Friday, May 29, 2009

Procurement Training: An Alternative To Pay Raises?

It's no secret: in the past nine months or so, humongous numbers of companies have been freezing or reducing the pay of their employees. But despite the freeze on pay, we've noticed that some companies are taking an interesting approach to retention and morale building for their procurement employees.

What is that approach?

Training.

Yep, we've seen senior management use training as a way to demonstrate their commitment to their employees. Sure, the employees would rather have the fatter paychecks, but these management teams position training to their employees as an investment in them and their careers with a win-win result: the employee gets to improve their capabilities and the employer gets better results from a more skilled employee (not just a more highly paid one).

When a pay increase isn't an option, an investment in employee skills is certainly one way to put a little sunshine in the cloudy days that the recent recession has put upon us.

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, May 28, 2009

Using Twitter To Find Purchasing Jobs

As you may know, I am an experimenter with Twitter and try to help purchasing professionals who are equally Twitter-curious to try to get value out of it. As of yesterday, we've started using Twitter to get the word out about new job postings on our "Jobs For SPSM's" page.

So if you want to get up-to-the-minute updates on new purchasing employment opportunities, follow me on Twitter!

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, May 27, 2009

Whitepaper Wednesday - Economy-Driven Supply Chain Attitudes

Welcome back to this week's installment of Whitepaper Wednesday here on the Purchasing Certification Blog. Today, I'll be reviewing a whitepaper entitled "The Supply Chain: Your Recession Survival Kit?" from IBM, Oracle, and Supply Chain Management Review.

Now, I'm not reviewing this whitepaper for its great tips for supply chain success. Really, there aren't any to find here. However, what I think is of value is that this whitepaper captures some shifting attitudes about supply chain management at a moment in time.

The recession is pretty much old news. And, based on how economists are responding to surveys, the recession will be over within a few months or quarters.

So will the end of the recession bring a change to supply chain strategy?

Probably.

Let's take a look at some excerpts from the whitepaper which capture some attitudes about supply chain management in a recession.

First, the whitepaper lists the top 7 corporate goals for 2009. As you might expect, "reduce costs/overhead" is #1. "Improve customer service" is #4. And "sustain revenue growth" is #6.

This order of prioritization fits wonderfully with supply chain and procurement departments. After all, our historical #1 focus has been on reducing costs. Right now, our historical core competency is aligned with senior management's top priority. That's a beautiful thing.

The whitepaper goes on to point out that "[c]ompanies not only plan to closely evaluate the relationships they maintain with their partners but also expect to reduce the number of vendors with whom they work." Yep, supply base consolidation is another traditional focus of procurement groups.

But management's attitudes and goals will changes as the economy changes, right?

What happens when growing revenues and reducing costs switch places on the senior management hierarchy of priorities?

Does that mean that procurement and supply chain management will lose their "teacher's pet" status?

It could if you're not careful.

Procurement and supply chain teams need to be agile. Their priorities must be in synch with senior management's.

So while reducing costs and shedding suppliers may tickle management's hot buttons today, how will you be supporting revenue growth when this recession turns into an economic expansion? How will supply chain management retain its new found value in the eyes of senior management?

That is what you should be asking yourself.

One aspect of recession-era supply chain management that fortunately can be immediately applied to expansion-era supply chain management is accurate demand planning. The whitepaper notes that organizations "possess a greater sense of urgency on critical decisions pertaining to demand planning. The current time period of the planning cycle is, on average, seven months, which is reduced from a year ago when the average timeline was nine months."

The purpose of this contraction in the demand planning cycle was to be more in touch with changes in economic conditions so that inventory and production didn't outpace demand. As the economy improves, companies are at the risk of demand outpacing inventory and production.

So, there will need to be a continued compression of demand planning cycle time. Those companies that do it well will have a significant advantage over those that fail to ramp up fast enough for economic expansion. There will be a lot of market share that is won and lost based on the quality of demand planning.

The whitepaper concludes with a section devoted to sales & operations planning (S&OP). I won't review that here, but if you would like to get your own copy of this whitepaper, you can download it for free from Supply Chain Management Review's 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, May 26, 2009

Shouldn't Charities Have Good Procurement, Too?

Sometimes, I can't turn my procurement brain off.

Such was the case a few weeks back when waiting to pay for my family's meal at Denny's. At that time, I saw this solicitation for donations to MDA...




And I started to think..."Hmmm. I've seen flu shots for a lot less expensive than $25. And one minute of research for $85? That's $5,100 per hour!"

Despite considering myself a philanthropic guy, there was something inside me that hesitated about making a donation. I felt that perhaps through less-than-world-class procurement, this charity was not making the most effective use of its donors' dollars.

Of course, I don't know that for sure. They may indeed have an effective procurement department and these represent better-than-market costs.

But it was enough to make me question it.

When it comes to charitable organizations, every dollar saved is a dollar that can be put directly to the mission of the organization. To me, it would make sense for larger charities to focus on procurement as a core competency. The ROI would be worth it.

After all, negotiating a 5% discount on that research (assuming that it doesn't compromise quality or efficiency) would allow the organization to sponsor more research, leading to new cures or treatments faster, right in line with the mission of the organization.
What I'd like to see this type of charity's procurement team do is enumerate its savings in a similar way, reporting things like the amount of money Procurement saved enabled our organization to provide:
"X" more flu shots
"Y" more minutes of research
"Z" more support group sessions
etc.

Just something to think about (as I can't help but do)...

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, May 22, 2009

The Decline of Traditional Purchasing Membership Associations: A Panel Tells It Like It Is

Last month, Jon Hansen of Procurement Insights conducted a panel interview on Blog Talk Radio. This interview was on the topic of whether the traditional purchasing membership association model was dead. The discussion was so lively, Jon brought us back to continue the discussion yesterday!

Typically, I've found that some people are quiet in their criticism of professional associations. Their bosses, friends, or other influencers may be active in the association, so they don't want to tell-it-like-it-is or ruffle any feathers. That wasn't the case with yesterday's panel!

If you missed the live broadcast, you can use this player to listen to this no-holds-barred conversation.



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, May 21, 2009

50 Purchasing Articles Available Again!

This July, our email newsletter, PurchTips, will celebrate its seventh anniversary. By then, we'll be past our 180th edition.

The earliest editions of PurchTips were not archived on our Web site. We didn't start linking the articles from our site until the 51st edition.

Well, by popular demand, we have finally added the first 50 editions to our site, giving you access to even more educational material for free! For links to all of the articles, go to http://www.NextLevelPurchasing.com/free.html and scroll down until you see the article titles.

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, May 20, 2009

Whitepaper Wednesday - Optimization After Auctions Run Their Course

Welcome to this week's installment of Whitepaper Wednesday here on the Purchasing Certification Blog. In this post, I'll be reviewing the whitepaper entitled "Moving Beyond Reverse Auctions for Scalable, Sustainable Value" from Emptoris. Though this whitepaper is about four years old, I still think that its content has value today.

The whitepaper pays a little homage to the reverse auction, saying "Companies have saved hundreds of millions of dollars using online auctions, often in categories where they thought they had already achieved substantial savings and rock-bottom prices through traditional negotiations." But a major premise of the whitepaper is that a reverse auction-only strategy is not sustainable for continued savings.

The whitepaper posits that a major reason why companies see diminishing returns with reverse auctions is that they adhere to a "buyer-knows-best" mentality when determining lots and combinations of items being bid upon. The whitepaper notes that a sourcing optimization solution will break down this barrier to additional savings.

One of the core aspects of an optimization system is "expressive bidding," according to the whitepaper. Expressive bidding allows suppliers "to offer discounts and bundled pricing, and flexibly address other non-price factors such as quantity, item specifications, delivery terms, etc. As a result, the buyer will have better insight into the supplier’s capabilities and be able to better leverage their innovation."

Combining expressive bidding with other aspects of sourcing optimization such as a flexible bidding model, supplier ratings, and business constraints would make bid analysis tough to accomplish manually, but optimization technology automates the analysis, allowing buyers to "create multiple 'what-if' scenarios to conduct cost-benefit comparisons among various business constraints."

But the benefits of optimization are not strictly for the buyer. There are benefits to the suppliers as well.

The whitepaper introduces the concept of optimization-based supplier bid recommendations. This feature gives the supplier "feedback that recommends alternate pricing and bundling scenarios based on the overall negotiation dynamics and competitive bids. This benefits suppliers by providing them with additional insight into how they might bid more competitively, in ways they may not have considered," while also doing the buyer's work of enticing the supplier to make its offering more attractive.

According to the whitepaper, procurement organizations using optimization tools are able to save an additional 7% after already exhausting the savings realized from using reverse auctions year after year on a certain category of goods or services.

While this whitepaper may not cover as many of the nuts-and-bolts of optimization as myself and Michael Lamoureux did in our podcast entitled "Supply Chain Optimization Simplified" and is one of the older whitepapers I've reviewed (consider that one of the analysts quoted in the whitepaper is now the Chief Marketing Officer for one of Emptoris' competitors), I still think it is a worthy read. You can download your own copy of the whitepaper from Emptoris' Web site (registration is 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, May 18, 2009

Are You CPO Material?

Becoming a CPO is a lofty goal. Our research suggests that it takes around 10 years of experience to reach that level. And experience alone won't get you there...

So what will?

That question was the basis of the new PurchTips article "Are You Chief Procurement Officer Material?" and the accompanying podcast of the same name. In the article and podcast, you'll read/hear words of wisdom from leading management consultant and former Bayer CPO Robert Rudzki.

So if you want to "be a CPO when you grow up," be sure to devour every word of the article and podcast!

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, May 15, 2009

City's Purchasing Hotline Hacked...Mayor Called A Moron

Tony Poshek, known in the blogosphere as the Satirical Sourceror, alerted me to a rather amusing story on toledoblade.com reporting that the City of Toledo's purchasing hotline had been hacked. Instead of hearing the usual "Thank you for calling Toledo, the most liveable city" greeting, callers to the purchasing hotline heard "Carty Finkbeiner is a complete moron."

Finkbeiner is the mayor of Toledo.

Not much education in this post, but perhaps you'll get a laugh and breathe a sigh of relief that it wasn't your purchasing hotline that got hacked.

Have a great weekend.

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, May 14, 2009

Why Doesn't Procurement Save As Much On Non-Traditional Categories?

In yesterday's Whitepaper Wednesday post, I expressed puzzlement over some recent Aberdeen research that suggested that the more spend there is under Procurement's control, the lower the savings as a percentage of that managed spend. I was puzzled because the Aberdeen research indicated that:
  • "Best-in-class" procurement teams manage 88% of corporate spend and their savings is 8.5% of total spend, which equates to about 10% of managed spend
  • "Laggard" procurement teams manage just 23% of corporate spend and their savings is 3.7% of total spend, which equates to about 16% of managed spend (higher savings as a percentage of managed spend than the best-in-class)

Based on my experience, I believe that there is overlap in the types of categories managed by both best-in-class and laggards. In my opinion, that 23% that the laggards manage is comprised of the products and services that are core to the organization and repeat purchases - the obvious stuff for a procurement team to manage that is also managed by the best-in-class.

I am speculating that the other 65% that the best-in-class manage is comprised of many categories that are considered "non-traditional" - HR benefits, fleet management, insurance, marketing, facilities, etc. If this is true, then why doesn't procurement save as high a percentage on these categories?

In my experience, products and services that procurement has contracted for for years, or even decades, have less supplier margin to eat away at while categories that have gone unmanaged or managed by departments outside of procurement have far more "juice." The baselines are different - Procurement has kept costs in check on their "bread and butter" while suppliers are getting "fat and happy" in categories that had been under the procurement radar.

I reached out to Andrew Bartolini - the author of the Aberdeen whitepaper - to see if I was missing something or if we could get to the bottom of the numbers. We didn't reach any definitive conclusions. But here are possible explanations that we discussed (but didn't necessarily agree upon):

  • The assumption that there are diminishing returns when strategically sourcing categories over and over is sometimes, but not always, true
  • Procurement professionals have deep category expertise in core categories that enable them to achieve higher savings compared to indirect categories where they do not possess such deep expertise
  • If a procurement team has a certain impressive ROI ratio (e.g., 7:1) in historical performance, that doesn't mean that management will not deploy procurement on projects that have a lower, but still positive ROI (e.g., 6:1 or 5:1)
  • The commodity price volatility from 1st quarter 2008 to 1st quarter 2009 has resulted in direct materials prices falling farther than indirect materials, services, consumer goods, etc. (the explanation I feel is most plausible)

One of the things that Andrew and I did agree on was that what really matters is the aggregate savings number, not so much savings as a percentage of managed spend. For the theoretical company with $1,000,000 in total spend from yesterday's post, we both agree that a procurement team that saves $85,000 would be better than a procurement team that saves $37,000.

But I still don't feel at peace with what the research may imply. Do you think that the best-in-class should save more as a percentage of managed spend than the laggards? Or are the implications of Aberdeen's research spot on in all economic scenarios (recession, expansion, stagnation)?

Please click the link at the bottom of the post to add your comment.

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, May 13, 2009

Whitepaper Wednesday - Cost Savings as a Performance Priority

Welcome back to another weekly installment of Whitepaper Wednesday here on the Purchasing Certification Blog. Today, I will review a whitepaper entitled "The CPO's Agenda: Smart Strategies for Tough Times" from Aberdeen and Ariba.

This whitepaper is based on a recent survey of over 200 chief procurement officers. This survey was conducted to learn what is top of mind for today's CPO's.

This whitepaper revealed many interesting statistics. While it is no surprise that "identifying cost reductions" was the top issue pressuring CPO's (at 91% of CPO's reporting this is a "top three pressure"), I find it quite intriguing that the whitepaper notes that "across a decade of global supply management research, Aberdeen has never seen the pressure to find savings reach this high level."

In case you're curious, the other top CPO pressures were:
  • Mitigate supply risk - 47%
  • Improve processes - 26%
  • Optimize working capital - 24%

Speaking of cost savings, the whitepaper goes on to distinguish between best-in-class procurement teams and the rest using two metrics: spend under management and cost savings as a percentage of total spend. The whitepaper indicates that the best-in-class have 88% spend under management and have cost savings that are 8.5% of total spend as compared to an industry average of 64% and 5.2%. The whitepaper also shares metrics for the "laggards" whose spend under management is 23% and their cost savings are 3.7% of total spend.

These statistics I find to be a slight bit puzzling. Especially in light of the following excerpt describing them: "[M]anaging a high percentage of spend does not in and of itself guarantee efficient or effective management; but, over years of benchmarking thousands of procurement departments, Aberdeen has identified a high correlation between high percentages of this metric and high performance in other KPI's."

Those words make sense. If a procurement department has earned the right to manage more spend, it probably does have the capability to deliver more savings per dollar of spend. But let's consider transforming a laggard procurement department to a best-in-class procurement department using Aberdeen's numbers.

I'll use a total spend of $1,000,000 to make this easy.

The laggard procurement department would then manage $230,000 of spend and save $37,000. Thus, the laggards' savings as a percentage of managed spend (not total spend) is 16%.

The best-in-class procurement department would then manage $880,000 of spend and save $85,000. Thus, the best-in-class' savings as a percentage of managed spend (not total spend) is 10%.

At face value, this seems to contradict the foregoing claim by Aberdeen - it actually seems that performance suffers as a result of managing more spend. My guess here is that Aberdeen meant that the savings-as-a-percentage number was a percentage of the spend that procurement is responsible for, not total spend (only a portion of which procurement is responsible for).

When a whitepaper confuses me, I generally stop reading it and that's exactly what I did here. The whitepaper does go on to have sections on supply risk management, benchmarking, and recommended steps to success. So perhaps you will find them valuable as they are all relevant topics. And I have an extremely, extremely high amount of respect for the work of the author - Andrew Bartolini - so maybe it's just me...

If you want to download your own copy of the whitepaper, you can do so from Ariba's Resource Center.

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, May 12, 2009

Sourcing Professionals: How Important Is An Open Mind?

Some may argue that innovation is the key to improved performance. In other words, relying on "the way things have always been done" is only going to put your organization at a competitive disadvantage.

Having an open mind is necessary to innovate. And that doesn't mean having an open mind to only your ideas (believe it or not, those who claim to have an open mind are often very closed-minded to breakthrough ideas other than their own).

On this topic, I've recently penned a two-part series for eSourcing Forum called "The Open-Minded Sourcing Professional." Check it out those posts here and here.

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, May 11, 2009

Twitter Lessons for Procurement Professionals

Everywhere you turn, everyone is talking about Twitter.

Some people love it and describe it as if it were the best thing since sliced bread. Others think it is the most ridiculous thing to ever become popular.

My opinion is more moderated. I think, as a networking tool, Twitter has value. I also think that Twitter can be used in a way that makes it a grand waste of time.

Should you start becoming active on Twitter? That depends.

I see Twitter as a conversation starting tool. And a starter of conversations that are best continued outside of Twitter via more conventional means.

If you don't care about connecting with others who you may not otherwise connect with, then don't bother. But if you'd like to make some connections - now is the time. Twitter's user base is growing and the novelty of being followed or following someone will decrease in inverse proportion to Twitter's user base.

Here are some basic tips for using Twitter as a procurement professional...

1. Don't use Twitter on the job unless it is actually part of your job to do so. Each of your posts - or "tweets," as they are called - is time-stamped. Despite some diminishing unemployment statistics, companies are still laying off employees by the hundreds of thousands each week and you don't want using Twitter during work time to be the reason you're unemployed.

2. Be conscious of tweet quantity. As a follower (that's the word used when you sign up to receive a particular person's tweets), I have a hard time digesting when people tweet more than three times per day. I usually won't follow someone who tweets that often. It's just a turnoff. You want to be "followable." Ten or more tweets a day is way more than I want to hear from one person. And posting tons of links within a day gets annoying, too. How much time do you think people have to be reading on any given day? "Chain tweeters" (I think I invented a term there) create the personal brand of being someone that has nothing else to do all day.

3. Be conscious of tweet quality. Even if you post a reasonable quantity of tweets, it is a turnoff if your tweets have nothing interesting to read. Yes, the Twitter home page says "Twitter is a service for friends, family, and co–workers to communicate and stay connected through the exchange of quick, frequent answers to one simple question: What are you doing?" and above the text box where you type in your tweet it says "What are you doing?" But the most annoying tweets are those where people actually do type in what they are doing! If you are using Twitter as a professional networking tool, I'm sorry to report that no one cares if you are in traffic, no one cares if you just bought a hot dog, no one cares about anything personal about you (sorry if this hurts, but it's true). Posting those things does your personal brand more harm than good. Better to not tweet than to tweet something boring. Make your tweets valuable!

4. Never, ever complain about work on Twitter. As fleeting as a tweet feels when you post it, it can last forever in the mind of someone who read it. Twitter is just not the appropriate forum for work complaints.

5. Twitter can be a good tool to help you become more concise in your writing. Twitter limits your tweets to a maximum of 140 characters. That's not a lot. So you have to squeeze in what you want to say in a small amount of space. Unfortunately, leaving out details can result in misunderstandings. So be careful to be both concise and complete. Not a bad skill to have.

6. Tweet about things that your followers don't have access to. I personally enjoy reading tweets about procurement conferences that I wasn't able to attend. I am getting some info on what I am missing and that's pretty valuable to me. (As a guilty pleasure, I loved reading tweets about how mediocre the ISM conference was last week, especially after their marketing person started "re-tweeting" some of the early posts from people who tweeted about being on their way. She didn't re-tweet much after people started tweeting negative things from the conference itself.).

7. Use caution when asking or answering questions. Its not only Twitter's 140 character limitation that can cause misunderstandings. It is Twitter's lack of associating a reply with a tweet that can cause misunderstandings. I'll use a real-life example from a Twitter conversation between myself and Tim Minahan, Ariba's Chief Marketing Officer, to illustrate. Here's how it went.

Tminahan: Marketing guru Seth Godin: market has shifted from "how can I spend money to grow my brand" to "show me how I can save money." Do you agree?

Nextlevelpurch: i agree, but as recessions are relatively short, so too will be the focus on saving $ as the go-to mktg strategy, except...

Nextlevelpurch: ...except for those of us whose value proposition is saving money in good times and bad.

Tminahan: My question was whether procurement success in today's market requires new skills (technical, financial, engineering)?


What??? What do technical, financial, and engineering skills in procurement have to do with Seth Godin - a marketing guru?

Well, I looked at Tim's tweets and in between his Seth Godin question and my reply was another question that he tweeted. That tweet said: BW says: 3M US job openings can't get filled due to a skills mismatch. http://tinyurl.com/de92t4 Is this a metaphor for procurement market?

I replied back to Tim and noted that I was answering his Seth Godin question but never received a reply from him. Again, because tweets are so fleeting, I wouldn't be surprised if Tim didn't know what I was talking about.

So be careful not to ask too many questions because it may be difficult to know which questions your followers are answering. And - despite that 140 character limitation - try to indicate what question you are responding to when you do want to offer an answer to a tweeted question.

So what do I post on Twitter?

I post links to my blog posts and new PurchTips articles. I believe that traditional blog readers are migrating to Twitter for their online time, particularly with the degradation of quality that I've observed among long-standing procurement blogs. So, I think Twitter helps keep this blog (which is hopefully getting better, not worse) where the eyeballs are moving. I also post "Procurement Thoughts of the Day," which I indicate with the prefix "PTOTD." These are just random things on my mind that you may or may not find useful, inspirational, funny, or none of the above. Here is a smattering of them:


  • PTOTD: Honey may catch more flies than vinegar, but vinegar seems to get your phone calls returned faster.
  • PTOTD: Instead of saying “That doesn’t apply to us - we don’t do that,” ask yourself “Is that something we should be doing?”
  • PTOTD: Big co. negotiators are often the most effective, but also often one-dimensional. How would u negotiate differently for a smaller co.?
  • PTOTD: What do gov’t procurement & parenting a 5-year-old have in common? U hear the words “That’s not fair” more times than is justified
  • PTOTD: Purchasing, procurement, supply mgt., sourcing...There's no "best." Pick 1 and be consistent when u talk to internal customers.
  • PTOTD - Does your savings initiative have a cost? In other words, are you sacrificing quality, delivery, or service for a better price?
  • PTOTD - Document every procurement improvement. Review at least annually. If nothing has changed in a year, someone's not performing.
  • PTOTD: Sick of STILL having 2 prove urself? It's not personal. U do/should have 2 prove urself every day no matter who u r/what u've done.
  • PTOTD: Is the best supplier not bidding coz u copied & pasted irrelevant stuff in ur RFP, making ur business more work than it's worth?
  • PTOTD: If ur boss reviews ur work, s/he is an approver, not ur personal proofreader. Make it perfect. If ur boss does ur job, ur disposable.
  • PTOTD: The meek may inherit the earth, but they’re probably paying their suppliers too much
  • PTOTD: The downside of re-negotiating in a recession is that suppliers will think re-negotiating is fair game when markets recover.
  • PTOTD: A lower price in the hand is worth two rebates in the bush

Understand that these tips are only my opinions, not necessarily best practices. Take them for what they are worth.

If you'd like to follow Next Level Purchasing on Twitter, go to http://www.twitter.com/nextlevelpurch.

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, May 08, 2009

First SPSM Certified in Nigeria

It has been a busy blogging month, so I apologize for not getting the new countries with SPSM's to you until now - I usually use the first blogging day of the month to do so.

April saw us continue to race towards 50 countries with SPSM®-Certified purchasing professionals as we awarded the first SPSM® Certification to a purchasing professional in Nigeria in April.

Speaking of SPSM's in the Eastern Hemisphere, we recently added a quote from our first female SPSM in Kuwait to the page describing our online class "Mastering Purchasing Fundamentals." Please feel free to check out her comments.

Stay tuned for an exciting blogging week next week with posts about Twitter for purchasing professionals, of course another Whitepaper Wednesday, and more of the off-the-cuff posts that you've come to know (and hopefully love) from this blog.

Have a great weekend!

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, May 07, 2009

TGI Friday's Not Loyal To Its Loyalty Programs (And How That Made Me Think of Total Cost of Ownership)

"A bird in the hand is worth two in the bush" is a saying that means it's better to have something tangible today than a hope for the future that may never materialize. This can apply to total cost of ownership calculations.

Consider this example. You are considering two supplier proposals: one that has a higher price but a rebate at the end of the 3-year contract/program and one that has a lower price but no rebate. When factoring in the rebate and analyzing both proposals using a net present value equation, the supplier with the rebate has a slightly lower total cost of ownership (let's say slightly less than 1%).

Everything else being considered equal, what would you do?

I know what I would do.

I would either select the supplier not offering a rebate or would ask the supplier offering the rebate to re-price its proposal without the rebate.

That rebate is essentially the "two birds in the bush." It may never be paid. Too much can change over three years.

Think of an airline industry contract signed before 9/11. Or an automotive industry contract signed in early 2008.

Do you think those two-birds-in-the-bush obligations were all kept?

No, I don't either.

I've always felt strongly about this topic but hadn't thought about it for a while. But a customer service incident at TGI Friday's reminded me why you can't count on future obligations.

(BTW, the procurement lesson of this post is over and I'm gonna rant about bad customer service. So, if you want to stop reading here, it's OK. I won't be offended if you walk out at this time ;-) .)

TGI Friday's at one time had been one of my family's favorite restaurants for a good, kid-friendly meal. We were part of their "Gold Points" loyalty program and actually ate there enough to accumulate quite a bit of points. I can't remember how many, but I know that we had at least enough to get a free appetizer and may have crossed the threshold to getting a free entree.

Now, we hadn't been there for several months - there are no shortage of restaurant choices in the Robinson Township and Moon Township areas - but we decided to return and cash in our points on that free appetizer. I got our Gold Points card right away and asked the server whether she needed to see it now or when she brought our check.






She was new and was unfamiliar with the Gold Points program, so she took our card to the back. She returned to say that the program was no longer in place and that our card could not be honored.

I gently expressed my displeasure, but we went on with our meal.

When she brought our check, I told her that I wanted her to tell the manager to take the charge for our appetizer off the bill because we earned a free appetizer and it just wouldn't be right to not honor the program. She said she'd get the manager and she did.

The manager, Rich Wolfe, came over and said that he couldn't honor the card and couldn't comp our appetizer, but TGI Friday's had a new loyalty program that we could sign up for online that was "better." Acting like a typical customer (without extensive negotiation expertise) I asked him why he thought we'd sign up for a loyalty program when TGI Friday's obviously doesn't honor the incentives that its customers earn. I repeated my desire for the appetizer to be taken off of our check.

I couldn't believe how this guy continued to resist comping our appetizer, acting like it would bankrupt the establishment. It's six dollars that I was asking for! And that's my price, not his cost!

So, it was time to shed the facade of being the typical customer and putting on my professional negotiator persona. And, of course, the appetizer was taken off of our bill.

Sorry, I - nor any other customer - should not have to turn up the heat to get a measly six dollar appetizer comped in this type of situation.

So not only will I not trust the two-birds-in-the-bush loyalty programs of TGI Friday's - I simply will never step foot in another TGI Friday's in my life. With so many great restaurant choices, there's no reason to bother with a restaurant with terrible loyalty programs and non-customer-centric values.

Perhaps I'm just jaded by my recent vacation to Disney, where every employee buys in to the goal of giving the customer a magical experience.

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, May 06, 2009

Whitepaper Wednesday - The Procurement Shared Services Model

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. Today, I'll be reviewing a whitepaper entitled "Creating A Procurement Shared Services Center" from CAPS Research.

I have to say that a lot of the whitepapers that I skim for this weekly column often skip essential definitions. If the reader knew everything about a topic, they probably wouldn't be downloading a whitepaper on it. But many authors fail to realize this basic fact.

Fortunately, that's not the case with this whitepaper.

It starts out with a simple explanation of a procurement shared services center, saying that "a procurement shared services center is created when the purchasing, procurement, and/or sourcing functions are consolidated into one center-led group that is responsible for purchasing/procurement activities throughout the business unit or corporation."

Well, isn't that the same as a centralized or center-led procurement structure?

The whitepaper says "no." It offers this explanation to differentiate shared services procurement from other structures: "A shared services center...typically operates as a stand-alone business serving internal (and in some cases, external) customers who pay for services through a clearly defined chargeback formula...Typically, there is also greater emphasis on service and often service level agreements are put in place with internal customers. In some cases internal customers can decline to use the shared services center even though they are still subject to the chargeback formula, or in some cases, they can opt out of paying for services they decline to use."

The whitepaper shares three case studies of companies such as Boeing and Northrop Grumman who have implemented a procurement shared services model. The whitepaper also addresses some of the bigger challenges of implementing a procurement shared services model, such as staffing and determining the fees applicable to internal customers (including 6 different approaches).

The whitepaper does point out that "[s]ome speculate that shared services centers are...a precursor to outsourcing." Therefore, decisions to create a procurement shared services center are often made higher in the organization. As such, if you are faced to create a procurement shared services center, it behooves you to learn as much as you can about the topic to ensure your success (and continued employment).

This whitepaper is 15 pages long (a bit longer than my favorite whitepapers) and registration is required, but if the topic interests you, you can download it from CAPS' Web site.

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, May 04, 2009

How To Get A Negotiation Advantage

I hope that you have enjoyed the article "The Superior Negotiation Advantage."

Logic influences negotiation outcomes. Or at least negotiation expectations.

Big companies get good prices from their suppliers, who take a loss on the deals. Sole source suppliers propose high-margin prices and never lower them no matter how much kicking and screaming the buyer does.

Right?

Not always.

Negotiations are also very heavily influenced by emotion. How the negotiators feel. Even if those feelings are inconsistent with logic.

So, as described in the article, go into a procurement negotiation with the goal of assuming the superior role to your counterpart's subordinate role. You can turn the tide of a negotiation scenario with what you say and how you act.

For example, which of the following do you think is the more peruasive thing to say?
  • (Looking at your tablet) "Can you lower your price?"
  • (Looking the supplier in the eye) "The bottom line is this: we cannot, will not pay the price you have proposed. We absolutely expect you to shave $10,000 off of it before we can get serious about moving forward."

Don't be meek. Interject some (well-controlled and still professional) attitude into your negotiation repertoire.

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

ShareThis