Monday, April 28, 2008

One Word Could Increase Your Cost Savings

If you have been a regular reader of this blog for some time, you know that I absolutely love to scour sales training materials for ideas that we can implement in purchasing. Well, I found another great article on businessbyphone.com called "One Word Could Kill The Sale."

In this article, the author describes an example of how a buyer negotiated free shipping on an order (geez, this buyer sounded like me). He then goes on to suggest some strategies that the supplier could implement in countering the buyer's negotiating tactics.

Definitely a fun read. I hope that you enjoy it.

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

Thursday, April 24, 2008

Recession, Stagflation, Cost Savings & Corporate Purchasing

It appears that we are in an interesting economic period. Most signs point to the fact that the US economy is in a recession - a period where the sum of all business is declining.

In a recession, many companies and consumers reign in their spending. This affects the demand part of the classic economic supply and demand graph.

In typical cases, when demand slows, pricing drops because supply outpaces demand. Pricing will reach a floor when supply contracts to balance with demand.

Today, the US economy is seeing slowing demand yet rising prices. This is referred to as "stagflation" - an odd combination of stagnant growth and rising prices.

Many economists attribute this, in part, to the effect on global demand from China's growing economy that is putting upward pressure on commodity prices. Because many companies' cost structure is affected by commodity prices for their inputs - even if the raw materials are further down the supply chain - they need to pass along the cost increases to the consumer in order to stay viable.

In typical recessionary times, Purchasing can often achieve cost savings by securing declining prices and working with eager suppliers struggling to not lose too much business. To today's CPO, however, the inflationary environment in this recession can make it seem like there is no opportunity for cost savings - the traditional metric through which Purchasing can communicate its value.

But I personally believe that today's recession does indeed have its opportunities for cost savings. Just not in the volatile commodity markets, though.

Domestic service providers are seeing weakening demand. Demand for local services is not being offset by China's growing economy.

There are many services categories where pricing is not as dependent on commodity inputs (such as fuel). These industries have many suppliers who want to fight against the threat of declining sales. In these categories, there is tremendous opportunity for typical recession-era cost savings.

There will be the inevitable meetings with top management for many purchasing executives this year. Many of them will have the purchasing exec saying "We struggled to contain costs as commodity markets saw across-the-board inflation." But, hopefully, this statement will be followed with "But we were able to (partially) offset rising commodity costs by saving $x in our services spend."

So, the moral of the story is: don't ignore your services spend. It represents a great opportunity to save face in tough times for cost savings.

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

Wednesday, April 23, 2008

Doers, Managers, and Leaders

Many aspire to be great leaders. In some cases, individuals become leaders virtually overnight. But, for most of us, it is a gradual transformation.

I think that it is helpful to have a vision of what being a leader is while also recognizing all the stops along the way to leadership. I see three classifications of workers: Doers, Managers, and Leaders.

Unlike what you may read in books, I do not feel that there is a stigma associated with any of these classifications. In fact, almost every organization needs all three of these types of workers.

Doers. These are the people who actually do the work. They do not supervise any other staff members.

Managers. Managers have Doers report to them. Managers get involved in some goal setting for their departments, set procedures, and monitor the performance of their teams. While Managers aren't primarily responsible for doing the work, they often do get involved in some of the situations that Doers find challenging. Managers both delegate tactical work and do tactical work. Some Managers get possessive of responsibilities and hold certain tasks "close to the vest" rather than delegating them.

Leaders. Leaders have Doers and, in many cases, Managers reporting to them. Leaders set a vision and inspire their Doers and Managers to accomplish that vision. Unlike Managers, Leaders never get involved in the situations that Doers find challenging. They either have Managers handle those situations, set things up so there are no challenges, or empower their Doers and Managers with the authority and responsibility to address those challenges themselves. Leader status is difficult to get to. You have to be comfortable delegating 100% of the work. And, more importantly, you have to know how to teach and inspire people so that your hands-on involvement is not required for success.

So which classification do you fit into? Which classification do you want to be in? When do you want to be there? What do you have to do or change about the way you do business to get to the classification that you want to be in?

I hope that all of these questions inspire you to think about getting where you want to be in your career.

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

Monday, April 21, 2008

Supplier Quality Audits

I hope that you have enjoyed the article "Supplier Quality Audit Basics."

One of the most intimidating things for me when I was a new buyer was going on supplier quality audits. I was clueless as to what to look for. I was afraid I'd look dumb in front of my management.

But then I think I figured out that my management was just as clueless as I. I don't blame them - back then, there just wasn't very much easily accessible information on how to conduct a supplier quality audit.

Fortunately, that has changed in today's information age.

"Supplier Quality Audit Basics" is just that - the basics. It is a great starting point if you are new to conducting supplier quality audits or if you have been doing them for some time without a clear plan.

There are more examples of checklists and the like that companies use in their own supplier quality audits on the Internet. Reviewing these can help you understand the various nuances involved in conducting one. Check out these links:

Teledyne D.G. O'Brien

PPG

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

Friday, April 18, 2008

UPS Supplier Diversity

Over the years, I've enjoyed watching how supplier diversity has changed - the types of suppliers being included and excluded from consideration.

I recently learned from Supply Management Magazine that UPS has added a new classification to their supplier diversity program: Lesbian, Gay, Bisexual and/or Transgender owned Business Enterprise (LGBTBE). You can see their full list of diverse supplier classifications on their Web site.

Historically, supplier diversity programs were created to level the playing field after decades of discrimination left certain ethnic groups at a disadvantage. Today, as I've stated before (and have been debated on), is that supplier diversity programs are being used for companies to create more appeal to their diverse customer base.

The question I have for you is this: do you think UPS' new LGBTBE classification is more aimed at (a) compensating for societal discrimination of the past or (b) appealing to a diverse customer base?

Oh, and how the h*ck do you audit sexual orientation? If this type of classification becomes more widely adopted, will business owners try to cheat by claiming a false sexuality the way suppliers have tried to cheat as described in the podcast "Supplier Diversity Challenges?"

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

Thursday, April 17, 2008

Senior Management Doesn't Recognize Purchasing?

At the NCMA conference this week, I had the pleasure of speaking with a lot of interesting people with many different roles.

At one point, I spoke to a senior manager for a government contractor. He was at the conference primarily to learn some tricks-of-the-trade for working the contractual process with his clients (the government).

I asked him about purchasing in his company, specifically with regard to skill development. He said nonchalantly that his company really didn't do much in terms of purchasing training and he wasn't concerned. They were a "small company" and didn't spend much, relatively speaking.

I asked him some questions and learned that his company spends about $20 million per year on goods and services. I then asked if the company could save 5% of that - in other words, increasing profit by $1 million - would the owners care.

He took my card.

Sometimes that is the approach you have to take when communicating the value of purchasing internally - if you could have $x more in profit, would that matter to the owners/investors/stockholders?

What else can a reasonable person say?

Saving 5% may be tough in an inflationary market if you have already squeezed out cost savings in the past few years. But if the company hasn't been historically "concerned" with purchasing...there's likely lots of low hanging fruit.

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

Wednesday, April 16, 2008

A Profession That Needs To Be Renamed?

Contract management is a critical process. I've addressed that in a previous video podcast.

But, after attending the NCMA conference this week, I am not so sure I like the job title "contract manager" or the profession title "contract management."

As I spoke to attendees at the conference and asked what their role was, I often got the response "contract manager." And the problem was that it took at least one additional question to get a clear picture of what exactly their role was. Those roles included:

  1. They were a government employee responsible for purchasing goods and/or services
  2. They were a private company/government contractor employee responsible for selling goods and/or services to the government
  3. They were a government contractor employee responsible for purchasing goods and/or services

And, in government, it seems that the term "acquisition" is used more commonly than procurement, purchasing, and supply management. So couldn't we just call ourselves Acquisition Contract Managers and Client Contract Managers or Sales Contract Managers?

The purpose of titles for jobs and professions is to communicate what we do. I'm not so sure that "Contract Manager" is specific enough.

But maybe it's just me...

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

Friday, April 11, 2008

Iasta's Success Story

Every year, Inc. Magazine publishes one of the most watched lists in business: The Inc. 5000.

The Inc. 5000 is a list of the fastest growing privately-held companies in America. The Inc. 5000 is ranked according to percentage revenue growth from the previous four years.

To qualify for the most recent list, companies must have been founded and generating revenue by the first week of 2003, and therefore able to show four full calendar years of sales. Additionally, they had to be U.S.-based, privately held, and independent--not subsidiaries or divisions of other companies--as of December 31, 2006. Revenue in 2003 must have been at least $200,000, and revenue in 2006 must have been at least $2 million.

And, of course, their growth rate has to be among the top 5,000 in the country. Needless to say, it is pretty tough to make this list.

But one company serving the purchasing and supply management space placed quite high - #610. That company is Iasta – a provider of software platforms that help automate companies’ strategic sourcing processes and provide buyers with the ability to collect and analyze a wide range of supplier information.

This growth rate intrigues me. Especially because of the competitors that have graced the market: those that are somewhat large, publicly-held companies that have grown by acquisition; those that seemed destined to stay small forever; and those that became victims of the dot-com bust.

So I was able to catch up with David Bush, the CEO of Iasta, to learn more about how a niche provider in our space has been able to achieve such impressive growth despite tremendous odds against it. This is not a paid advertisement – as a fellow entrepreneur who knows a little bit about rapid company growth, I’m simply curious about the story. But I think you’ll enjoy David’s insights, too.

CD: So, David, tell my readers about Iasta: what you do, how you started, and where you are today.

DB: Iasta was started in March of 2000. Currently, the company is run by myself, Todd Epple and Jason Treida and we divide duties equally. I manage our sales, marketing, business development and alliances, so I am the most visible of the executive team. We actually started the company after seeing FreeMarkets Bidware in a Dana auction. FreeMarkets was trailblazing and on a rocket trajectory, but we were not scared by the software. We also knew what they were charging, so, in classic capitalistic fashion, we started Iasta. We never did see the admin side of any tool, and still have not. This has probably helped in the long run, since almost every eSourcing tool looks the same and ours does not.

You will see some changes from us in 2008. We recognize that the market has changed since then and eSourcing tools are no longer auction hammers. For eight years, we have developed functionality from our single code base and are very close to having end to end sourcing functionality under one umbrella. This is a major differentiator for us.

CD: You’ve expressed pride that your company is private and has not accepted venture capital. What difference should that make to a Director of Purchasing who is evaluating Iasta’s solutions?

DB: It means that Iasta is in this for the long haul. Stability and consistency are important for any procurement team that wants to build change and drive efficiency through technology. Furthermore, Iasta was required to make money on the merits of its solution and service to survive. We were never given any special treatment, so everything that we have developed comes from sweat equity and listening to our user community, which provides direction to better functionality.

Ultimately, we have relationships with our clients only. No one is telling us how to run the business, except these organizations, since they vote with their feet. If we do not perform, they will look elsewhere. Fortunately, we have made more good decisions than bad and more companies move to us than away.

CD: In the early eCommerce days, venture capital money abounded and companies were going public like crazy. What made you approach things the way you did?

DB: It was probably a mixture of factors. Todd and I had already bootstrapped one business for almost 10 years and felt 100% confident that it was repeatable. Also, we live in Indiana, which is not exactly Silicon Valley. Finally, we are fiscally conservative by nature. Taking huge financial risks is not in our DNA, and in the early stages of business development, your time is free. Of course, you pay for that in stunted growth, since it takes years (and some luck) to generate the momentum needed to achieve recognition.

At the end of the day, we felt this would be a good way to make a living and build a business. We never saw it as an investment vehicle that we could turn X ROI in X years. There was never even a business plan, just the desire to make a profitable business as fast as possible.

CD: While your competition has struggled with growing, even as publicly-held companies, Iasta has grown rapidly. Why do you think that is?

DB: As a smaller company, we have a lot of head room. Even now, we still are coming into a significant percentage of Global 3000 companies that know very little about us. This provides us a big opportunity to show that they are not pigeon-holed into the same “me-too” solutions. Some cannot over come the mental or political barriers, but many do see the value in working with a company smaller than Oracle, SAP, Emptoris or Ariba.

Next, there is the Law of Big Numbers. That is not really a Business Law, but how we refer to it internally. Companies cannot just keep doubling revenue; eventually you cannot do it any more without a totally different, non-organic strategy. As of today, we are still growing rapidly through 100% internal investment; however, it’s just harder to double $25 million than it is to double $5 million and we have not hit that wall as hard as others.

CD: After implementing Iasta’s solutions, what results can a purchasing and supply management department expect? What problems are solved?

DB: From a general standpoint, a client should obtain cost savings, increased sourcing efficiency and knowledge retention. Depending on how capable their internal resources, will determine how well they will be able to maximize these benefits. Of course, Iasta also provides a wide range of implementation services that we customize to fit the need of the client. These can range from simple training to deploying a team to transform the sourcing process. At the end of the day, a sourcing organization should be able to do a much higher volume of strategic sourcing with its available staff levels, which will help with cost reduction goals by default.

To learn more about Iasta, visit www.iasta.com.

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

Thursday, April 10, 2008

Vendor Performance & Core Competencies

I hope that you have enjoyed the article "The Vendor Performance Myth."

One area that I didn't have enough space to elaborate on in the article is the topic of the vendor's core competency. In all of my years in purchasing and supply management, I have seen so many problems arise because of buying a category from a vendor where that category is not the vendor's core competency.

I know that when you have a good vendor, you want to funnel as much business as possible with that vendor. But just because a vendor is good in one category does not guarantee that vendor's success with other categories.

That's so important, let me say it again: just because a vendor is good in one category does not guarantee that vendor's success with other categories.

They may be an "A" vendor in Category 1 but a "C" player in Category 2. Your organization deserves better than C players.

"Reduce the number of vendors." "Leverage our spend." "Partner with suppliers." These are all mantras that you may hear driven down from top management.

And they are all good initiatives when they are applied correctly. Your job is to make sure that they are not applied incorrectly. As a purchasing and supply management specialist, your job is to educate others in your organization about the little nuances. Awarding non-core business to a vendor is such a nuance.

Now, having said that, I believe in vendor development - working with vendors to develop new capabilities. However, vendor development needs to be applied appropriately.

If there is a supply base with several highly capable and competitive vendors, then I do not feel that you will get much return on your investment in developing a vendor in that marketplace. Only in those situations where there aren't many capable vendors or you need strategic categories custom manufactured does vendor development give you the most bang for your buck.

When I have more time, I hope to post some "war stories" about how trying to consolidate spend with non-core vendors taught me a lot.

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

Wednesday, April 02, 2008

Services Procurement: Why Is It More Challenging?

Over on Spend Matters today, Jason posted a blurb on services procurement and asked "What makes services procurement difficult?" I began to write a comment, then decided that it would be better to get my thoughts out there on my own blog.

There are many reasons why services procurement is more challenging. Here are just a few...

  1. Many services are one-time purchases. Whereas MRO items and direct materials are bought repeatedly - therefore giving the buyer time to understand the market - services are often bought just once to fulfill a specific need, particularly in smaller organizations. Think of things like a plumbing repair, a Web site redesign, or exhibiting at a trade show. These will not show up in your periodic spend profile as categories to source.
  2. The traditional process for some services is sending a bill without a PO. Think of utilities, lease payments, insurance, etc. These are all things that can be negotiated by a larger company, but often fall into the way things have been traditionally done.
  3. Many services are local. Products can be shipped almost anywhere. Because many services require the presence of a person where the service is performed, you may need a different supplier in different cities. This makes spend consolidation difficult.
  4. Apples-to-apples comparisons can be difficult. When you are buying a product, the specifications are often easy to define. In some cases, you may be getting the exact same product from any supplier. Services can be a little trickier, especially when they are intangible. Think of legal services. When you are in discussions with several highly competent law firms, deciding which one gives you the best chance of winning a patent infringement lawsuit is often a subjective matter of judgement. This is also true of other services like advertising agency services, where you are buying ideas that you won't even get to review until the future. Of course, there are ways to qualify those suppliers to determine who might work out best but, truly, it can be a guessing game and a gamble.

I could go on and on but, if I did, I wouldn't get anything else done today! So I'll stop here and invite you to post comments on some other challenges of services procurement.

You may also want to check out this article on purchasing services.

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

Tuesday, April 01, 2008

Who Is Hatin' On Your Suppliers?

It's funny how coincidences happen.

Yesterday, I posted about the new internal employee handbook that we are going to debut tomorrow. I accidentally left out one of the most important (and purchasing and supply management-related) excerpts.

Then I had a phone conversation that reminded me how important this excerpt is.

Among the sales community, purchasing professionals generally have a bad reputation. We're tough - actually, make that rude - negotiators to them. We're jerks is what they basically think.

Well, some of us are. Some are stuck in that 1970's mentality that the ruder you are, the better deal you'll get. But, personally, I've found that the vast majority of us have evolved to the point where we are very professional and do a good job of representing the profession. That doesn't mean we're not firm. We're just sophisticated in our toughness.

But what I have observed is that people who have supplier contact and are not purchasing professionals are exhibiting that "jerk" disposition when speaking with suppliers.

The phone call I had was with an HR-type charged by his VP of Purchasing to specifically research Next Level Purchasing's purchasing certification. I have to say that the call involved some of the rudest treatment I've ever received. I was spoken over. What I said was belittled. I was told that my counterpart had to go before I finished what I was saying in response to him. And, of course, I got the it-makes-me-feel-like-a-real-man-to-say-this "we'll get it from someone else."

(Uh, sorry. We're not K-mart. A purchasing certification isn't a roll of toilet paper available at a fine retailer near you.)

Now, keep in mind that I simply answered this guy's questions and told him what he said he needed to know, which apparently was different than what he wanted. I don't pick fights, you know?

But beyond taking personal umbrage at this behavior, I thought: how is this guy doing justice for his internal customer? He works for a publicly-held company - is he serving his investors properly?

After all, the SPSM Certification isn't just about earning a certificate and getting approval to use credentials after your name. It is about making an impact on the bottom line. SPSM's make their companies more profitable. Our success stories attest to that fact.

So this guy's personal "style" may be standing in the way of his company making an insanely profitable investment. Millions of dollars of potential cost savings could be forgone due to his behavior.

In addition, he is representing his company to the business community and shaping its reputation. I won't name the company here because this guy is probably one "loose cannon," but it would be easy to do some harm to his company's reputation.

It is executive management's job to codify how individuals are expected to represent the company, even in communications with suppliers. Our employee handbook does that.

Additionally, when purchasing or supplier contact is decentralized, it is the purchasing and supply management department's job to educate its internal customers about proper ways to communicate with suppliers. As much as this guy's personality grated on me, he may have been left to his own devices to figure out how to communicate with suppliers and 1970's-style purchasing may have been the only method he ever heard of.

So I'll close this post with an excerpt from the "External Relationships" section of our employee handbook. I think that every CEO should insist on this type of verbiage being included in their own handbook or policy manual.

The reputation of the company depends on this type of guidance.

Customer Relationships
Our students, prospective students, and their employers are valued by Next Level Purchasing, Inc. as a company. Their faith in our ability to deliver gives all Next Level Purchasing, Inc. employees the opportunity to have rewarding careers. This fact should be remembered in all interactions with them. It is our collective goal to delight them with the high quality of service that we provide. Next Level Purchasing, Inc. wants to stand out as a company that provides excellent service in a business world that sorely lacks it.

Supplier Relationships
Our suppliers help us reach our goals and delight our students by providing goods and services that we are unable to cost effectively provide with our own resources. All suppliers and prospective suppliers should be treated with professionalism and respect because all external interactions affect the perception of Next Level Purchasing, Inc. in the business community. Employees can be firm, effective negotiators without sacrificing professionalism or respect for suppliers.


To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
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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