Thursday, April 30, 2009

Swine Flu, Bird Flu, Whatever Flu - Have A Supply Chain Contingency Plan!

The big news this week is the spread of swine flu, particularly in low-cost sourcing hotspot, Mexico. In fact, Mexico is shutting down its private industry for five days!

Yep, five days of no production, no shipping, no phone calls returned, etc. from your Mexican suppliers. And, who knows: if those five days fail to sufficiently contain the spread of swine flu, the final supply disruption could be longer.

Back in 2006, I wrote an article entitled "The Next Purchasing Crisis & Contingency Plans." It gave several steps for how to mitigate supply chain risk in the face of the predicted spread of bird flu or similar pandemic.

Well, my friends, that time is here. The tips are still valid.

If you didn't implement my recommendations three years ago, I strongly suggest that you do so now. Even if swine flu doesn't materialize to be the massive pandemic some officials fear it will become, you can probably bet that there will be more pandemic scares in the future.

Don't get caught off-guard.

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 29, 2009

Whitepaper Wednesday - Procurement Skills & Profit

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. Today, I'll be reviewing a whitepaper entitled "Procurement Skills & Profit: The Correlation" from Next Level Purchasing.

The whitepaper begins with some questions:
  • Does the average procurement professional with "high" skill levels save $10,000 (US) per year more than the average procurement professional with "low" skill levels?
  • $100,000?
  • A million dollars or more?
Those are the types of questions that I've heard procurement and senior executives ask over and over. After all, what is it worth to a company to hire or develop top procurement talent?

This whitepaper helps those executives answer those questions. It shares some research that identified a correlation between skill levels and savings and breaks down the average savings by skill level as a percentage of company annual revenue.

The whitepaper provides formulas - and also links to an online tool - that helps an organization:
  • Quantify its opportunity to improve profit through better procurement skills;
  • Calculate the cost of procurement skills improvement;
  • Determine the return on investment of improving procurement skills; and
  • Identify the cost to the organization for leaving procurement skills as-is

If you are a procurement leader and want to learn how you can improve your department's contribution to profit, please feel free to download this whitepaper from the Next Level Purchasing Web site (registration required).

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 28, 2009

Corporate United's Synergy Conference Is Coming Up Quickly!

Just like the dandelions that pop up on my lawn at this time of year, the month of May sees many procurement conferences pop up as well. Some have very enticing agendas while others are just as annoying as those dandelions that make my lawn look less cared-for than the neighbors.

The economy and its effect on travel budgets have negatively impacted some conferences. But that is not the case with Corporate United's annual Synergy Conference.

Corporate United tells me that Synergy, scheduled for May 12 - 14, 2009 in Chicago, is expected to have the highest attendance in its eight year history. Perhaps that can be attributed to Corporate United's growth as a leading group purchasing organization. But it's also likely due, in large part, to the dazzling array of speakers that they have lined up. Here are the presentations that I find most interesting:
  • How Industry Leaders are Saving in the Current Economy with Mickey North Rizza, Research Director / AMR Research, Inc. - I've personally spoken with Mickey North Rizza and am familiar with her work. She is definitely someone with her finger on the pulse of up-to-the-minute procurement trends. I am sure that this presentation will be packed with powerful information that is super-current.
  • Balancing Relationships and the Need to Renegotiate with Dawn Tiura Evans, President & CEO / Sourcing Interests Group (SIG) - If you haven't renegotiated at least some critical agreements in the last six or seven months, I would be inclined to wonder what exactly you have been doing lately while your peers are achieving dramatic cost savings. Of course, renegotiation - especially in this era of close vendor collaboration and supplier partnerships - is a sensitive topic. And renegotiation skills aren't just something you need now. There are always going to be economic expansions and recessions. Renegotiation skills will be needed throughout your career if you're planning on being in procurement for the long haul.
  • How Procurement Can Move Upward in the Downturn with Geraint John, Editor-in-Chief / CPO Agenda - This looks to be another timely presentation given the economic situation. And Procurement increasing its visibility and value to senior management is a timeless topic.
  • There's Never Been a Better Time to Start Stealing...Market Share with Jim Donald, Former CEO / Starbucks and Pathmark - This is a rare chance to hear from a recently retired CEO of a highly visible company. This type of presentation - one that focuses on what is strategic to the highest levels of a company, not just strategic to procurement - is sorely missing from most procurement conferences. It will likely be the delicious icing on an already tasty cake of a conference.

Synergy will also feature the opportunity to grill a panel of CFO's on how they view procurement. How cool is that?

While the Synergy Web site - http://www.corporateunited.com/synergy - indicates that "Admission to SYNERGY 2009 is complimentary for Corporate United Members and invited guests," Corporate United has told me that non-members that are procurement/spend management professionals can attend for free also by registering in advance at the above-linked site.

And, oh yeah, if you're an SPSM, Synergy is one of the few third-party conferences approved for you to earn Continuing Education Hours towards your SPSM® recertification requirements!

Let's face it...with travel budgets being slashed this year, you may have some tough choices with regard to which conferences to attend. With its high-quality agenda and "free" price tag, Corporate United is making those choices a little easier.

Disclosure: Corporate United is a sponsor of the Purchasing Certification Blog.

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 27, 2009

The Disney Dining Plan - Thinkin' Supply Chain on Vacation

It's great to be back to work after an exhausting, but fun, family vacation to Disney World last week. With the rigors of growing Next Level Purchasing, this is the first family vacation trip that we took in seven years.

Having said that, you may think that supply chain management was the last thing on my mind while getting pictures taken with Goofy and letting the kids give me nausea on the Teacup ride.

Nope. I couldn't turn off my supply chain brainwaves despite all of the excitement.

Specifically, one personal supply chain question that kept going through my head was: Is the Disney Dining Plan worth it?

The Disney Dining Plan is basically a prepaid package that allowed our party of three adults and two kids to get one snack (e.g., beverage, ice cream, bagel, piece of fruit, etc.) , one quick service meal (i.e., fast food including drink), and one table service meal (i.e., sit down dinner including drink) per day. For the five of us for five nights, I think that this option cost us around $700.

Here are some supply chain principles that were running through my mind every time we sat down to eat:

Waste: When you prepay based on a forecast, there is always the possibility that you will experience waste due to actual requirements being less than forecasted requirements. We found this to be the case. My mother-in-law experienced some "intestinal distress" on our first night there. So she opted out of her table service meal, essentially wasting the portion of the money allocated to that one meal in the package price. Otherwise, we used every single one of our credits.

Effect of a Contract on Demand: We are an "on the go" type of family when on vacation. Normally, we may be tempted to opt for fast food in lieu of a 60-90 minute dinner in order to visit more attractions. So, without the Disney Dining Plan, we may have eaten faster meals and spent less money. But you know what? I am glad about this. I think that we ate healthier as a result of being forced into the type of meal that we had paid for! Another thing is that we often ordered dishes that we probably wouldn't have otherwise. In many cases, our mentality was "Let's get the most expensive thing on the menu, 'cause it costs us the same whether we get a chicken salad or prime rib!"

Over-and-Above Charges: As with many contracts, there are costs that somehow don't get factored into a comparison. One such charge with the Disney Dining Plan was gratuities. Our table service meals ran between $90 and $120 and you are expected to tip based on what your meal would have cost. This meant that we shelled out $20 or so as a tip for each table service meal. Again, if we weren't forced to have table service meals, we probably would have had more fast food and refrained from ordering the most expensive menu item and, as a result, shelled out less money in tips.

Cost Savings: Had we not had the Disney Dining Plan, we would have paid about $800 for the meals that we had. So that is a cost savings of about $100, or 12.5%. But had we not had the Disney Dining Plan, we probably would have made less expensive food choices. So, our spend on food may have been slightly less.

So back to the question: is the Disney Dining Plan worth it?

If you are careful not to waste what you've paid for, are going to order the more expensive menu items anyway, understand that gratuities are a part of "total cost of ownership," and the one-snack-one-quick-service-one-table-service-each-day matches your personal "demand pattern," the Disney Dining Plan is definitely worth it.

If you have to slightly adjust your demand pattern and don't mind doing so, it still is worth it.

If you prefer to eat as quickly and cheaply as possible, you may want to think carefully about it.

Personally, I would do it again.

One last note: another nice thing about the Disney Dining Plan is that it avoided about 15 instances of sticker shock. For the five of us, each snack ran about $15 - $25, each quick service meal ran us about $40 - $50, and each table service meal ran us about $90 - $120 plus tip.

Tomorrow, I'll be back to blogging about normal stuff!

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 20, 2009

Supply Disruptions & The #1 Aspect of Preparation

I hope that you have enjoyed the article "Supply Disruptions Don't Have To Be Fatal."

In the article, I talk a lot about the importance of contingency plans. But perhaps the most important thing about a contingency plan is how you communicate it.

If circumstances leading to a supply disruption require the contingency plan to be executed, its effectiveness will be judged in hindsight which is, as they say, 20/20. You don't want to be judged in hindsight.

So it is vital to have senior management advised of the contingency plan before it is ever needed. If it is judged unfavorably after a supply disruption, the critics will say that:
  • It didn't mitigate the problem fast enough
  • It didn't account for the quantity needed
  • It was too costly
  • Or any number of jabs

If senior management is advised of the contingency plan before it is needed, they can offer direction. Perhaps being aware of the potential cost of the problem will make them more willing to invest in more inventory, or a second supplier charging a higher price, or smaller, more frequent shipments, or whatever.

The bottom line is that you are a part of a team. Developing your contingency plan in isolation may take you out of alignment with corporate strategies and can serve to make you the target for blame if things go wrong.

Share your contingency plan. Supply disruptions are a company problem, not just a purchasing problem.

Please note that the Purchasing Certification Blog will be working on its tan for the rest of the week. It will be back in action next week.

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 17, 2009

Why The CPA Has Been More Revered Than Traditional Purchasing Certifications

I was thinking back to the days before the SPSM® Certification was a twinkle in Next Level Purchasing's eye. There were already existing purchasing certifications, so why would the world need another one?

One factor that ignited our desire to create a purchasing certification that was newer and better than the ones that were out there was a series of conversations that I was in as a practitioner. You see, I had one of those traditional purchasing certifications (which we'll call "Cxxxx" to avoid slamming the association that issues it). And I'd often hear people say "The Cxxxx isn't like the CPA (Certified Public Accountant)."

I couldn't deny that. If you ask 100 random people on the street what CPA stands for, a majority may be able to give you the right answer. If you ask those same 100 people what the Cxxxx stands for, I would be surprised if one of them could answer correctly.

But beyond recognition among the general public, the CPA communicated something that the Cxxxx did not. Why?

Well, I've personally worked with a number of CPA's. And each and every one did high quality work. I have never met a CPA who was a slouch at his or her work.

I've also worked with a number of Cxxxx's. And many of them do excellent work as well. Many of the people I respect the most in the purchasing field have the Cxxxx.

But, unfortunately, I've also worked with Cxxxx's who are at the bottom of the work performance food chain. And many executives I had worked with or spoken to prior to the 2004 launch of the SPSM® Certification noted that a certification from the association that offered the Cxxxx meant little because many less-than-competent job applicants possessed it.

So there is an inconsistency there. Great performers with the Cxxxx. Poor performers with the Cxxxx. There isn't a correlation between the Cxxxx and performance.

For a purchasing certification to matter, it has to be recognized for the measurable difference it makes in the workplace performance and results of every single person that earns it. That was - and remains - our vision for the SPSM® Certification.

No, the SPSM® doesn't have the household name recognition that the CPA has just yet. But on July 1, 2009 - the five year anniversary of the SPSM® - we'll be making an announcement that will get the SPSM® one step closer.

The purchasing certification landscape is about to change dramatically and permanently, my friends...

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 16, 2009

Old-School Purchasing Associations: Still Strong, Dying or Dead?

Last week, I had the privilege of being one of several guests on the "PI Window on Business" show on Blog Talk Radio. The topic of conversation was "Is The Traditional Association Model Dead?"

You can use the controls below to listen to the show. Enjoy!



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 15, 2009

Whitepaper Wednesday - Outsourcing Fundamentals

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. Today, I'll be reviewing a whitepaper entitled "Demystifying Sourcing" from Patni.

The title of this whitepaper may be a little deceiving as it doesn't really get into the sourcing process as a reader of this blog may expect. What it does do is explain the fundamentals of outsourcing.

While the content is rather basic, I did find the paper written in a very easy-to-understand manner. If you are just getting into exploring outsourcing, it really has some concise, valuable coverage of the basics included. Here are a few highlights:
  • The whitepaper gives definitions of terms like sourcing, outsourcing, captive sourcing (having a service performed with employees), shared services sourcing, offshore sourcing, near-shoring, and global sourcing.
  • The whitepaper compares the benefits and challenges between captive sourcing and outsourcing
  • The whitepaper compares the benefits and challenges between offshoring and local sourcing
  • The whitepaper addresses five myths associated with offshoring and outsourcing

So, while basic, the whitepaper does cover some things that managers responsible for making make vs. buy decisions absolutely must know. If you think that this type of knowledge can help you, you can download the whitepaper from Patni's site. No registration is required.

Have a whitepaper you'd like me to review? Send a link to it via the Next Level Purchasing contact form.

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 13, 2009

Building A Sourcing Team

One of the "idea emergencies" (to quote the Imagination Movers, a show/group that my kids love) in sourcing is not having organizational buy-in, resulting in realized cost savings being much less than negotiated savings. A proactive solution to this idea emergency is build a cross-functional sourcing team representing the interests of the various stakeholders.

I recently penned a post on eSourcing Forum entitled "Don't Be The Sourcing Lone Ranger" that addresses how to build such a team. Check it out!

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 10, 2009

SPSM Certification Gains Strength In Asia-Pacific

Usually, I like to use the first blogging day of the month to update you on the new countries in which the SPSM® Certification had been earned the previous month. This month, I got caught up in the four-part "Office Supply Vendors' Dirty Tricks" series, so I'm a little late.

The last couple of months has seen the SPSM® Certification expand further into Asia-Pacific. As I had previously reported, the Philippines had their first SPSM crowned in February. And, now, I am delighted to report that the first SPSM® Certification in Thailand was awarded in March.

Keep your eyes peeled on this blog to watch this leading purchasing certification expand its global reach month after month after month.

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 09, 2009

Office Supply Vendors' Dirty Tricks, Part IV

In Part III of this series, I revealed that using masternegotiator.com resulted in us getting an attractively priced office supplies proposal that was very close to the one we got on our own, but that the masternegotiator.com deal was a lot less work. In the last post, I indicated that the masternegotiator.com deal “appeared” to cost us a mere hair more than the deal we got on our own - $159.47 to be precise.

But, after closer evaluation, the difference was even smaller.

You see, there is something else to be aware of when sourcing office supplies. The fine print.

I can’t call fine print a dirty trick necessarily because suppliers do disclose terms in fine print. And it is part of a procurement professional’s job to thoroughly review every single word of a proposal, even the fine print.

What does the fine print cover?

In this case, it was a statement in Staples' direct proposal to us that all prices were fixed except for certain specified items, notably toner.

One of the subcategories where we have some noteworthy spend is indeed toner. It turns out that January 1 was the date for toner price increases. That day happened to be between the time we got Staples’ original proposal in late 2008 and the time we got access to the masternegotiator.com deal in early 2009. So, if we take out toner – assuming that the price in the original proposal would have been adjusted to equal the masternegotiator.com deal – the delta now shrunk to $27.21 per year.

But, wait a second, we also got a $25 Staples gift card as part of the deal. That has to be factored into the total cost of ownership, right? So the first year delta was more like two bucks.

Now, this isn’t a two-buck delta between calling Staples and saying “give me pricing” and masternegotiator.com’s leveraged deal. This was a delta between masternegotiator.com’s leveraged deal and a big-company-style sourcing process where the supplier did their homework and learned the influence that Next Level Purchasing has in the procurement community.

And SourceOne even audits the pricing granted via masternegotiator.com deals. Seasoned office supply sourcing professionals know that the importance of auditing office supply contracts can’t be understated, as emphasized in our PurchTips article “Office Supplies Sourcing Secrets.”

Back to the fine print…Beware of the fine print and don’t let your internal customers be surprised by a price increase that you, as a procurement professional, should absolutely be anticipating!

Obviously, it is best to not have price increases. And it’s the next best thing to have price changes made in accordance with a third-party index so that price changes are fair and predictable.

OK, enough with the dirty trick rant. So, where did we end up with our office supplies?

After discussing with Staples the differences between the masternegotiator.com deal and their original proposal, they kept the lower prices lower and adjusted the pricing on a handful of other items so that we ended up with a better deal than their original proposal (removing toner from the equation). All told, we saved about 33% on our office supplies in terms of year-over-year spend.

I can’t say with absolute certainty that the masternegotiator.com deal would be the best for you. But I can tell you that we’ve tried it and it earned my seal of approval.

NOTE: While SourceOne is a sponsor of this blog, I think that it is an important thing to point out that Next Level Purchasing gets no revenue from the sponsorship. We simply trade logos on each others’ blogs. And, most importantly, we have no financial interest in masternegotiator.com or its success. I just wanted to give you an honest review of my experience so that you can integrate it with your other sources of information when sourcing your own office supplies.

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 08, 2009

Whitepaper Wednesday - Supply Management Transformation

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. Today, I'll be reviewing a whitepaper entitled "Supply Management Transformation: A Leader's Guide" from Supply Chain Management Review and Greybeard Advisors.

This whitepaper, written by former CPO and current executive advisor Robert Rudzki, somehow concisely details all of the high-level, necessary components of a supply management transformation. Rudzki defines supply management transformation as "the successful conversion or metamorphosis of supply management from a transaction-based, reactive function to a proactive, strategic driver of business performance—whose input is regularly sought by other areas of the company."

The whitepaper starts out by discussing the strategic corporate objectives and measurements that are important to senior management and pointing out that, in many organizations, the supply management function is generally under-recognized for its ability to contribute to strategic corporate objectives. It says that supply management "is uniquely positioned—more so than most functions—to have a broad and sustainable impact on the business. The sad fact, though, is that most senior executives are unaware of this. A big reason for this lack of awareness is that no one has communicated the supply management opportunity in their
language. Awareness doesn’t just happen by itself. The central challenge for supply management professionals, then, is to take a leadership role in helping their senior management understand."

After educating the reader on how to impact the things that are important to senior management, the whitepaper introduces six "dimensions" of a successful transformation including objectives, best practices, innovation and technology, and more.

Rudzki offers a few of the type of insightful, irreverent, non-academic rants that get my attention, such as:
  • "Although a poor organization design can impede success, an organization design is rarely a driver of success. Furthermore, the temptation to apply the 'org chart fix' to an enterprise ignores an important reality: the informal relationships and networks inside an organization are often more important than hierarchical organization charts."
  • "Should supply management report directly to the CEO? Direct reporting is really a two-edged sword...[A direct] reporting relationship could result in a diminution of focus on the supply management ball...The key to supply management success is not the lines on the corporate organization chart. The real key is access. The CPO should have regular and easy access to the executive suite and to the heads of the business divisions."
  • "[Accountability for supply management success] starts with incorporating objectives of the transformation plan into the annual, written performance objectives of relevant employees. By relevant employees, I mean everyone from the CEO to the entry-level buyer—from procurement professionals to internal clients."

Despite the fact that this whitepaper is only seven pages long, it packs a lot of punch and can serve as an excellent detailed reference for a current or aspiring CPO who is embarking on a transformation initiative. You can get your own copy directly from http://www.greybeardadvisors.com/ and there is no registration required.

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 06, 2009

Is Your Negotiation Recipe Missing An Important Ingredient?

I hope that you have enjoyed the article "Negotiating After 'No.'"

After reading the subject line, you're probably wondering what this "important ingredient" is. And I won't keep you in suspense.

The important ingredient often missing from purchasing professionals' negotiation recipes is persistence. Just because a supplier refuses a negotiation request of yours doesn't mean that you should give up.

Keep trying. Be the proverbial "broken record."

When you demonstrate how important to your company that an issue actually is, you'll often be surprised at the creativity that the supplier generates at some point in coming up with a solution that satisfies you.

Suppliers get tired of saying "no." Your persistence can gently nudge them to figure out something positive to respond with instead of that dreaded two-letter word...

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 03, 2009

Office Supply Vendors' Dirty Tricks, Part III

Thus far in the series, we’ve shared some dirty tricks – Phantom Leverage and the Car Mirror Discount - that we’ve been refamiliarized with as we conducted our own office supplies sourcing initiative. Today, we’ll share how we arrived at our selection of our new office supply vendor.

We received bids from the major players in the office supply industry. And Staples appeared to have the most attractive proposal from a cost perspective.

We had begun preliminary discussions with them. And then, there was a sudden twist to the story.

Through a sponsor of this blog, SourceOne, we learned about a brand-spanking-new office supplies discount program they just began offering through their sister Web site, masternegotiator.com. Masternegotiator.com offered anyone who registers through their site the ability to get deep discounts on office supplies from Staples.

I’ve blogged about masternegotiator.com before without having been privy to their pricing arrangements. This would be the ultimate test. Are these discounts really as good as they sound?

So, one day, we called our contact from Staples, told them about masternegotiator.com and asked them what was the better deal for Next Level Purchasing: the deal they put on the table or the deal available through masternegotiator.com? Our contact at the time was not familiar with the masternegotiator.com deal – it was literally days old – so she had to get back to us.

Days later, our Staples rep and her director visited us and said, “We have to be honest with you. The Master Negotiator deal offers better pricing than what we’ve proposed.”

So, we signed up through masternegotiator.com and got access to the pricing. We wanted to compare the proposal pricing to what we had gotten through our rigorous sourcing process. We spent dozens of hours on this process, issuing a formal RFP, and doing all the things typically done to maximize competitive pressures. We wanted to decide for ourselves what the better deal was.

The deal through masternegotiator.com beat every bid except for Staples’ original bid. Many of the items were priced the same as Staples’ original proposal. A few were slightly lower, a few were slightly higher. Some of the lower-priced items were our lower usage items and some of the higher-priced items were our higher-usage items. So, the masternegotiator.com deal, out of the box, actually appeared to be slightly higher priced than the deal we got on our own.

How much higher?

Uh, $159.47 in annual spend.

Yep, that’s it. And our annual spend on office supplies is in the several thousands.

Was it worth our time to source on our own instead of just taking the masternegotiator.com deal?

Technically, from a pure cost standpoint, it was not worth the resources we dedicated to sourcing. If we weren’t doing this exercise for blog material, we would have been better off just going with the deal on masternegotiator.com and not spending our time sourcing.

You may have thought from Part I of this series that I’d recommend steering clear of leveraged buying arrangements. But, in this case, a leveraged buying arrangement was the least total cost solution when factoring in the cost of our time spent sourcing!

Surprise, surprise!

There are several lessons that I want to emphasize:

  1. As I’ve written before, I’ve seen leveraged deals that sound good but should be verified and not blindly trusted. While saving sourcing time is a valiant pursuit, one should really think through the premium they are willing to pay to not have to source. There is a sweet spot in terms of amount of spend that result in leveraged buying arrangements making a ton of sense without having to source on your own. There is also a threshold where it behooves you to spend the time on some independent benchmarking. Just to be clear, that is not saying to avoid the leveraged buying model. It is saying source your outsourced sourcing as carefully as you’d source any other service. And it is saying that an independent benchmark can be valuable.
  2. Just like I encourage you to do independent benchmarking of leveraged buying arrangement pricing (if time and resources permit) so that you can tell whether it is a good deal or not, I also encourage you to investigate leveraged buying pricing when you do source on your own. Either way, it is not necessarily in your company’s best interests to discount one or the other without an honest investigation. Many companies swear by GPO’s. Maybe you will, too. But you’ll never know unless you explore that option.
  3. Not all leveraged buying arrangements are created equal. Companies like SourceOne are skilled at sourcing. They’ve been doing it every day for years. They know a good deal from a bad one. The same can’t be said for many chambers of commerce, or even a Costco-type supplier, who may jump on the first arrangement offered to them or select their partners based on whoever gives them the best deal, not necessarily the best supplier for you. Don't judge one aggregator's capabilities by the performance of another's.

Now, let me rewind to a previous statement in this blog. I wrote: “[T]he masternegotiator.com deal, out of the box, appeared to be slightly higher priced than the deal we got on our own.” Did you notice the word “appeared?”

Yeah, there is a reason for that. It has to do with another, well, I don’t want to call it a dirty trick, but another not-explicitly-obvious characteristic of office supply vendor proposals.

Could the masternegotiator.com deal have saved us more than Staples’ original proposal, even without factoring in the cost of our time?

The answer will be in Part IV next Thursday (April 9, 2009).

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 02, 2009

Office Supply Vendors' Dirty Tricks, Part II

Preventing you from sourcing. That’s the goal of many suppliers. And, as you learned in Part I of this series, using the Phantom Leverage technique is one way that suppliers try to convince you to forsake the sourcing process and just choose them.

The ammunition behind sourcing dissuasion is the perception of a good deal that suppliers try to create. In our recent office supplies sourcing initiative here, we refamiliarized ourselves with another “dirty trick” that suppliers use as a dissuasion method. We’ll call this one the “Car Mirror Discount.”

You know how car side mirrors often say something like “Objects in mirror are closer than they appear?” Well, we find that a twist on this statement applies to discounts quoted by office supply vendors: “Discounted prices are closer to the standard price than we lead you to believe.”

We’ve seen suppliers offer 70% discounts. Sounds good, doesn’t it?

Well, it does until you find out what price that discount is taken from.

Let me ask you this: If you were going to buy a ream of generic copy & printer paper advertised at a 70% discount, how much would you be willing to pay?

A dollar or so?

$1.50 at the most, right?

That would be if the 70% was deducted from the price that the average Joe would pay when buying paper at the store or on a retail Web site - $4 to $5. But the store/Web price isn’t the baseline price against which the discounted price is compared.

What is the baseline price from which the discount is taken?

$14.98.

Yep. A fifteen-dollar ream of paper.

Who on God’s green earth would ever pay 15 bucks for a ream of generic copy paper?

Still feel good about that 70% discount?

I didn’t think so. That’s the “Car Mirror Discount.”

This series will continue with Part III tomorrow (April 3, 2009). You’ll learn how we selected our new office supplies vendor.

And there is an interesting twist to the story. So be sure to check back!

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 01, 2009

Whitepaper Wednesday - Supplier Performance Management

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog.

Unlike Jason at Spend Matters (who seems to trick at least one heartbroken reader every year), I will not be playing any April Fools jokes and saying that I'm leaving the blogging business or anything like that today. Instead, I'll be doing a serious review of a whitepaper entitled "Effective Supplier Performance Management: Maximize your Profitability and Minimize Risks" from Ariba.

The whitepaper starts out by discussing some of the key aspects of supplier performance management (SPM), with a lot of similarity to the concepts taught in our free online mini-course "Managing Supplier Performance" and our article "Skillfully Managing Supplier Relationships." The portion of the whitepaper that I found most unique and interesting was Ariba's "7 Foundational Principles of Supplier Performance Management." Here is a brief summary of those:

  1. Know your end game, then set metrics for only those elements that drive you
    toward the end game.
  2. Decide with metrics…the facts rule. What I think this whitepaper is getting at here is saying to internal customers (who are often defenders of incumbent - and, usually, expensive - suppliers): "I understand that you feel that this supplier is good. Let's work together to find out exactly how good this supplier is from an objective perspective."
  3. Hold them to the numbers, clarify consequences, and follow through. Basically, this piece says that consequences for bad performance are necessary, but there will be less friction and, ideally, better performance if everyone knows what to expect up front.
  4. Work with (not on) suppliers. Suggesting that procurement professionals ask suppliers to rate themselves (as a complement to being rated by you), this whitepaper stresses that supplier relationships are to be a collaboration of peers at times, not just a review between a superior and a subordinate.
  5. Assign SPM owners. Effective supplier performance management requires personal dedication to the process as well as personal accountability.
  6. Leverage continuous improvement methodologies, modify metrics over time. Nothing stays the same forever. Neither should your supplier performance management program.
  7. Automate processes, including data collection, reporting, and analysis. This is pretty self-explanatory.

Obviously, the whitepaper has much more detail than I am able to review here, it's very well written and relevant, and it's only five pages, so I recommend that you download your own copy from Ariba's Web site (registration is required). Be sure to save a copy - I think this is one of those rare whitepapers that you may find yourself referencing now and then over the years if you're committed to an effective supplier performance management program.

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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