Wednesday, March 31, 2010

Whitepaper Wednesday - Fleet Procurement Alternatives

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. This week, I'll be reviewing a whitepaper entitled "EMERGE STRONGER: Identifying the Right Business Vehicle Strategy for the New Economy" from Runzheimer International and CFO.com.

In the early part of this millennium, fleet management was one of the new non-traditional categories that strategic sourcing became involved in. So, there is a chance that you are already involved in and comfortable with fleet procurement. Well, the rough economy of the last two years has compelled CFO's to look at all areas of spend and question whether there is potential for cost savings and fleet management is no exception.

While traditional fleet decisions have been simple lease vs. buy or in-house vs. outsource, this whitepaper reveals that there are several different alternatives now being mulled by CFO’s. Those alternatives, primarily relating to non-complex vehicles such as those driven by sales representatives, include:

  • Providing company vehicles to employees
  • Providing flat-rate reimbursement to employees who use their own vehicles
  • Providing per-mile reimbursement per IRS standards to employees who use their own vehicles
  • Providing a combined fixed-and-variable-rate reimbursement to employees who use their own vehicles

What I found interesting and most valuable to procurement professionals are the various unique factors that are on CFOs’ minds when trying to decide the option that is best for their organizations. These factors range from the boost to employee morale of providing a company car to liability for death in a vehicle accident after work hours to the impact on working capital to tax implications to more.

Reading this whitepaper can be a good reminder to procurement professionals to question “what else is top management concerned about other than just cost?” So, whether you are directly involved in fleet procurement decisions, might eventually be involved in fleet decisions, or just want to learn some practices from another category that you might be able to apply to the categories you currently manage, I think that this whitepaper is a worthwhile read.

You can download your own copy of the whitepaper from CFO.com (registration required).

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Find More Good Resources For Procurement Leaders?
Check Out Our Web Site's New Whitepaper Section At
http://www.NextLevelPurchasing.com/WPcharles

Tuesday, March 30, 2010

Body Language in Negotiation

The following video gives some general tips on body language in business and personal settings. I've written before about body language in negotiation and I think many of the tips can be applied to procurement situations.

Here are a few things that I gleaned from the video that bear repeating here:
  • When greeting your negotiation counterpart, make the handshake firm and short. Do not use two hands.
  • Accompanying the handshake with an "eyebrow flash," which "establishes an empathetic bond"
  • If you have the chance to sit on the side of your negotiation counterpart, that is better than sitting across the table
  • Making a steeple with your fingers is a "high sign of confidence"

Here's the video if you care to check it out yourself...



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
Next Level Purchasing . com

Monday, March 29, 2010

Procurement & Brand Management: Can It Involve Playing Offense As Well As Defense?

Over on Twitter, Purchasing Magazine's long-time editor extraordinaire Dave Hannon linked me to an article that he had written on Purchasing's social network, Purchasing BIZconnect. The article was entitled "The company you keep: Purchasing’s role in managing the brand."

Even if you've read my related articles/posts such as "Trend Alert: The Supplier Code of Conduct" and "Dell, and then Apple, Recall Supplier's Batteries," I don't think a procurement professional can ever have too many reminders about the importance of supporting your company's brand through your supplier relationships. Therefore, I recommend reading Dave's article.

The one thing that I only partially agree with is Dave's quote that "Your goal here is to be invisible. No (negative) news is good news and means you've done your job in helping to manage the brand." While, in most cases, if a supplier doesn't destroy the brand you can feel relief, I believe that, managed correctly, certain supplier relationships can enhance the brand. Brand management from a procurement perspective doesn't have to be all defense and no offense.

Would you care to share any examples of how using a supplier helped your company's brand instead of simply not hurting it?

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

Friday, March 26, 2010

Like It Or Not, In Procurement You Have To Choose Your Friends Carefully

Here in Pittsburgh, there never seems to be a long respite between public procurement scandals. The latest involves Michael Kenney, the executive director of the Pittsburgh Water & Sewer Authority, who reportedly has close ties to one of the companies with whom the city has a contract.

Here’s the situation…The city has a contract with a company called Utility Line Security (ULS) to offer to city water customers a warranty (read: insurance) on their sewer pipes which, if they collapse, could result in huge repair bills for those customers. The problem lies with the relationship between Kenney and ULS.

According to three articles in the Pittsburgh Post-Gazette (here, here and here), these aspects define the Kenney/ULS relationship:

  • In Kenney’s previous role as operations manager of the Municipal Authority of Westmoreland County, he reported to executives of ULS’ sister company, Resource Development and Management (RDM), who also paid Kenney for consulting work
  • Kenney hired RDM to do consulting work shortly after transitioning to his role in Pittsburgh
  • Around a year after joining the Pittsburgh agency, the city “invited proposals from firms interested in offering line warranties to its customers, who could opt to have the charge added to their bills.” ULS was the only challenger who bid against the incumbent. This concerned City Council, who felt that there should have been “dozens of companies that bid on it,” and suppliers, who claim to have not been aware of the opportunity.
  • After ULS won the Pittsburgh contract, they “went on to employ two of Mr. Kenney's relatives”
  • After implementation of the contract that saw less than 3% of customers opt in, the city changed the process from an opt-in process to one in which the warranty is assigned to all households, but allowing them the opportunity to opt-out. Only 8 – 9% have opted out, increasing ULS’ Pittsburgh customers from 3,000 to 90,000. Though ULS did reduce its price in exchange for such an arrangements, some question whether the entire relationship should have been rebid to reflect this new scope of work. After all, there is no contemporaneous, apples-to-apples benchmark for whether or not the adjusted price is fair.
  • Kenney has had a “long professional and personal relationship with” ULS’ founder

In procurement, you oversee contract awards daily. Is overseeing a contract award to a friend unethical?

In one of the above-linked articles, Barry Kauffman, executive director of Common Cause Pennsylvania, said the litmus test under state ethics law would be whether Kenney’s decision brought financial benefit to Kenney or his immediate family, stating "If you just gave a contract to your friends and don't have any financial remuneration in any way, shape, or form, it's kind of slippery, but it's probably not against the law." Furthermore, the chairman of the water and sewer authority stated that relationships “can be useful” but should be disclosed.

However, City Councilman Doug Shields was quoted as saying "It just looks absolutely terrible, the way this was done, the cozy relationships, the affinity for one another.”

My take: when it comes to purchasing ethics, perception is reality. If you have a relationship with a current or prospective supplier, go above minimum requirements to make the relationship known to management and recuse yourself from the decision.

Or – to be safest - simply avoid having friends who may be suppliers to your organization. That may not seem fair, but such is the way of responsible procurement.

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
Next Level Purchasing . com

Thursday, March 25, 2010

Dealing With "Tribal Knowledge" In Procurement Departments

I've worked in the procurement departments of some pretty large organizations. And a common problem among them was there being too much "tribal knowledge."

Tribal knowledge in business refers to knowledge that is known by certain people in a company that has not been documented or proliferated to everyone who needs it. The existence of tribal knowledge is problematic because the company will depend too heavily on just a few key individuals. This can result in those few people being bothered constantly by their coworkers who know them as the only source of knowledge on a topic or the company being harmed when the “enlightened few” leave the company.

Unfortunately, in my career in procurement departments, I never fully solved the tribal knowledge dilemma. But when the existence of tribal knowledge became apparent here at Next Level Purchasing, it was time to take action.

How have we handled converting tribal knowledge to company-wide knowledge?

Well, first we adopted the collaboration tool Google Wave from, of course, Google. Google Wave allows several people to collaborate on a document remotely, simultaneously, and in real time. It also has a pretty sophisticated audit trail so you know who did what, when, and it allows you to replay the creation of the document.

How do we go about coordinating the population of our Google Wave?

At every other staff meeting, I have a quiz-type challenge for the team. We have questions on small pieces of paper that are placed into a fishbowl. Sometimes these questions are created by me, sometimes I have the employees compose the questions. Each employee draws a question and is challenged to answer it in the meeting.

This process alone enlightens team members about our processes, etc. that they were unaware of. But then we document this knowledge afterwards in Google Wave to make the knowledge-sharing permanent. Each employee takes the questions that he or she drew and writes the answers in an appropriate section within our Wave.

Though we have only been doing this for a couple of months, our Wave has grown to 14 pages. Think about that. That’s 14 pages of knowledge that was isolated in the heads of individuals that is now available to the team!

We are now ready to start using our Wave for finding answers when we need them. Any time an employee has a question – either of their own, a prospective customer, or a student – their first step should be to check this “knowledge base” that we’re building.

Searching is a bit challenging as Google Wave allows you to “tag” certain sections that are indexed as links but, as far as we can tell, does not allow you to search within a Wave. We may end up simply dumping our knowledge into Word, but that’s OK.

The process of building our knowledge base has really helped us turn tribal knowledge into something that any employee now has access to. I can’t help but think that our approach could help any procurement department.

Is tribal knowledge a concern of yours? If so, how do you plan on addressing it?

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

Wednesday, March 24, 2010

Whitepaper Wednesday - Analytics & Supply Chain Risk Management

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. This week, I'll be reviewing a whitepaper entitled "The Intersection of Analytics and Supply Chain Risk Management — Using Intelligence to Drive Early Intervention." This whitepaper is part of the exciting new "Spend Matters Compass" series of research from, of course, Spend Matters.

Cutting right to the chase, the point of this whitepaper is to tell you that one-dimensional approaches to supply chain risk management are not enough. Instead, using multiple sources of data and available software will help you identify and mitigate risk faster and better.

So, what's wrong with some more traditional approaches to supply chain risk management, such as obtaining D&B supplier data with periodic refreshes?

The whitepaper argues that "the speed with which a supplier's financial and operational situation can rapidly deteriorate outpaces the scheduled content updates, leaving the organization with a false sense of assurance that it is actively monitoring its supply base for various risk factors." In contrast, technology-enabled approaches to supply chain risk management can "examine alternative options at the point of query and analysis," "rapidly drill down into an analysis to understand potential root causes of risk elements," and "bridge currently existing information silos / gaps between a variety of internal, supplier and third-party information sources."

What kind of tools are there that can do these things? The whitepaper neatly categorizes the solutions into four categories: spend visibility, supplier information management, supplier performance management, and stand-alone risk management solutions. Each category is defined and explained in the whitepaper and providers of each category of solution are shared. Some of these providers are sponsors of the whitepaper, some aren't.

The whitepaper closes with seven action steps that a procurement department can take when refining its supply chain risk management approach. This whitepaper is not a one-stop shop for everything you need to know to prevent any supply chain risk from coming to fruition - nor do I believe that it was intended to be - but it is quite helpful in terms of educating procurement leaders about the tools that are available in the market. It consolidates the names of providers who you may not have come across with hurried research (is there another kind of research in today's crazy procurement environment?) and can help you set a direction for what you want to see.

You can download your own copy of this whitepaper directly from Spend Matters.

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Find More Good Resources For Procurement Leaders?
Check Out Our Web Site's New Whitepaper Section At
http://www.NextLevelPurchasing.com/WPcharles

Monday, March 22, 2010

The 200th Edition of PurchTips!

I hope that you have enjoyed the article "Measuring Cost Savings For Mid-Year Deals."

While I consider all of our PurchTips articles to be special, this one is a little extra special to me. It is our 200th edition!

When I penned the first edition of PurchTips back in July 0f 2002, I had no idea that it would be a series that would still be going strong eight years later. But here we are!

In order to celebrate this milestone, we are offering you special "one-day-only pricing" on two of our purchasing training offerings on March 23, 2010.

Deal #1 gives you enrollment in our mini-course "Negotiation No-No's" for just 200 pennies (that's $2 US)! Regular price is $14.99. The Coupon Code for this deal is NNN200.

Deal #2 gives you enrollment in the SPSM Certification & Enhanced Results Program for just $1,549 (US) - a $200 discount! The Coupon Code for this deal is Enhanced200.

To take advantage of these offers, enroll online with your credit card at http://tinyurl.com/ygo25tu, click the "Add" button for the mini-course or program, apply the Coupon Code, and check out.

Thank you for making PurchTips such a successful and enduring series!

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
Next Level Purchasing . com

Friday, March 19, 2010

Why Financial News Matters To Procurement Professionals

Each month, the US government reports on composite price changes. In case you missed it earlier this week, the US government reported that wholesale prices - as measured by the Producers Price Index - fell 0.6% in February (reported by Yahoo! Finance).

Part of a procurement professional's job is to monitor his/her assigned markets to determine current and future price levels. This is done for a variety of reasons: to benchmark current prices; to determine the best time to enter into long-term, fixed price contracts; and to forecast pricing into the future so that the organization can make appropriate financial decisions.

So, what can you make of this week’s report?

Well, before I give you my take, let me walk you through how I’ve personally analyzed this data to arrive at my conclusions. Last March, the PPI bottomed out at 168.1. It is now at 180.9 – meaning that, in aggregate, commodity prices were nearly 8% higher in February 2010 than they were in March 2009.

Even if you heeded the advice of Supply Excellence’s Pat Furey in September 2009, your prices would be about 4% lower than they would be if you were just paying market price. Bravo, Pat, for being dead-on in your analysis!

So, what is going to happen in the future?

Well, there is no “crystal ball” or 100% accurate way of predicting future inflation. But some quotes in the Yahoo! Finance article give some expert insight:

  • "Underlying price pressures in the United States remain very subdued"
  • “Economists said they expect inflation pressures to ease even more in coming months”
  • “Ian Shepherdson, chief U.S. economist at High Frequency Economics, said he expected the 12-month rate for core wholesale prices to dip from the current 1 percent to below zero in coming months”
  • “Fed policymakers said they believed that ‘inflation is likely to be subdued for some time’”

To sum this up: if you didn’t lock in low prices in the last 12 months, you probably missed the boat on achieving some significant cost avoidance. However, with inflation to remain subdued or to reverse, now isn’t exactly the best time to lock in prices, either – you may be contracting at a price peak, which is the opposite of what you want to do: contract at a price trough. So, taking a watch-and-see approach is probably best at this point, being prepared to lock in pricing if you see signs of another bout of inflation or waiting for another price trough to become available.

Do you now understand a little bit more about why financial news matters to procurement professionals?

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
Next Level Purchasing . com

Thursday, March 18, 2010

March 2010's Dedicated Purchasing Student of the Month Is...

After a brief hiatus, Next Level Purchasing's "Dedicated Purchasing Student of the Month" program is back. And I am delighted to recognize this month's winner: Kimberly Zadnik from Northfield, Ohio, USA.

In February 2010, Kimberly successfully completed the following online purchasing courses:

Microsoft Project For Purchasing Professionals
14 Purchasing Best Practices
Savings Strategy Development

Please join me in congratulating Kimberly!

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
Next Level Purchasing . com

Wednesday, March 17, 2010

Whitepaper Wednesday - How To Ensure eProcurement Adoption

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. Today, I'll be reviewing a whitepaper entitled "Seven User Adoption Strategies That Will Guarantee e-Procurement Cost Savings" from Coupa.

Though this whitepaper is 10 pages long, it was a superfast read. Despite that, I think that you will find some powerful tips in it.

None of the seven strategies is more than one page in length, so I feel that by listing them here, I will be giving the entire content of the whitepaper away. Instead of doing that, I'll point out some of my favorite excerpts.

In the fifth strategy - "Simplify Processes and Controls" - Coupa points out the fact that end users often subconsciously weigh their alternatives when it comes to complying with procurement policy. The solution, then, is to understand that "your new process should make procurement procedures 'easier to use than avoid.'" This advice is very similar to the advice I shared in my post entitled "Procurement Compliance Problems? Try This Time-Tested Tool."

This strategy, like several that precede it, is written to the procurement department leader and can be accomplished by Procurement. In contrast, the seventh strategy - "Reward Good Behavior" - is targeted more towards senior management. Nonetheless, it offers a valuable recommendation: "For purchasing administrators or central finance, structure their bonus or performance review around their commitment to...e-Procurement." It also suggests some out-of-the-box ideas such as a “spend control achievement party” for compliant departments and a personal bonus to employees based on savings.

From these excerpts, you can tell it is a pretty thought-provoking whitepaper. You can download your own copy from Coupa's Web site (registration required).

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Find More Good Resources For Procurement Leaders?
Check Out Our Web Site's New Whitepaper Section At
http://www.NextLevelPurchasing.com/WPcharles

Tuesday, March 16, 2010

My Blog Program Ate My Post

Sorry, folks. No blog today.

I had a great one typed up on why strategic procurement initiatives stall. I hit "Publish Post" and it failed.

Now my account usually saves as I go. I thought it was doing so.

But it wasn't. And over half of my post is gone.

I've told myself before to type my long posts in Word. And I've been reminded why.

I'll write it again. Not tomorrow, of course, because it's Whitepaper Wednesday.

But sometime in the next week or so (I have a few other things on the blog calendar to get to on certain days).

Stay tuned. It will be worth it, I promise!

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
Next Level Purchasing . com

Monday, March 15, 2010

Is Supply Excellence Going To Call It A Day?

If you've been watching the blogs in the procurement space, you've likely noticed that the once-religious daily posting that had been happening at Supply Excellence had started to slow down noticeably. In fact, last month, Jason Busch at Spend Matters went as far as pondering "And what of Supply Excellence? Is it time to bury Ariba's final ode to supply management as they double-down in other marketing and category-rich content areas?"

While I personally hoped that Supply Excellence was just taking one of the common "pauses" that bloggers take - it is difficult to come up with new material daily and, with any self-respect, a good blogger would rather post nothing rather than something useless - it appears now that Ariba is seriously considering closing the curtain on Supply Excellence. In a post launched earlier this month, Ariba is seeking feedback on whether or not Supply Excellence should continue to exist in the shadow of their new community that I reported on last year: Ariba Exchange.

Ariba's Online Community Manager, Justin Fogarty, writes: "It’s important to ask if a stand alone blog is still the best way to harness the collective knowledge of a group...I can truly say that the goals [of Ariba Exchange] - facilitating communication and collaboration - overlap with the original objectives of Supply Excellence. However, from an engagement standpoint, we believe the tools, scale and egalitarian playing field of Ariba Exchange better leverages the collective expertise of our customers and subject matter experts."

In closing, Justin asks "Is a blog still an effective platform for addressing spend management questions?" Clearly, Ariba feels that a blog isn't giving them the bang for the buck that they need to continue Supply Excellence and they are probably seeking feedback just in case someone has something to say that makes them realize a mistake before it is made.

So if you feel strongly one way or the other about the continuation of Supply Excellence, I encourage you to read the "should we bother?" post and share your feedback.

My prediction? Ariba has made up its mind and Supply Excellence will never be a daily blog again and will be pretty much abandoned save for perhaps teasers for their lead generation content.

There are only so many resources an organization can spend on connecting with current and prospective clients and Ariba Exchange is so impressive, I can't see Ariba not putting the pedal-to-the-metal to make it everything it has the potential to be.

I may be right. I may be wrong. Time will tell.

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
Next Level Purchasing . com

Friday, March 12, 2010

ISM Reports Shrinking By Nearly A Third In The Past Two Years

Earlier this month, the Institute for Supply Management released its annual report, which detailed its financial performance over its most recently-concluded fiscal year. The report revealed that:
  • "ISM realized gross revenues of $12,399,099." This represents a 32% decline from two years ago.
  • "ISM’s personnel budget was reduced by 30 percent over the past year" and ISM sustained a "nearly 20 percent reduction in headquarters staff"
  • ISM's expenses far exceeded its revenues "resulting in a negative net of $2,122,489 for the fiscal year." This is the second year in a row that ISM had sustained a huge loss, as it had a negative net of $2,252,918 in its previous fiscal year.
  • "As a result of the transition to a recertification-only program, the fiscal year proved to be very strong for Certified Purchasing Manager (C.P.M.) certifications." With the C.P.M. exam no longer being available, this portion of ISM's revenue will obviously not be available for future years. However, the annual report did not provide an estimate as to the degree of additional net shrinkage, if any, the institute would experience as a result in the immediate future.

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
Next Level Purchasing . com

Wednesday, March 10, 2010

Whitepaper Wednesday - The Importance of Supplier Viability

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. Today, I'll be reviewing a whitepaper entitled "Preventing Supply Disruption:
Supplier Viability and the Threat to Your Business" from Crowe Horwath and Industry Week.

For reasons that I cannot yet reveal, I was particularly excited to review this whitepaper. I thought that perhaps there would be magical things that could be learned about how a procurement professional can assess supplier viability and mitigate the risks of doing business with a financially distressed supplier.

Do you think that I found the "magic?"

I'll save that conclusion for the end. First, I'll go into the review.

The whitepaper started out by really hitting some key points about the importance of supplier viability. It did a nice job of dichotomizing traditional supplier management strategies against supplier viability assessments, characterizing the former as activities done after-the-fact and the latter as "forward-looking." I agree.

The whitepaper also touched on the personal aspects of managing a supply base. That is rarely done and was a nice touch. Specifically, it pointed out that top management can be unforgiving when an organization faces a major problem that arose from your realm of responsibility and that the "inevitable question is, 'Why didn’t you do something about it?'...Being caught in a situation where the organization is surprised can be career damaging to the one overseeing the
supply base."

Again, very welcome points. But, after getting through about six pages that pounded and pounded and pounded the fact that supplier viability is a big problem, I began to get suspicious that this was going to be more of a salesy whitepaper than an educational one.

Was I right?

Well, the seventh page gave me a bit of hope in the way that it described the characteristics of any solution that will be successful at mitigating the risk of supplier solvency problems. Those characteristics indicated that such a solution:
  • "Must rely on the most current data in order to assess potential supplier risk"
  • "Must assure participating suppliers of the confidentiality of their raw data, while still enabling their customers to accurately assess their financial, strategic, and operational position"
  • "Must employ a highly visible and intuitive interface that enables customers to recognize supplier risk immediately, while also suggesting possible mitigation strategies"
  • "Must enable sophisticated and in-depth analysis of supplier financial and operational health, drawing on proven and experienced analysts with significant relevant experience in the applicable industry"
  • "Must provide early and accurate identification of supplier vulnerability, and must also offer tools that enable identification and tracking of effective solutions to address the company’s and their suppliers’ problems"

While the first two bulletpoints were encouraging and applicable to a procurement department that wanted to handle supplier financial analysis itself, the remaining bullets made it clear that the sales pitch wasn't far behind. And it wasn't.

The last half of the whitepaper talked about the methodology that Crowe Horwath uses to assess supplier financial risk for its clients. While salesy stuff in whitepapers is usually a turnoff for me, I was actually surprised and impressed that Crowe Horwath gave away so much detail about how it conducts its services. The "salesy" segments as I've called them actually provide some good insight into how to assess and mitigate supplier financial risk.

So, I wouldn't recommend letting the salesy stuff dissuade you from downloading the whitepaper. There was no "magic" - you won't even learn how to calculate a supplier's current ratio or anything like that - but you may get some ideas regarding how to structure a supplier financial assessment process. You can download the whitepaper from Industry Week's Web site (registration required).

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Find More Good Resources For Procurement Leaders?
Check Out Our Web Site's New Whitepaper Section At
http://www.NextLevelPurchasing.com/WPcharles

Monday, March 08, 2010

For Suppliers, Sourcing Problems Are Like Dating Problems

I hope that you have enjoyed the article "Sourcing Problems In A Slow Economy."

As I thought about the reasons that suppliers are refusing to play the strategic sourcing game, I couldn't help but think that, to suppliers, sourcing problems are like dating problems.




What do I mean?

Well, imagine this...

You are invited on a date with an attractive individual one weekend. Your date suggests some activities that are rather expensive but, hey, this is really someone you'd like to know better so you agree to pay.

You enjoy a promising conversation and you think you put on your best behavior, giving you hope that another date will be likely. In fact, the date went better than any you've ever been on. You are excited that you and your date agree to speak again.

The next weekend, you call your date. No answer, so you leave a message.

Two days later, still no response. So you send an email.

You wait a little while without hearing back. You try texting a request for another date.

Maybe then, you get a "Well, I have a few things going on right now. Maybe in a couple weeks."

So, you call back in two weeks. No response again.

The cycle continues for months - after all, your date was attractive! - and then, finally, you get an email from your date. It says something like "Thank you for your time. But I'm dating someone else now."

At that point, you just want to know what went wrong. You felt you really put your best foot forward. And you spent a lot of money on the date, so you feel that you deserve some type of feedback.

So, you ask your date for a couple minutes just to learn why there was no "love connection." Your date says "someone else was a better match for my needs" but refuses to say anything specific.

Was it your style of dress?

Did you say something offensive?

Did you have broccoli in your teeth?

You'll never know!

And just like many single people get tired of these dating games, suppliers get tired of these sourcing games. Especially when they've invested hundreds of man-hours to complete a 50-page proposal to comply with the requirements of the RFP (half of which didn't apply to the situation and were never read by the buying organization anyway).

If someone wants to attract self-respecting dates, they have to exercise a little bit of dating etiquette. And if an organization wants to attract self-respecting suppliers, they too have to exercise a little bit of sourcing etiquette.

Is it time for you to do a little self-evaluation of your sourcing etiquette?

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
Next Level Purchasing . com

Friday, March 05, 2010

Four Words To Say That Might Avoid A Supplier Relationship Disaster

Businesses mess up from time to time. Even the good ones. Especially your suppliers.

Supplier screw-ups can really be frustrating for a purchasing professional. And when something goes wrong, you may come close to losing your temper and doing something you'd later regret.



I was reminded of this when reading today's American Entrepreneur blog entry entitled "Count To Ten." The author, Ron Morris, tells a humorous story about how, in a fit of frustration, he once mailed a nasty letter to a prospective client only to have the recipient call on the day that the letter was due to arrive and tell Mr. Morris that the prospective client was going to accept Mr. Morris' sales proposal.

The lesson of the blog was to keep your emotions in check by utilizing resources of time and counsel. Morris writes, "Time will help you to purge your emotions. A good partner or confidante can also do the same thing, and in fact can do it in 'real time' by taking you by the elbow and whispering in your ear 'You’re letting your heart make a brain-type decision here.'"

Of course, in a purchasing-intensive career like my own, I've had to restrain myself from berating suppliers more than once (or a thousand times). A technique I always like to do is to call the supplier, explain the problem, and ask a four-word question.

What are those four words?

How did this happen?

Many times when asking this question, I've found that the problem was caused by my own company, a reasonable misunderstanding, or even, gulp, me. In those cases, if I would have acted on emotion, I would have embarrassed myself for blaming the supplier for something that was not the supplier's fault. In the worst case scenario, making that mistake could have spelled the end of a profitable supplier relationship.

So, I encourage you to use those four words to help you avoid a supplier relationship disaster.

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
Next Level Purchasing . com

Thursday, March 04, 2010

How Could There Possibly Be A Parallel Between Procurement & Celebrity Fashion?

There are a few interesting differences between how a small-to-midsize business handles procurement and how a large business handles procurement. One of them is that large business procurement middle managers tend to be a little more paranoid about selecting small, less expensive suppliers.

There's a lot of political pressure on a procurement middle manager in a large company. If they take a risk on a small supplier and it doesn't work out, many of that manager's peers will think "How could s/he have been dumb enough to go with that small, unknown supplier when we could have gone with the big boys?"

Unfortunately, this mindset prevents big companies from achieving all of the cost savings that are available to them. It reminds me of an old expression that produces that nails-on-the-chalkboard reaction from me: "Nobody ever was fired for buying IBM" or something like that.

Celebrity fashion has a parallel, believe it or not. Celebrities feel so much pressure to buy expensive clothes due to the fear of embarrasment that would overcome them if they were spotted in clothes that the rest of us wear (gasp!).

That being said, I was pleasantly surprised to come across the below video showing celebrities wearing some threads that are available in the malls that "the rest of us" shop at.

If celebrities can get over their fear of embarrassment by opening themselves up to a wider variety of sources (yet still making smart decisions), don't ya think that procurement middle managers can do the same?




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
Next Level Purchasing . com

Wednesday, March 03, 2010

Whitepaper Wednesday - Spend Analysis vs. ERP

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. This week, I'll be reviewing a whitepaper entitled "Spend Analysis –
It’s what you don’t know that costs you (Part I)" from Iasta and Purchasing Magazine.

Considering that this whitepaper is 23 pages long and it is a "Part I" of an undeclared number of parts, Iasta appears to be trying to teach everything there is to know about spend analysis. Because they sell spend analysis software, that's obviously a good thing for Iasta. But it's also a good thing for you because, judging by this whitepaper, Iasta is providing some valuable, easy-to-read material that is focused on true purchasing education and not on pimping their software.

While this whitepaper covers a variety of topics, I found particular value in the sections contrasting doing spend analysis with a best-of-breed spend analysis system compared with using an ERP system. The whitepaper correctly points out that, because of the way that data is entered, ERP systems are rife with incomplete data, duplicated vendors, poorly categorized purchases, and more problems that, without the data cleansing capabilities of a true spend analysis system, significantly impair a purchasing department's ability to access the information that could drive cost savings decisions.

One of my favorite quotes from this section of the whitepaper is: "A good ERP system does allow those requisitioning products to assign category codes but in many cases the requisitioner is not familiar with the coding structure, especially from a Spend Analysis perspective. Very often people do not take time to search for the correct code because they do not understand the importance. As a result the data is incorrectly tagged with the infamous '9999 – Miscellaneous' category."

I definitely know what they are talking about here. In this type of situation, it would be easy for a purchasing department to understate its volume when compiling its RFP and, thus, fall short of comprehensively leveraging its spend.

Further illustrating Iasta's grasp of real-world problems with relying solely on ERP systems for sourcing information is this paragraph:

"When a payment is recorded in the ERP system, it contains the vendor name, the organizational unit responsible and the general ledger (GL) code against which the spending is booked. The GL codes are designed to support the accounting function, not the procurement function. These codes are heavily regulated by the authorities. For example, when a bank buys a printer from HP, the procurement group wants to link it with all other printers bought by the bank. However, the accounting for this printer will vary depending on how it is used, and on specific accounting rules that may apply. Two hundred printers bought at once would generally be considered capital goods in one set of accounts, but the same printer, bought as a single item, might be expensed. This means that the spending for a single commodity can be scattered across the balance sheet."

The whitepaper goes on to discuss other spend analysis challenges from data in the ERP system being unchangeable after accounting periods have ended to political battles between purchasing and IT departments. Again, all very real-world stuff.

So, as you may imagine, I recommend downloading the whitepaper if you are thinking that the data you can get out of your ERP system is inadequate for what you want to accomplish. You can get your own copy of this whitepaper from Purchasing Magazine's Web site (registration required).

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Find More Good Resources For Procurement Leaders?
Check Out Our Web Site's New Whitepaper Section At
http://www.NextLevelPurchasing.com/WPcharles

Tuesday, March 02, 2010

The Questions To Ask Yourself When Buying Procurement Services & Technology

When buying procurement services and technology (e.g., sourcing software, consulting services, etc.), it is all too easy to get sucked into the "customization trap." The customization trap is what happens when you think that there is no other organization in the world that remotely resembles yours and that you need a software built or a service performed in a way that deviates from the way that the vendor builds the software or performs the service for every single one of its other customers.

The customization trap often leads to processes that take too long to implement or cost too much. How can you avoid this?

I like to defer to a few questions:
  • "What is the worst consequence that could happen if I bought the standard version of the service or technology?"
  • "How much would that consequence cost my organization?"
  • "Is the cost of the customization greater than the cost of the consequence?"
  • "What really is the goal here and how much more does a customization contribute to the achievement of that goal?"
  • "If customization wasn't possible, what would happen?"

Objectively, many of the customizations that are insisted on really aren't necessary. So, if you are tempted to customize the procurement services and technologies you're buying, I encourage you to really scrutinize whether they are must-haves or just nice-to-haves.

Because they do come at a cost. A cost in money and a cost in time.

Are they really worth it? Maybe.

But use today's questions to verify that they are.

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
Next Level Purchasing . com

Monday, March 01, 2010

You'll Never Guess Who Has A Sophisticated Supply Chain

I'm a sucker for provocative headlines. So when I saw the headline "Drug gangs taking over US public lands" on Comcast's Web site today, I just had to check out the article.

While I expected to be shocked with the details of the story, I was a bit surprised that the story discussed the sophistication of the marijuana supply chain. To illustrate this point, here are some excerpts with associated supply chain principles in parentheses:
  • "Mexican drug gangs are quietly commandeering U.S. public land to grow millions of marijuana plants and using smuggled immigrants to cultivate them...Growing marijuana in the U.S. saves traffickers the risk and expense of smuggling their product across the border and allows gangs to produce their crops closer to local markets." (Consider logistics risks when designing or redesigning your supply chain)
  • "Distribution also becomes less risky. Once the marijuana is harvested and dried on the hidden farms, drug gangs can drive it to major cities, where it is distributed to street dealers and sold along with pot that was grown in Mexico." (There are usually multiple modes of transportation available - choose the best one)
  • "When the harvest is complete, investigators say, pot farm workers haul the product in garbage bags to dropoff points that are usually the same places where they get resupplied with food and fuel." (Identify synergies in inbound and outbound logistics)
  • "Vast amounts of pot are still smuggled into the U.S. from Mexico. Federal officials report nearly daily hauls of several hundred to several thousand pounds seized along the border. But drug agents say the boom in domestic growing is a sign of diversification by traffickers." (Geographically diversify your sources of supply to mitigate risks)

You gotta wonder if these Mexican drug gangs have a Chief Supply Chain Officer. Because drugs continue to be a big problem in the USA, he or she seems to be doing a good job for his or her employer. Everyone - neighborhood residents, drug users, and even the press - seems to know where drugs are being bought and sold except law enforcement.

That's baffling.

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
Next Level Purchasing . com

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