should they find a new supplier sooner rather than later to avoid the risk to their continuity of supply?

Enough of their current customers will likely take the second option that it makes the first option even less attractive.

The financially struggling supplier scenario frequently occurs in purchasing with all types of suppliers. You have to watch the news. While you have to avoid any knee-jerk reactions, you also have to seriously consider what your contingency plan is, what will trigger you to execute it, and when.

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, April 10, 2007

Got An Escalation Plan?

Supplier performance evaluation programs help keep suppliers "in line" because suppliers know that they are "being watched" and measured.

But most companies usually only formally evaluate a small percentage of their suppliers. Most use the 80-20 rule to determine which suppliers will be evaluated - the 20% of suppliers to whom 80% of the spend is directed.

But, of course, the other 80% of suppliers can cause headaches for buyers, too!

In these cases, it is important for these buyers to know how to handle situations where one of their suppliers just isn't performing satisfactorily. Obviously, the first step is to try to work out the situation professionally.

Unfortunately, that doesn't always work.

So buyers should know what the second step is. It can be a frustrating and emotional time for buyers, so they shouldn't necessarily be left to their instincts to decide what to do. Many of us have lost our tempers trying to resolve situations and later ended up being embarrassed by how we reacted.

So I think every purchasing department should have a plan for what comes next.

Here are a list of things you CAN do. You should decide what you SHOULD do, and in what order:

  • Speak more aggressively to your contact at the supplier
  • Contact a member of the management team
  • Arrange for an emergency on-site visit at the supplier
  • Threaten to switch suppliers
  • Switch suppliers
  • Use social media to expose the supplier's poor performance

The possibilities are endless. But, again, you should know in advance what you are going to do, in what order.

Things that should never be a part of your escalation plan are:

  • Using profanity
  • Making a personal threat
  • Losing control of your emotions (raising your voice and sounding out of control can, unfortunately, sometimes work better than being professional, but you should actually be in control regardless of how you sound)

Starting my career as a buyer and now being a president allows me to have fun and test some things that I would have worried about being fired over in the past. Perhaps I'll share some of my experiments in a future 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

Friday, April 06, 2007

The SPSM Hits The Caribbean!

March was another great month for awarding SPSM Certifications globally.

In March, we had the first candidates from The Bahamas (northern Caribbean) and Barbados (southern Caribbean) earn their SPSM Certifications.

With the unseasonably cold weather in Pittsburgh this weekend, I wish I would have chosen to personally deliver their certificates rather than sending them by mail!

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, April 05, 2007

The Price of Supplier Diversity

One of the decisions to make when starting a supplier diversity program is whether or not to pay a premium to use more diverse suppliers.

I know for a fact that some purchasing departments will select a higher-priced diverse supplier if they are within a certain percentage of the low bid. What I don't know is if these departments measure how much of a premium for diverse suppliers they pay on an annual basis. Are they making a $50,000/year investment in supplier diversity? A $250,000 investment? $1 million?

I don't know.

I started thinking about this after reading this article in today's Pittsburgh Post-Gazette. Basically, an employee of a prospective vendor - Westmoreland Electric (WE) - is suing the Pittsburgh Public Schools over losing a bid to a higher-priced competitor with more subcontracting dollars directed to diverse suppliers.

The article points out that the Schools are paying the successful bidder $200,000 more than WE's bid. Reading closely, it's not necessarily an issue of paying a premium for diverse suppliers but rather a matter of rules.

In government purchasing, rules are king. Bottom line benefit doesn't matter as much as ensuring that rules are followed. And, based on what's in the article (and not necessarily true), it appears that both sides may have failed to follow the rules.

The RFP required that 15% of the value of the contract be utilized to subcontract to diverse suppliers. WE's bid fell 0.38% short of that goal, so their bid was disqualified. WE "said the district has the right to forgive minor problems with bids, especially if it means saving the taxpayers $200,000."

But, you know what? Too bad.

Just because the Schools have the "right" to waive irregularities with bids, doesn't mean that they have the obligation to. In government purchasing, a rule is a rule and setting the bar only to move it later would be unethical in my opinion.

Now in private industry, sure, $200k to the bottom line might be a more valid reason to waive the irregularity.

In my mind, the bigger issue is whether the school board broke a rule with regard to awarding "the bid without the waiting period it usually gives to disqualified bidders for objecting." If this waiting period is a "rule" rather than a "customary practice," then there is likely going to be a battle.

But, even then, I think that in government purchasing, you cannot waive a requirement even if it makes financial sense to do so. That's just the nature of the beast.

You gotta be fair. You gotta follow the rules.

And I think that WE has to be the loser here, even if they could have saved Pittsburgh taxpayers $200,000.

But that's just one small example of paying a premium for supplier diversity. How much of a premium is your organization paying for supplier diversity?

And, if that number was higher than expected, would your executive-level management make changes to your supplier diversity program? Or would they still consider it a worthwhile investment?

Food for thought, huh?

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

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