Tuesday, July 31, 2007

The Half-Truth Of Inventory Management

Jason over at Spend Matters posted a thought provoking piece on inventory practices in Cisco's supply chain. I posted a comment there and thought that I'd post it here, too, for your reading pleasure.

The half-truth of inventory management is that moving to a lean inventory reduces cost. That's not necessarily true.

If the inventory just shifts backwards in the supply chain, then the cost will either be reflected in your price or you will end up doing business with financially unsound suppliers who price their products too low. And you don't have to be in purchasing very long to understand the problems and costs that arise from that!

Lean inventory can end up costing an organization more in the long term. If the inventory is simply shifted and the organization with the least proficient inventory management practices ends up with a substantial portion of it, efficiencies are lost and cost rises.

To effectively make lean inventory result in cost reduction, you must engage in supplier development and share best practices with the supply chain so that inventory is truly reduced in the whole supply chain, not just shifted. The organization that has the most proficient inventory management must take a leadership role in such cases.

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, July 27, 2007

The Purchasing Talent Crunch Paradox

Yesterday, I posted a long entry that analyzed the market for purchasing jobs: tactical purchasing jobs are being eliminated while strategic purchasing jobs are being created faster than they can be filled by qualified candidates. The latter situation is what is known as the "talent crunch."

This can seem like something of a paradox. If purchasing professionals are being displaced at the same time that new purchasing jobs are being created, there shouldn't be a talent crunch, right?

Wrong.

Employers who struggle to fill their strategic purchasing positions aren't having a hard time finding available candidates with purchasing experience. They are having a hard time finding candidates who have modern, strategic purchasing expertise.

Just because you've been in purchasing for years, doesn't mean that you are qualified for a higher-level purchasing position. You have to know how to deliver measurable results in the modern purchasing environment. And there is a big difference.

I think that one of the reasons for the talent crunch is some buyers' reluctance to advance their own capabilities. Daily, I hear from buyers who complain that their employers will not fund purchasing training or a procurement certification for them. But, like their employers, they are also unwilling to invest in their purchasing careers.

This shocks me.

After all, it is their career. They stand to benefit from having advanced capabilities:
  • The average purchasing salary is $74,900 in North America. With the cost of earning the SPSM Certification a mere 1.5% of that salary, it would seem easy for those earning less than the average to make their money back in a hurry.
  • There is no better time than now to secure a higher-level purchasing job. Companies are struggling to find highly-qualified purchasing professionals.
  • By improving one's capabilities now, s/he would have an edge in the job marketplace until others catch on that a skill upgrade is necessary for success.
  • Those who have improved their capabilities are being rewarded handsomely.

So if those in tactical purchasing roles realize the need for - and the opportunities that will arise from - skill improvement, the talent crunch will end and prosperity will be enjoyed by both employers and purchasing professionals alike.

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, July 26, 2007

Read Yesterday's Purchasing Blogs? Don't Panic!

Yesterday, my friend Tim Minahan posted an entry on Supply Excellence about the US Bureau of Labor Statistics' job outlook for purchasing professionals. He rallied other bloggers in the space to incite a letter-writing campaign targeted at the BLS and at least two other bloggers (Jason @ Spend Matters and Michael @ Sourcing Innovation) obliged.

I really admire the work of these three gentlemen (heck, I read their blogs every day), but I'm not so sure that this report is as damaging to the profession as they may believe. Let me share my analysis...

The conclusion of the outlook that seems to get everyone's panties in a bunch is that "Overall employment of purchasing managers, buyers, and purchasing agents is expected to grow slower than the average for all occupations through the year 2014."

I'm afraid that my fellow bloggers have interpreted "grow slower than the average" to mean decline. It doesn't mean that at all. What it means is that the BLS sees average job growth among all professions in the US to be 9 - 17% between 2004 and 2014 and that the number of jobs in the purchasing profession to grow at a rate of 0 - 8%.

So, literally, everyone could be getting upset that the BLS is forecasting purchasing job growth to be at 8% instead of 9%. Not so much of a big deal when you think of it that way, right?

In some seemingly conflicting points between the BLS report and Tim's post, they are both right. For example, the BLS report says that "Demand for purchasing workers will be limited by improving software, which has eliminated much of the paperwork involved in ordering and procuring supplies, and also by the growing number of purchases being made electronically through the internet" and Tim cites real-world examples of execs frustrated at not being able to find enough talent for today's more advanced purchasing and supply management demands.

Though they sound like two opposite opinions, they are both right.

Huh?

Well, now more than ever, we are seeing a clear distinction between tactical purchasing jobs and strategic purchasing jobs. Let's define these...

Tactical purchasing jobs involve lots of administrative work such as checking price and availability, placing purchase orders, resolving invoice and receiving discrepancies, and expediting. Strategic purchasing jobs involve more managerial-level work such as negotiating enterprise-wide contracts, analyzing spend, implementing technology, managing supplier relationships, identifying cost savings and continuous improvement opportunities, and more.

Tactical purchasing work is being replaced by eProcurement and related technologies. In fact, I recently had a conversation with a Chief Supply Chain Officer of a local organization who expects the next phase of their technology rollout to free up 10 FTE's in the next year. Add to that the growth of procurement outsourcing, both domestic and abroad, and you have a recipe for a shrinking number of tactical purchasing jobs.

Strategic purchasing work is increasing. Senior executives are seeing the value and the return on investment in these types of activities. So strategic purchasing jobs are being created faster than they can be filled. The sharp purchasing professionals that I know are finding it very easy to get great jobs with high salaries and people are moving from job to job (and increasing their salaries) at will, practically!

So, if the BLS' estimate is right (and 8% growth over 10 years sounds reasonable to me given the likelihood that we'll have some economic ups-and-downs over that period), I think that is actually a great sign that the profession is growing nicely despite the natural headcount reduction that supply chain technology delivers. I think that it attests to the fact that executives are seeing the value in growing the number of high-level purchasing positions and not seeing purchasing as a cash-draining department to be eliminated.

Additionally, the bloggers called into question the BLS' salary statistic that had the median purchasing salary at $72,450 in 2004. I thought that I'd just share the results from our survey last year. According to our research, the average salary for a purchasing professional in North America is $74,900. Our research is over two years fresher than the BLS', so I don't think that they were really off on this statistic either.

Yes, there are some aspects of the BLS report I disagree with, but I'll just leave this post dedicated to the job growth and salary stats for now.

I feel obligated to say that I am not trying to discredit the opinions of my fellow bloggers. I respect them tremendously and encourage you to read their work. But this is one topic that I thought could use some healthy disagreement among people who care tremendously about the profession.

In a future post, I am going to discuss why I think that my fellow bloggers and I have a different perspective and I'll also talk about why there is a talent crunch at the same time that jobs are being eliminated by technology and outsourcing.

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, July 23, 2007

Supply Chain Optimization

I hope that you have enjoyed the article "Supply Chain Optimization Simplified."

I am sure many of you are wondering, "Will I ever need supply chain optimization technology?"

Well, here's a little test. Imagine that you are requesting bids for nuts and bolts in a situation with these characteristics:
  • There are three bidders - Alice, Bob, and Carol
  • You need 20,000 nuts and bolts at your Atlanta warehouse, 15,000 units at your Boston warehouse, and 25,000 units at your Chicago warehouse
  • Alice cannot supply Atlanta, Bob cannot supply Boston, and Carol cannot supply Chicago.
  • Alice is going to bid $1.10 for a nut and bolt pair but give you a 10 cent discount if you buy 20,000 units
  • Bob is going to bid $1.05 for a nut and bolt pair, but give you a 3 cent discount if you buy 10,000 units or a 6 cent discount if you buy 20,000 units
  • Carol is going to bid $1.11 for a pairing, but a 9 cent discount if you but at least 25,000 units.
  • You're implementing a dual sourcing strategy to mitigate supply risk down the road, and you're going to insure that any selected supplier is going to get at least 25% of the business.

So which suppliers would you choose, assuming that delivery, service, and quality were otherwise equal and price was the only variable?

I suggest working out your answer and then listen to the associated podcast and/or download a transcript to compare your answer with the answer that Michael Lamoureux of the Sourcing Innovation Blog came up with. After you realize that the answer isn't all that easy to get to and realize the fact that real-life supply chain situations can be much, much more complicated, you may be more open to adopting supply chain optimization technology.

By the way, courtesy of Michael, the transcription for this particular podcast is FREE. They usually cost $20, so I'd definitely download a transcript if I were 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

Thursday, July 19, 2007

The Best Purchasing Certification? More Evidence...

Since the SPSM Certification was launched in 2004, we've seen it rapidly rise in recognition and supplant other certifications as the "best" certification available in the eyes of purchasing professionals around the world. Yesterday, one more piece of evidence surfaced suggesting that the SPSM Certification is indeed the top procurement certification.

Supply & Demand Chain Executive Magazine released its "Supply & Demand Chain Executive 100" list of the 100 top service providers in the supply chain space. Next Level Purchasing made the list and was the only certification provider to do so.



So, on behalf of our students, I'd like to thank the staff of Supply & Demand Chain Executive. This recognition can only enhance the value that having the SPSM Certification brings to their purchasing careers.

And, on behalf of the Next Level Purchasing team, I'd like to thank the staff of Supply & Demand Chain Executive for the honor. We appreciate the recognition and congratulate you on the fine work you have done throughout the years.


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, July 18, 2007

Buying From Sister Companies

One of our students recently sent a very interesting question to me. She asked how to handle buying products and services from "sister companies" (i.e., companies who are owned by the same parent company that owns your company).

This is a great question and one in which there is no definite answer, only opinions.

My opinion is that you should treat your “sister” companies just like any other suppliers if dealing with low-risk categories. Where service, delivery, and quality are substantially equivalent among suppliers, you should not pay a premium to use a sister company. Your business unit’s president or general manager is responsible for the profit and loss of your business unit and doing sister companies a “favor” by purchasing from them at a premium may actually hurt the performance of your business unit’s president/GM.

This topic might be worth a conversation with the president/GM to make sure you're making the right assumptions.

Now, for high-risk categories, that’s another story. Many of us have been in situations where we need a critical product or service immediately and we can’t get through to any C-level supplier decision-maker to get above-and-beyond treatment. So, for high-risk categories, it may make sense to pay a premium to use a sister company because, theoretically, it would be easier to escalate requests for above-and-beyond treatment to the highest levels of decision-makers.

What do you think?

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, July 16, 2007

Training's Role In Procurement Transformation

Purchasing Magazine published an article on Saturday about Kimball International's sourcing team and the massive and measurable success they've had with transforming their organization into a more strategic one.

If you were looking for a real-life example of how to add value, this article is a must read. After reading it, you will be left with many ideas on how to build more of a world-class procurement organization.

I am flattered and honored that their work with Next Level Purchasing's training was mentioned as a component of their success.

Check out the article here.

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, July 12, 2007

Information on Purchase Orders

I've recently received a question like this from a student: "What is better to use on a purchase order: an item number or a free text description?"

Well, first let me say that these two pieces of information do not need to be mutually exclusive.

The purpose of an item number, purchase order description, or specification is simple: to communicate to the supplier what you have ordered in a manner that makes it unlikely (ideally, impossible) for a supplier to misinterpret what it is that you want.

The amount of information required on a purchase order differs depending on what you're buying. When an item number removes the probability of getting something that is different than what you wanted, then that is all you need. But for less common or less tangible purchases (especially services), you will need more descriptive text - maybe even a 40-page specification.

So, the only correct answer is "it depends."

However, using supplier item numbers where they are available helps put the understandings between you and your supplier in harmony.

More of these types of purchasing basics are covered in our online purchasing course, "Mastering Purchasing Fundamentals."

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, July 11, 2007

Supply Chain Talent Poaching

Last year, I blogged about how Alcoa was poaching top talent from other purchasing organizations. Specifically, I alluded to two extremely talented individuals in particular who had recently joined their team at the time.

Well, apparently what comes around goes around.

I spoke with both of those individuals recently and, just one year later, they are with different companies!

And they weren't the only ones to abandon Alcoa for greener pastures.

I think that this signals a good time to be pursuing a purchasing career. Talented and qualified people are seeming to have an easy time finding rewarding purchasing jobs.

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, July 09, 2007

Early Supplier Involvement

I hope that you have enjoyed the article "6 Early Supplier Involvement Tips."

While the article focuses on how to best work with your suppliers, I think that another benefit of having these tactics at your disposal is being able to scare engineers into working with you.

What?

Yep, you heard me right.

Engineers are more than happy to select their favorite suppliers without competition. Their suppliers will be firmly entrenched in your organization before you even have a clue much less a chance to influence or bring value to the decision.

Engineers can often be short-sighted in this selection process, not seeing the long-term cost/reliability/service implications of their decisions. Showing them a process and educating them as to the consequences of not following it can go a long way towards getting the respect you need to be a valued part of the design team.

So scare them if that's what it takes to make the best decision for the entire company, I say!

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, July 05, 2007

Corporate Purchasing On eBay?

SupplyManagement.com posted this article, documenting its findings in a survey of professional buyers' use of eBay.

What I don't like about the article is that it polarizes the concept of using eBay as a tool for the professional buyer. It is neither a absolutely perfect tool or an absolutely useless one.

Buying off eBay for corporate needs just requires some old-fashioned, Purchasing 101-type of common sense. You should ask these same questions before making any purchase, but particularly when buying through eBay:

  1. Do I have enough information to know that the seller is reliable?
  2. What kind of terms and conditions do I need to properly govern this transaction?
  3. Should I make this purchase as a one-off purchase or should I consider a long-term, enterprise-wide contract?
  4. Do I have enough information to know that the price I am paying is fair, competitive, and reasonable?
  5. Do I have enough information about the product to know that it will be in the appropriate condition and it will satisfy its intended purpose?
  6. Is the process for purchasing the product or service (including payment, returns, etc.) the appropriate and most efficient one?
I am all for using eBay when it is appropriate to do so. And, by applying these basic purchasing questions to your evaluation process, you'll find that it is not appropriate for every purchase.

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, July 02, 2007

Accepting Freebies From Suppliers - To Ban Or Not To Ban?

Today's Pittsburgh Post-Gazette featured a story about UPMC - the city's largest employer - working on a proposal to outlaw the acceptance of "freebies" from suppliers.

Yawn. This is no big deal right? Many of you may already have such a policy in place.

Well, unlike other industries, I think that this is a real big deal in health care.

We all have politically powerful people in our organization. These people will often try to exert their power so that they can keep their favorite suppliers, no matter what the cost is or how blatantly the supplier is taking advantage of that relationship. And, whether the "victims" realize it or not, those suppliers use freebies to psychologically win over these people over time and firmly entrench themselves in budgets for years.

When evaluating your spend and where it should be directed, sometimes you can persuade these people to participate in objective, multi-criteria decision-making. Other times, you can't.

But with doctors, I understand it is nearly impossible.

Some internal customers have big egos. Egos that make them say to themselves, "I'm the world's leading doctor/aerospace engineer/whatever and there is no way that I'll let paper-pushing, low life purchasing agents tell me what suppliers to choose!"

And internal customers in each industry will have their trump card - their argument that is designed to be indefensible - that helps them keep their favorite suppliers. And in health care, that trump card comes in the form of statements like "It is unreasonable for you to propose that we sacrifice patient care to save a few pennies! These are people's lives we're talking about here. And do you think you know better than me how to treat a patient?"

How can you argue with that?

Well, the step that UPMC is taking is to try to get the highest levels of executive support to address one way that suppliers get unfairly entrenched. Let's watch this and see what they decide...

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

ShareThis