Friday, July 31, 2009

Beware of Questionable Global Sourcing Advice!

On the Strategic Sourcing & Procurement LinkedIn group, I was involved in an interesting discussion regarding how to manage currency risks when buying from foreign suppliers. The discussion started when a supply chain student/intern asked if he can pay his supplier in both Euro and US dollars to reduce currency risk for both parties.

When I suggested the best practices for accomplishing the goal (which is what we teach in our online class "Basics of Smart International Procurement"), the student replied that he had gotten responses from others saying that they use the pay-in-two-currencies option.

This was a little scary to me. Not only do people use a less-than-optimal approach, but they also recommend it to others!

So then, I explained that "there are some things that can be done but the question is not whether something CAN be done, but rather whether it SHOULD be done."

That premise, of course, applies to many things, not just global sourcing.

I recommend that you check out the discussion (and maybe contribute advice of your own) at http://www.linkedin.com/groupAnswers?viewQuestionAndAnswers=&gid=139021&discussionID=5372199. The group is run by Supply Excellence's Justin Fogarty and, as you may expect if you're familiar with Supply Excellence and their Twitter account, is very well managed. So you may want to join the group while you're there and, if you haven't already, join the SPSM LinkedIn Group as well at http://www.linkedin.com/groups?gid=145761.

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, July 30, 2009

Procurement Leaders Don't Know The ROI of Spend Analysis...But Do They Really Need To Anyway?

I know I'm going to blog about an article when I feel my blood pressure go up while reading it. Such was the case when I came across the article entitled "Majority of Procurement Leaders Unable to Determine ROI of Spend Analysis, Survey Shows" on Supply & Demand Chain Executive's Web site.

This article is based on a survey that shows, among other things, that "51 percent of respondents were unable to determine the return on investment for spend analysis." The survey data, compiled interestingly enough by a spend analysis vendor, was used in a manner to take a stab at that vendor's competition.

The CEO of that vendor was quoted as saying "The findings from our survey reveal that spend analysis vendors are taking advantage of procurement leaders who, confidentially, admit that they do not know when they should realize a return on investment...Spend analysis is such an important business-critical tool for organizations that [our company] challenges vendors to become more accountable to customers, including transparently stating when their solutions will deliver returns on investment."

OK. So more than half of all respondents can't determine the ROI for spend analysis. That sounds like a bad thing. But, my question is "do they need to?"

Those of you who know me may be surprised that I, of all people, would ask such a question. You know that I am a big advocate of putting together businesses cases and that I stress the need to think like a CFO.

But, in some cases, I say that it is absolutely OK to not know or try to calculate spend analysis ROI.

Think about it this way...

You know those self-checkout machines that have popped up in grocery and other retail stores over the past decade? Why do those retailers buy those machines?

Simple - ROI. By adding those machines, they need fewer employees, so they reduce their expenditures on labor such that, over a period of probably a few years, they spent less on the machine than they would have spent on the labor that the machine replaced.

Now, do you think that the retailers crack open those machines and ask what the ROI of each component is? Unlikely. What matters is the overall ROI of the group of machines.

So see your procurement department as the group of machines and spend analysis as just one component of the machines. That component cannot replace cashiers on its own. But without that component, the machines are not going to be able to function.

Spend analysis, on its own, does not generate cash flow improvements. It allows a procurement department to better identify opportunities to generate cash flow improvements. Therefore, spend analysis does not generate ROI in isolation. If you did a world-class job of analyzing spend, but never sourced, or addressed non-compliance, or rationalized the supply base, spend analysis is worthless.

So what matters (or what should matter) is the ROI of the entire procurement department budget (including salaries, benefits, equipment, facilities, and technology), not the ROI of one component. The procurement leader should have an ROI goal for the department (comprised of a cost savings goal and an expenditure maximum) and the flexibility to choose how to make those expenditures to best position the department to meet or exceed the ROI goal. The procurement leader is likely to view spend analysis as a means of getting the intelligence necessary to maximize cost savings contributions and, on that basis, the investment in spend analysis is justified.

So this type of situation is most likely in the case of a procurement transformation initiative with a new leader. The new leader says "I will improve profits by $x. And I need $y in resources."

Another scenario where ROI may be more easily calculable involves an existing leader trying to make improvements - not necessarily a total transformation. I think back to my days in procurement in the late '90's when spend analytics programs were just starting to develop in the wake of the reverse auction buzz.

My team extracted data from our accounting system and crunched it in Excel spreadsheets and Access databases to turn it into intelligence. The team was actually quite good at it. But we did spend a lot of time on it.

If you found yourself in this situation, you could calculate the amount of time (and, therefore, money) that would be saved from using a spend analysis solution rather than the clunky accounting system data imported into an Access database by a well-paid analyst. If you could replace one or more of the analysts who laboriously manipulated the data, you could calculate a true return on investment. Or, if you had data on savings for a couple of years doing spend analysis the "old way," you could compare your post-spend analysis savings against your pre-spend analysis savings (which would, theoretically, be less) and attribute a certain percentage of the difference to doing spend analysis.

Finally, you could look at some benchmark work that some of the analyst and advisory firms have done regarding spend analysis' impact on cost savings results, although that is not a guarantee that you will achieve the same.

My advice? Spend analysis is a useful tool. It gives procurement teams better quality data, faster. These advantages really assist procurement teams in delivering better results, but they don't produce ROI on their own. So measure the ROI of the entire procurement department (the machine), not of just one technology tool (a component).

For a related method of calculating procurement ROI, please download our FREE whitepaper entitled "Procurement Skills & Profit: The Correlation."

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, July 29, 2009

Whitepaper Wednesday - Supply Base Localization

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. This week, I'll be reviewing a whitepaper entitled "Supply Base Localization:
A Different Look at Low-Cost Country Sourcing" from Ariba.

First, let's talk about what "localization" is. Localization is a term that has become more and more widely used (and misused) over the last couple of years. Based on conversations that I've had with individuals in the field, I've noticed that there is not a lot of consistency with regard to how people define localization.

For the purpose of this blog post - and not claiming to be the be-all, end-all definition - I am going to define localization (with respect to supply chain management) as the process of re-directing purchases of materials and/or goods to suppliers that are geographically closer to the points where those materials and/or goods are used, sold, or stored. Maybe not the most eloquent definition but, hey, do a Google search for "define:localization" and you get nothing supply chain-related (as of today).

OK, on to the whitepaper.

In the very beginning, the whitepaper sets the stage for the emerging popularity of localization by saying that "Companies of all sizes in nearly every sector of business in the United States and
Europe are developing and implementing strategies not just to source from low-cost regions but also to actually produce goods in those countries." However, it points out that the sourcing of goods and materials doesn't always follow the manufacturing process, noting that "it is very common for companies to maintain their current supply base in high-cost regions and simply have their suppliers ship to the new region."

So what's the problem with not localizing the supply base?

The whitepaper points out three:
  1. A non-localized international inbound supply chain can bloat lead time and inventory requirements
  2. If the manufacturing process in a country is low cost, the inputs from that country should also be available at a lower cost
  3. By supplying a local facility, the local suppliers can generate the experience and cash necessary to grow to a global supplier supplier with whom you can have preferred terms and conditions

The whitepaper goes on to cite a few examples of (unnamed) companies that have successfully implemented localization strategies, discuss nearshoring, and review the choice of localization at the time of moving manufacturing vs. localizing later.

One final tidbit that I'll mention is that the whitepaper references an "analysis [that]shows that with an average supply chain pattern...non-material costs equal 25 percent of total costs
(including all logistics and working capital costs)." That's a pretty significant data point for companies that are trying to identify their costs and price their products.

I would love to see that analysis as I'm sure many CSCO's and CEO's would. Unfortunately, the whitepaper does not name the analysis or indicate if and where anyone else could get it.

If your company is moving its production operations and you're responsible for managing the supply base, this whitepaper is a must read. Not so much for the direct tips that you would get from it, but moreso to ensure that you are thinking about all of your options for optimizing the supply base.

This whitepaper is free and available from Ariba'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

Monday, July 27, 2009

Suppliers Negotiate Differently When They Know That They Are Better

I hope that you have enjoyed the article "How Expensive Suppliers Negotiate, Part I."

As mentioned in the article, suppliers often play the "But we're better than the competition. Of course they'd be cheaper. But you get what you pay for" card.

Sometimes they are wrong.

Sometimes they are worth listening to - especially if this is your first time sourcing a particular product or service. And we all know that sourcing is becoming more of a jump-from-one-category-to-another type of discipline.

So, the obvious recommendation from this article is "listen to your supplier - you just may learn something valuable."

The unstated rule related to this topic is this: if your supplier is your primary source of education about a category you're buying, you're in trouble.

Never stop listening. And never stop learning - from as many sources as you can!

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, July 24, 2009

The Most Common Type of Supply Risk (That Most "Experts" Usually Ignore)

Sheesh. Everywhere I turn these days, I hear "supply risk."

Magazine articles. Conferences. Webinars. Blog posts. Conversations. Twitter. Everywhere.

As if supply risk is something new (which it is not). I do think the rough economic times we've been in has a lot to do with that (which it should).

But what concerns me about the discussions about supply risk, particularly those involving "experts" in the field, is that a lot of them are focused on risks that aren't predictable, haven't been common, and are of low-probability. You know, the next tsunami. The next lead paint scare. The next terrorist attack.

And it is OK to think about those things. I've always advocated having contingency plans.

My concern is that procurement professionals will spend so much time worrying about these types of risks (which, don't get me wrong, shouldn't be ignored) that they'll forget about the most common type of supply risk that gives heartburn to procurement professionals day-in and day-out. This supply risk causes daily late deliveries, quality defects, and supply chain breakdowns.

What is this common supply risk?

Simple.

Poorly managed suppliers.

Yep, if you are doing business with a poorly managed company, your risk of supply disruption is high constantly, not just when a natural disaster strikes. So, it is important to mitigate this supply risk with an evaluation of how well-managed your suppliers are.

How do you know when a supplier is well-managed?

As I am writing this, I can immediately think of a number of characteristics of well-managed businesses. Here are a few (certainly, this list is not exhaustive):

  • A culture of continuous improvement. A well-managed business will have a culture of continuous improvement, evidenced by several goals that aim to improve performance over the previous year(s). For example, a well-managed business may look to grow its sales by x% compared to last year, reduce returns by 50% from the previous year, improve on-time delivery to x% from y%, etc.
  • Measurements. A well-managed business will measure its performance in many ways. From things like units sold to productivity of every machine operator, a well-managed business will know how well it is performing (and its employees will know how well they are performing, too).
  • Stability in employment. If a company has to replace half of its workforce every year, something is clearly wrong. A company who has constant turnover cannot usually be counted on for consistent performance as a supplier. A well-managed business hires people who are a good match and works to retain them.
  • Profitable financial performance. This is self-explanatory.
  • Employee engagement. A well-managed business will have happy workers and those that know why doing a good job is important for the business' customers. If the workers do not know what is important to please a customer - even if management does - the chances of you being pleased are slim.
  • A good reputation. A well-managed business will have no shortage of satisfied customers and will have a good public reputation. Any business is subject to criticism and the occasional mess-up. But a well-managed business will have more positive things said about it than negative.

So there are a few things to think about. Yes, they may seem boneheadedly simple.

But, you know what? In my experience and observations, the most supply disruptions have occurred due to companies doing business with poorly managed businesses than the armageddon-type occurrences.

As we teach in our online course "14 Purchasing Best Practices," part of supply risk management is identifying risks, assigning a probability of occurrence to those risks, and establishing priorities for mitigating those risks. Make sure "supplier is poorly managed" is one of those risks and that it is assigned a higher probability of occurence than the moon crashing into a supplier's facility.

Supply risk is real. Some risks are "realer" than others.

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, July 23, 2009

Apple Supplier Employee Commits Suicide - A New Case For Supplier Codes of Conduct?

Yesterday, many media outlets, including NewsDaily and Yahoo, reported that an employee of an Apple supplier in China (Foxconn) committed suicide over a missing iPhone.

According to these reports, the employee, Sun Danyong, was responsible for shipping prototypes of iPhones from Foxconn to Apple. Sun "became frantic after discovering that one of 16 prototypes of Apple's fourth-generation N90 iPhone had gone missing." Reportedly, Foxconn security guards searched his apartment, detained him and beat him.

While the Yahoo article includes a denial of a beating by Foxconn's security chief, he did say "I was a little angry and I pulled his right shoulder once to get him to tell me what happened." The next day, Sun jumped to his death from his 12th floor apartment.

Some media outlets have begun to cast blame on Apple, calling its culture "highly secretive" and "intensely guarded." Apple has stepped forward to combat this negative PR with a statement saying "We require our suppliers to treat all workers with dignity and respect."

I will come to Apple's defense on this. Apple has been one of the leaders in having a supplier code of conduct. I even referenced Apple as a benchmark in my 2006 article "Trend Alert: The Supplier Code of Conduct." You can read Apple's Supplier Code of Conduct at http://images.apple.com/supplierresponsibility/pdf/Supplier_Code_of_Conduct_V3_1.pdf.

In sum, while Apple does have responsibility for selecting its suppliers, they can't be held responsible for a beating that they did not authorize or condone nor a suicide that resulted from it. However, it will be interesting to see if this incident will compel Apple to change suppliers for PR reasons. Certainly, if something like this happened a second time with the same supplier, Apple would have no choice but to switch suppliers or risk significant damage to its revered brand.

Regardless of the outcome, this is a landmark event for the importance of supplier codes of conduct. Certainly absent a supplier code of conduct, Apple would be in a far worse PR, and possibly legal, position.

Do you have a supplier code of conduct implemented yet?

As you can see, a supplier code of conduct can have strategic importance at a time that you least expect.

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, July 22, 2009

Whitepaper Wednesday - Is Nearshoring A Better Option Than Ever?

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. This week, I'll be reviewing a whitepaper entitled "International Sourcing: Offshore or Nearshore?" From Grant Thornton and CFO.com.

The first paragraph of this whitepaper indicates that the whitepaper is based on a survey that Grant Thornton conducted with World Trade magazine. I'm sorry, but I have to admit that I became concerned about this validity of this whitepaper just by reading this paragraph. First, the authors didn't disclose the number of respondents to the survey and, second, I associate Grant Thornton with being an accounting advisory firm powerhouse and not necessarily a thought leader in the sourcing field. So I knew I would view the findings through glasses of skepticism.

That skepticism kicked in when the paper indicated that 77% of "major US companies" are sourcing internationally. When I think of "major US companies," I think of the Fortune 500. A quarter of the Fortune 500 not sourcing internationally? Seems a bit high. So, perhaps we have different definitions of "major US companies. But the whitepaper has given me no idea what Grant Thornton's definition is.

The end of the introduction gave me a little more confidence in what was to come in the whitepaper, saying that "there is a growing awareness that an effective supply chain requires
not just low costs, but also flexibility, responsiveness and adaptability to changing marketplace needs and conditions. As always, cost-per-piece matters. But today there are many more
– and more complex – variables entering into supply chain decisions." Agreed.

What follows is a statistic-rich analysis of international sourcing practices and plans. Examples of such statistics include findings that 19% of respondents spend between 51 and 100 percent of their supply chain budgets internationally and 79% of respondents who source internationally report that they benefit from lower costs.

However, the statistics that I found most interesting were related to the top six problems experienced with, and ROI of, international sourcing. The top two problems were late deliveries and poor quality products at 61% and 43% respectively, with customs delays coming in a close third. The big shocker was that the whitepaper indicated that a whopping 47% of respondents "see offshoring as as neutral or detrimental to their ROI."

How do these problems and the apparent lack of ROI affect international plans, both in the recent past and for the future? Well, 28% of respondents indicated that they had brought sourcing closer to the U.S. in the past 12 months and 45% indicated that they are planning to bring sourcing closer to the U.S. in the next 12 months, "relocating sourcing to Mexico, Canada and, in some instances, the U.S."

Now, I hate to say it, but just having suppliers closer to your headquarters does not mean that late deliveries and quality defects will just evaporate. I hope that readers don't interpret nearshoring as an instant fix for problems they've experienced with suppliers in Asia because, if they do, they may just be in for a big time unpleasant surprise!

The whitepaper closes with recommendations from Grant Thornton's "supply chain experts" (none of whom, by the way, have a title that includes any mention of supply chain or sourcing). Though I'm sure I've sounded cynical in this review, I actually agree with Grant Thornton's recommendations as they have at their core the theme of being agile and able to adapt to change as well as to assess one's own supply chain strategy and not blindly follow trends. I'll close this review with two excerpts that I feel are particularly applicable in the economic environment we are currently in:

"When the economy recovers, which it inevitably will, companies will need to
position themselves to react quickly to [increasing] demand...'The more nimble
the supply chain, the quicker you can react to changes in customer demand – or
changes in the supply market. Companies certainly do not want to lose
opportunities for sales because of long transit times. The potential advantages
of locating manufacturing facilities close to distribution centers, such as
shorter, more reliable delivery times and lower shipping costs, are certainly
worth factoring in to your decision,' comments (Steve) Lyman, (Grant Thornton
Advisory Services partner)."


“'A one-size solution does not fit all. You need to look at each of your suppliers on a case-by-case basis and determine what makes sense for your company. At the same time, you’ve got to become more flexible to respond to changes in the market. It’s a completely dynamic process that requires greater expertise and knowledge of all the factors that can affect your global supply chain,' concludes (Tim) Dumond, (principal with Grant Thornton’s Corporate Advisory and Restructuring Services)."

Though this was a pretty thorough review of this five-page whitepaper, there are still some nuggets of good information in it that I haven't covered here. You can download your own copy from CFO.com (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, July 21, 2009

Purchasing's Guide To Spend Analysis

Purchasing Magazine recently did something I wish they'd do more of: taking a look at one sector and listing information about the major vendors in that space. In this particular instance, the space that Purchasing examined was spend analysis technology in "Purchasing's Guide To Spend Analysis."

In this Guide, Purchasing identifies over a dozen providers of spend analysis technologies, gives a bullet-point list of each vendor's key features, and inlcudes a "supplier claim." One exercise in apparent futility was having a "pricing" field. All the vendors withheld their pricing, listing something like "annual subscription fee" or "fee is based on number of users" or something else that is of no value whatsoever to the reader.

I definitely give Purchasing kudos for making this Guide available. I hope that they continue to offer such resources, which their readers will surely find to be useful. They will be even more useful if they offer a deeper analysis of the various solutions (possibly with a one- to five-star rating scale or a capabilities checklist/table) and force the vendors to give pricing, at least on some type of "typical pricing range for a company with $1B in annual revenue and 75 users" basis.

You can check out this Guide on Purchasing Magazine's Web site at http://www.purchasing.com/article/314971-Purchasing_s_guide_to_spend_analysis.php

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, July 20, 2009

Procurement Directors: Understand The Risk of Not Executing Quickly

Because the nature of our work keeps our finger on the pulse of procurement executives worldwide, we can identify trends before they become known as trends and share this information with you. We are seeing a developing trend that we need to alert you to.

Under new, economy-driven pressures, procurement executives are revising their strategic plans to focus more on short-term impact. Of course, you can't just snap your fingers and have your department do a better job. Better results require a change to business-as-usual.

In order to get some assistance towards better results, procurement executives are planning to make use of the resources available to them, namely training, technology, and consulting services. The better providers of these solutions can help the procurement leader estimate an ROI.

Armed with the right justification, the procurement leader can request and, if lucky, receive funding for these initiatives. But we've seen something troubling happen on a few occasions where approval has been granted and want to warn you about it.

Here's the situation...The procurement director identifies a resource that can help him or her improve results. The procurement director requests and receives approval for an investment in that resource. The procurement director identifies new opportunities to expand the scope of the use of the resource (e.g., deploying the solution in multiple business units instead of just one) and delays engaging the resource while "getting ducks in a row" for the expanded scope. The procurement director requests additional funding for the expanded scope.

And what happens?

The procurement director is not only denied the new funding, but also loses the funding previously approved, having it deferred until the next budget year!

Now, how can those leaders truly drive quick, significant change without any support?

After all, if there was already a silver bullet within the four walls of the department, don't you think the leader would already be using it?

Sometimes - and this economic environment is one of those times - it is better to start with a limited scope, show results, and then expand the scope. If you have funding, use it before it gets yanked from you.

After all, other departments have their proverbial tin cups out, too, and there is only so much discretionary funding to be distributed across the whole organization. What's a CFO to think when a department comes to her with an urgent need for funding and you haven't your money yet?

The answer is simple: the CFO will think that your project must not have been so important after all.

To use a baseball analogy, sometimes it's better to hit a single and get the winning run on base than to try to hit a home run and end up striking out.

Execute quickly or you may not be able to execute at all.

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Need Help Determining ROI of Procurement Training?
Download "Procurement Skills & Profit: The Correlation" For FREE At
http://www.NextLevelPurchasing.com/psp

Friday, July 17, 2009

Procurement Insights Expands Its Reach

Procurement blogger extraordinaire Jon Hansen, who publishes the Procurement Insights blog, is getting a louder voice in cyberspace. His Internet-based talk radio show, PI Window on Business, has become a "Featured" program on Blog Talk Radio.

What does this mean?

It means that the live show, one of the only if not the only of its kind, will get front page exposure on the Web site of Blog Talk Radio - a growing portal for thousands of Internet talk shows that regularly include celebrity guests. So, on a broadcast day, procurement may be a featured topic right along side TV stars. Quite an accomplishment, if you think about it!

Blog Talk Radio allows you to access archived shows from the past as well as to tune in live when a show is airing. You can do both from the PI Window on Business page.

You may note that there are a couple of good topics coming up, particularly "SOX and Contingent Workforce Management" on July 23, 2009 and "You Unstuck: Mastering the New Rules of Risk-Taking at Work and in Life" on July 28, 2009. So, if you have questions or want to share expertise, tune in live!

Congratulations go out to Jon for his good work in raising the profile of procurement, which benefits us all!

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, July 16, 2009

The Future of Negotiation: Texting?

As communication methods have changed throughout history, negotiation has followed. Prior to the industrial revolution, people would negotiate face-to-face when bartering, exchanging negotiated quantities of corn for negotiated quantities of musket balls.

Then, of course, the telephone allowed negotiators in different locations to bargain. Finally, in the past 10-15 years, email became a popular - but sometimes ineffective - medium in which to exchange offers (our online class "Powerful Negotiation For Successful Buying" teaches when negotiating by email is smart and when it is the most foolish thing a procurement professional can do). Of course, eSourcing technologies allow for all sorts of online negotiation activities.

So what's next?

Stroll through any mall and you're likely to bump into (literally) a few teens walking while staring intently at their cell phones as their thumbs flail away on the keypad in the process of texting (also called "txting" or "sending text messages"). These are future representatives of our suppliers.

Is texting the future method of negotiating?

Some of you are probably saying "I hope not." But the reality is that texting is likely to creep into the mainstream negotiation process to some degree soon.

If you are feeling yourself getting mad, it might be time to read "Who Moved My Cheese?" again.

Now, don't get me wrong. I am not advocating that you go out and conduct all of your negotiations by text message from this point forward. After all, texting has many disadvantages from a negotiation standpoint, such as:
  • You give the other party time to think through their response
  • You cannot communicate tone-of-voice through texting
  • Texting (at least when I do it) is often rife with errors
  • The amount of space you have in a text isn't enough for discussing any substantial issues
  • You cannot watch for body language clues from the other party
  • There is a higher probability of misunderstandings
  • And so on...

But when you need a simple response quickly (or want to create that illusion in order to gain pressured concessions from your suppliers), texting might fit the bill in some limited situations.

Now, texting among teens has its own vocabulary and acronyms, like "ur" (for "your," "you're," or "you are"), "l8r" (for "later"), and, of course, the old standby from the email days "lol" (for "laughing out loud"). So, do we need a similar vocabulary for procurement negotiations? I don't know, but just to be safe I'll start one here (& u can feel free 2 add ur own in the comments):

  • 2HI - "Too High," an expression that the supplier's price is too high, sent in reply to a supplier's text inquiring about the competitiveness of their offer
  • BAFO - "Best and Final Offer," as in "send ur BAFO"
  • DL - "Deal," an expression that you've accepted the supplier's offer
  • LTAS - "Leaning Towards Another Supplier," sent in reply to a supplier's text asking about the status of your decision on proposals, meant to compel the supplier to submit a revised, more attractive proposal
  • SYP - "Sharpen Your Pencil," synonymous with "submit an offer more appealing to me"

Natually, ethics that apply to traditional negotiation will need to apply to negotiation-by-txt as well. With the aforementioned high probability of misunderstanding, you want to be careful to not insult the supplier or behave inappropriately. For example, I would never use "LOL" with a supplier as doing so may insult the supplier and make the supplier terminate the negotiation. Also, be very careful when using the "F" character, as doing so may indicate the use of a profanity, as in "Send ur bid ASAFP." My thumbs always inadvertently add unintended letters to messages, so proofread to ensure that you didn't add that vulgar "F."

While some parts of this post are slightly written in jest, I do feel that texting will rear its head into more and more procurement negotiations in the near future. Therefore, it is imperitive to be prepared.

Never fight change when the writing is on the wall.

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, July 15, 2009

Whitepaper Wednesday - Achieving Excellence in Sourcing

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. This week, I'll be reviewing a piece of research entitled "Reaching Sourcing Excellence, Part 1: How To Keep 30 Cents of Every Dollar Spent" from AMR Research.

This research focuses on the reasons that sourcing programs aren't as effective as they could be. AMR's research claims that many sourcing organizations are failing to realize 30 cents of savings for every dollar of spend (for non-US readers, that's 30% of spend).

So what can a sourcing organization do to capture all of the savings that's possible?

AMR cites three recommendations:
  • Deploy and use technology;
  • Mandate skills and training for employees; and
  • Put the fundamental piece of the puzzle in place

I'll elaborate on each of these points.

First, technology. You may think that the 30% of unrealized potential would be cut into by deploying basic sourcing/auction technology. Actually, AMR says that the 30% unrealized potential is calculated after organizations have already saved 10 - 20% by deploying the basic technologies. AMR claims that advanced technologies with "broader sourcing capabilities such
as optimization, and opportunity identification and execution across the entire sourcing workflow" can help a sourcing organization add 15 - 20% savings on top of the savings resulting from deployment of basic technologies.

Second, skills and training. This research piece makes it clear that lack of well-rounded skills and comprehensive training represent a clear obstacle to an organization's ability to achieve its profit improvement potential. Poor performing organizations do no training, while others misguidedly feel good about providing training on their technology systems. But training that lacks a focus on the skills critical for sourcing success is inadequate. AMR suggests that "technology by itself has been only a tactical solution because sourcing skillsets are improved for tool use, not the strategy or dynamics behind the philosophies, negotiation strategies, or business profitability requirements."

Finally, the fundamental piece of the puzzle. What is this "fundamental piece," you ask? It is aligning the sourcing strategy with business objectives.

This research piece goes on to share a seven-step sourcing process and three approaches to sourcing used by an $8B North American telecom company.

You've probably noticed "Part 1" in the title of this research piece. There are apparently four more pieces forthcoming to complete this series. Because this piece was so well-done, I am really looking forward to those additional parts and hope to review them right here on this blog. So stay tuned!

You can get your own copy of this research piece from AMR's Web site (search for "sourcing excellence" from their home page). While most of AMR's research of this nature is limited to paying AMR Research clients, this particular document is available simply by signing up for a free "preview account." If you've tried to get access to this type of material from other analyst/research firms, you know how exciting this is! It is definitely worth checking 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

Monday, July 13, 2009

Negotiating Rebates: A Good Priority or Not?

I hope that you have enjoyed the article "Negotiating Rebates: Best Practices."

Though not getting the mail-in rebate you earned for buying a computer, a piece of software, an appliance or whatever is a common consumer purchasing headache, it is not without its parallel in corporate procurement. Just like consumer rebate arrangements, when you have a corporate contract that involves rebates, you have to know what you have to do to earn the rebate, when you should expect it, and who to follow up with if you don't get it on-time.

And then you actually have to remember that you should get it!

That headache-inducing process and the uncertainty of recovery is why I have always preferred to negotiate rebates into the price instead. But I think the article does go into one scenario where negotiating rebates makes sense.

How about you? What is your experience with rebates in corporate procurement contracts? Can you recommend any situations where rebates are a better alternative than negotiating a lower price?

If so, please use the comments link below to share your 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

Friday, July 10, 2009

One of the Classiest Procurement Gestures I've Seen

Yesterday morning, as I was reading the business section of the Pittsburgh Post-Gazette, a full-page ad caught my eye. Full-page ads are pretty rare (undoubtedly due to the high cost) and are usually placed by one of the city's largest employers for the purpose of congratulating one of our championship sports teams.

Full-page ad? I had to read it, right?

Well, I was surprised when I did. For it was not from one of the city's household name businesses. And it wasn't about a sports team. Or even a sales message.

It was this...



...a letter from the CEO of Keating Building Corporation, the general contractor who is building the new Pittsburgh casino. This letter congratulated and thanked their suppliers.

You don't see that every day!

If the type in the photo is too small, here is what the page said:


Congratulations to Our First-Class Contractors, Sub-Contractors and Vendors on Building Pittsburgh's New World-Class Casino!

An Open Letter To the People of Pittsburgh:

I personally want to thank and congratulate the good citizens of Pittsburgh and all of the contractors, sub-contractors, and vendors who worked on the magnificent new Rivers Casino. Their names are listed below.

This new world-class, $300 million gaming and entertainment landmark in downtown Pittsburgh will soon be finished, on time and on budget. This monumental accomplishment is a testament to the skill and dedication of our workforce partners and vendors who never lost faith, despite the project's early struggles.

Working together with a single-minded focus, our contractors, sub-contractors, and vendors made Rivers Casino a stunning reality. All of you should feel an enormous sense of pride in a job well done. Soon, the good people of Pittsburgh will get to see and experience this beautiful new addition to the Pittsburgh skyline.

Keating Building Corporation, all our staff, and I thank you for your help and support. It has been an honor to work with you.

The letter was signed by the CEO and listed nearly 100 suppliers. I was touched by this as it is one of the classiest procurement gestures I've ever seen. It is an impressive investment in supplier relationships.

I am going to attempt to contact Keating and offer them an opportunity to appear on a future installment in our podcast series. I would love to hear and share the benefit they see to such a commitment to positive supplier relationships.

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, July 09, 2009

When Negotiating, Make The Supplier Panic

It's been a while since I've cited piece of sales education here, so I am a bit overdue. Fortunately, our student Oleg Puleyev, SPSM turned me on to a sales negotiation blog entitled "The Accidental Negotiator."

There was one post entitled "Deadlines Make Sales Negotiators Give It All Away" that I loved. Against much of the negotiation training that I had early in my career which preached avoiding deadlines at all costs, I teach how to use deadlines to your advantage as a procurement professional.

This post illuminates - from a sales perspective - why my strategies are so effective.

It says when salespeople "become aware of an approaching deadline, all too often we start to make big concessions to the other side of the table that we wouldn’t normally make" and this is because "humans have a [tendency] to make very bad decisions when we are under pressure. Clearly, the last few minutes of a negotiation is the worst time for us to be making concessions."

You now have a little more insight into the minds of your suppliers. Use this insight to the advantage of your organization.

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Achieve Success In Your Procurement Negotiations?
Discover How You Can Learn The Latest Negotiation Techniques At
http://www.NextLevelPurchasing.com/procurement-negotiation.html

Wednesday, July 08, 2009

Whitepaper Wednesday - The Socially Responsible & Technology Enabled Supply Chain

Welcome back to Whitepaper Wednesday here on the Purchasing Certification Blog. In this installment, I’ll be reviewing a whitepaper entitled “Six Technology Tactics to Promote Corporate Social Responsibility” from Epicor and Purchasing Magazine.

A trend has been to lump an ever increasing array of initiatives under the sustainability and social responsibility umbrella and the whitepaper starts out by confirming this, saying that Corporate Social Responsibility (CSR) “holds organizations to a higher moral and ethical standard considering the overall interests of society in the operations of its day-to-day business. Under this utilitarian view, businesses would need to take responsibility for the impact of their activities on all parties that they would affect—customers, shareholders, surrounding communities, and the environment—in all aspects of their operations…[S]ustainability incorporates a multitude of supply chain considerations such as fair labor practices, energy and resource conservation, human rights, and community responsibility.”

The whitepaper’s title teased at technology tactics that would promote social responsibility and I was excited to see “Strategic Sourcing & Procurement” as the #1 area on the whitepaper’s list of six areas where technology could be applied. I thought that this section started out right on target by saying “As a result of the increased scrutiny, companies are now setting up supplier guidelines that include social and environmental requirements and supplier codes of conduct. Preferred suppliers have traditionally been viewed as those with the best performance, total cost, and quality. In leading-edge companies, CSR and sustainability are now part of the preferred supplier equation ensuring social and environmental compliance as well as the normal performance metrics of product quality, on-time performance and price.”

The whitepaper went on to whet my appetite by saying “Managers in companies are teaming with their procurement departments to better leverage their efforts to ‘green’ their suppliers. This requires the company to carry out an assessment of the environmental consequences of a product at all the various stages of its lifecycle which means measuring the environmental costs of securing raw materials, and manufacturing, transporting, storing, handling, using and disposing of the product.”

“Yeah, yeah…so how do they do it and how does technology make it better and faster?” I was excitedly whispering under my breath as I read along.

Unfortunately, the answer was a little non-specific for my tastes. The whitepaper simply said that “Implementing an automated supplier enablement process brings higher visibility into the overall process. It provides essential and comprehensive information about suppliers that improves the strategic value of those relationships and mitigates risk.”

That’s it?

Aw, man! Could we get any more general?

What I was looking for was something a little more granular, like what the whitepaper suggested for the #4 area, Logistics: “Logistics software applications are at the forefront of the CSR effort by bringing very tangible benefits to companies that are using software to optimize shipping routes which in turn reduce costs and reduce the carbon footprint. The value proposition is as simple as getting from point A to point B: optimized trucking and shipping routes mean less miles traveled, less miles traveled means less gas used by trucks, less gas used by trucks means less CO2 emissions.”

It helped that the whitepaper also shared a couple of real-world examples of how this “technology tactic” succeeded, citing the fact that UPS leveraged such software to save 3,000,000 gallons of gas and reduce its carbon dioxide emissions.

Obviously, the whitepaper covered four other technology tactics that I won’t discuss here. It had some elements that disappointed me and others that I found worthwhile. If your responsibilities align with its good parts, this whitepaper may be useful for you, though it is unlikely to be a great read for everyone.

If you would like to download your own copy and make your own judgment, you can do so from Purchasing Magazine’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, July 07, 2009

Procurement Training: The Dumbest Reason To Not Invest In It

Procurement training has obvious benefits. In our ongoing skills benchmarking program, we've found that procurement professionals with high levels of skills in seven skill dimensions save their organizations over $1,000,000 per person per year more than procurement professionals with low levels of skills in those same skill dimensions.

The return on investment is huge.

Of course, there are some non-strategic thinkers that see training as an expense rather than an investment. That's natural - we don't come out of the womb understanding that ROI is a key driver of business success. So we have our "Procurement Skills & Profit: The Correlation" whitepaper to help those individuals mature in their thinking.

In my line of work, I hear all kinds of excuses not to engage in training. But probably the dumbest one is this:

"I don't want to pay for employees to be trained, because then they'll leave for a better job and we'll lose the money we spent on it."

Yep. There really are people in decision-making positions that think like this.

What does this mean?

It's like saying: "Yeah, we have a group of idiots that work here. But we like them like that. They may not help the company, but at least they are loyal and show up every day. And that saves poor old me from the hassle of having to interview people for an open position. 'Cause those people might expect high compensation and perks like training."

Here's what I have to say.

First, your #1 goal as a manager is not to have loyal employees. It is to maximize your department's contribution to the company. If you are not facilitating your employees' ability to reach their potential and contribute better results for the company, you are failing as a manager.
Second, training is actually good for retention, not bad. Particularly in this recessionary environment in which you cannot give out raises at all (or, in some cases, even keep employees at last year's salary levels), investing in training (which benefits both the employee and the organization) is a reward for employees which will make them more loyal and better equipped to contribute to the organization's success.

Third, procurement is changing so rapidly that anyone who hasn't trained their employees in two or more years is simply not keeping pace with the rest of the procurement world. Avoiding training is a public indicator that management is simply so out-of-touch that they have no clue how out-of-touch they are!

Whew. That's my rant for the day.

Whitepaper Wednesday returns tomorrow!

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, July 06, 2009

First SPSM Certification Awarded In China

I suppose that, eventually, we will run out of countries in which to award the SPSM® Certification. After all, there are a finite number of countries in the world.

Despite this fact, we again certified the first SPSM in a new country last month. In June, China became the 49th country to have an SPSM among its purchasing and supply management professionals.

There are purchasing professionals in over 80 countries that are enrolled in the Senior Professional in Supply Management® Program, so I expect to be blogging about the 50th country to get an SPSM certified at this time next 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, July 02, 2009

An Unlikely Leadership Book

After reading an article about how a school district applied principles from a business book to turn around its disciplinary problems, I decided to pick up the book "Whale Done: The Power of Positive Relationships."

At its core, the book's message is that principles applied to training whales for Sea World shows can be applied by a manager in a business setting to get better results out of employees. And, actually, I personally think that it had even more applicability to me as a parent of young children.

It is a very quick read. I finished it in a few short reading sessions. So if you want a little bit of leadership inspiration - and a reminder that being a hard-nosed dog sled driver isn't always the best way to positively influence employees - and you don't have much time to devote to reading, I would recommend checking it out.

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Get Better Results From Your Staff?
Download The Purchasing Leader's Guide
To A More Successful Team At
http://www.nextlevelpurchasing.com/team-success-application.php?source=CharlesBlog

Wednesday, July 01, 2009

What Does The SPSM2 Certification Mean To The Purchasing Professional?

Ah, we are at the end of an historic day in which the groundbreaking SPSM2 Certification was announced. So this will be the last post on the SPSM2 and we will return to regular programming on this blog tomorrow.

Let me put something bluntly: In the purchasing and supply management profession, there are individuals regarded as top talent and there is everyone else.

In which category do you belong?

With the introduction of the SPSM2 Certification, the gap between the profession's top talent and everyone else is getting wider by the day. It has become easier for hiring companies, bosses, suppliers, and industry observers to know where you fit on the purchasing and supply management food chain.

So, if you have already earned the SPSM® Certification, you are eligible to pursue the SPSM2 Certification and maintain your place among the elite in the profession. To learn more about continuing towards the SPSM2, visit http://www.NextLevelPurchasing.com/spsm2.html

If you haven't begun your pursuit of the SPSM® Certification yet, there is no better time than now. If you're serious about your career, don't be left behind. Learn how to get started towards your SPSM® Certification at http://www.NextLevelPurchasing.com/spsm.html.

The purchasing and supply management world is different today than it was yesterday. The standards for being the best are continually rising. Being the best you can be is a lifelong journey. If you are not putting forth the effort to stay ahead, the profession will pass you by.

And if you are putting forth the effort to stay ahead, you will be recognized for being head and shoulders above the rest.

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

Video Footage From First SPSM2 Certification Award Presentation


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


First SPSM2 Certification Awarded To Ohio Purchasing Agent

Earlier today, I announced the launch of the SPSM2 Certification. Now, I am pleased to announce that the first SPSM2 Certification has been awarded!

Purchasing and supply management professionals in 2009 do things differently than they did ten or even just five years ago. To truly earn their paychecks, purchasing and supply management professionals have to work harder than ever to keep pace with the changes in the field.

Susan Lemley, a Purchasing Agent for the Crystal Clinic in Ohio, has embodied that spirit of continuous learning. Despite earning the SPSM Certification in 2007, Susan didn’t stop learning. In fact, between then and just a couple of months ago, she had already completed three of the four courses that would later become required curriculum for the SPSM2 Certification. Despite this being an extremely busy time for her, Susan accepted the opportunity to be one of the first to complete the balance of the SPSM2 Program, devoted herself to her studies, and passed the SPSM2 Exam.

There are purchasing professionals from 49 countries who have earned the SPSM Certification. But, as of today, only one has earned the SPSM2. Please help me congratulate the world’s first SPSM2 – Crystal Clinic’s own Susan Lemley.

Here is a photo of me presenting the SPSM2 certificate to Susan after a presentation arranged by Crystal Clinic's CEO. At the left is a bouquet of flowers from the CEO, who has obviously recognized and valued her achievement.





Coming later today: video footage from the presentation. Stay tuned!

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

The Big Purchasing Certification Announcement!

NEW OFFERING REDEFINES PURCHASING CERTIFICATION

PITTSBURGH, PA – July 1, 2009 – The purchasing certification space has been forever changed by the addition of a new certification offering, the SPSM2 Certification. Recognizing that the world of purchasing and supply management is constantly changing and that standards for the performance excellence of purchasing professionals are continually being raised, SPSM Certification provider Next Level Purchasing is releasing the SPSM2 Certification as a higher-level complement to the original certification. This release occurs on the fifth anniversary of the SPSM Certification, which has been earned by purchasing professionals in 49 countries worldwide.

The SPSM2 is not a replacement for the original SPSM Certification, but a higher level of achievement, similar to a master’s degree being a higher level compared to a bachelor’s degree. Building on the skills and knowledge that a purchasing professional acquires while earning their SPSM Certification, the SPSM2 adds training on processes that are becoming more significant in the purchasing field – international procurement, advanced negotiation, and managerial skills. The addition of the SPSM2 Certification will allow a purchasing professional’s certification to evolve with them and their career.

With unemployment rates on the rise, many purchasing professionals are pursuing purchasing certifications to provide them with an added edge for job retention and acquisition. In the past year, the purchasing field has seen other purchasing certifications become outdated resulting in the providers discontinuing the award of those certifications and replacing them with different designations, causing confusion in an already challenging job market. The SPSM Certification is designed to be a sustainable certification and by offering advancing levels, a purchasing professional can be assured that the investment they make in earning the purchasing certification is long-lasting.

"The scope of purchasing and supply management has been rapidly expanding and will continue to evolve, so the leading certification in the profession must be scalable," said Charles Dominick, SPSM, President and Founder of Next Level Purchasing. "With the introduction of the SPSM2 Certification, the SPSM family of certifications provides purchasing and supply management professionals with a clear path to higher levels of excellence in their work and success in their careers."

Next Level Purchasing is a leading provider of online training for purchasing professionals. Its training includes the globally-recognized SPSM® Certification for world-class supply management success. Its services enable organizations to lower costs, support operations, and reduce risk by improving purchasing processes and expanding the capabilities of supply management organizations. Visit Next Level Purchasing at: http://www.nextlevelpurchasing.com/.

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Stay tuned - throughout the day today on this blog, I will be introducing the first purchasing professional who has earned the SPSM2, including photos and video, plus talking more about what the SPSM2 means for you.

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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