Friday, May 28, 2010

Evaluating Proposals For Compliance Doesn't Have To Be Such A Pain In The A-Double-Dollar-Signs!

I hope that you have enjoyed the article "A 20-Point Proposal Evaluation Checklist."


Thanks to a wonderfully positive reaction to the last PurchTips article, "A 21-Point Negotiation Checklist," I thought that I'd do another checklist. And the purpose of a checklist is to simplify the process of going through a large number of steps. There's no shame in using a checklist - pilots use them before every flight. I hope that both checklists help to make your job easier.


There were five items on the proposal evaluation checklist that I wanted to explain further. Here are two, I'll discuss the rest beginning next week...

  • Did the supplier provide financial statements? The RFP is the time to ask for supplier financial statements. Privately-held suppliers are usually very reluctant to share these, so when they are competing for the business - as opposed to already having, or having assurance of, your business - is the time when you have the leverage necessary to receive them.
  • Did the supplier provide a cost breakdown? Suppliers are also reluctant to provide cost breakdowns. For the same reason that the RFP is the right time to request financial statements, the RFP is the right time to request a cost breakdown.

Stay tuned for a breakdown of the other three checklist items.

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, May 27, 2010

Go Right In: The Procurement BPO Dancefloor Is Getting More Crowded

Earlier this week, international package shipping giant DHL announced that it was going to begin offering outsourced procurement services. This is a bit of a surprise given that DHL's core competency is driving trucks and flying planes, but it is as equally intriguing.

Does it actually make sense that a company involved in moving materials should also be involved in ordering, routing, and perhaps even negotiating for those same types of materials?

Spend Matters' Jason Busch shared a thoughtful perspective recently by blogging that shippers like UPS and FedEx "are one step closer to the movement and management of direct materials than the great majority of the procurement BPOs," implying that this type of provider entering the procurement BPO market was indeed very logical. Jason cautions us "don't think for a minute that [DHL will] be the last" of the big shippers to enter this market. I don't doubt that Jason's crystal ball may indeed be accurate. UPS has been offering procurement consulting services through UPS Supply Chain Solutions for a few years now, though it seemed to abandon the building of what was becoming an impressive whitepaper library.

What tempered my surprise a bit was that Xerox entered the procurement outsourcing market in 2008. Though I confess to not knowing all of Xerox's capabilities, my perspective is that Xerox is further from a supply chain core competency than DHL. After all, according to this article on cfo.com, Xerox said that it got into the business simply because one of their clients "asked us to do for them what we'd done to them."

Who's going to be the next one crashing the procurement BPO party? Right now, it seems like there is no velvet rope and 300-pound bouncer keeping anyone 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
Next Level Purchasing . com

Wednesday, May 26, 2010

Whitepaper Wednesday - Vendor Capability Development

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. This week, I'll be reviewing a whitepaper entitled "Vendor Capability Assessment & Development" from the Corporate Executive Board and Toolbox For Finance.

This whitepaper revolves around a case study of a manufacturer - Cummins - which solved a problem of failing to select the right vendors for certain projects. This problem had three symptoms: sourcing employees had limited visibility into vendor competencies, vendors often overstated their competencies, and sourcing employees struggled to differentiate between similar vendors.

While most companies identify a need and then find vendors capable of fulfilling that need, Cummins was finding that their needs exceeded the vendor capabilities available in the marketplace. The first step in addressing this was to annually determine vendor capabilities needed when budgeting for certain projects was done. Cummins would then share these capability needs with its supply base, who could develop the necessary competencies before they were actually needed.

Collecting data from vendors and internal resources, Cummins would then create a bubble chart for each vendor to illustrate their degree of competency for various capabilities. These bubble charts serve as a building block for a plan. Cummins holds annual meetings to set goals with the vendors and then holds quarterly meetings to monitor progrss.

The whitepaper features some interesting quotes from Cummins executives that laud the value of this type of collaboration. Here's one that I found to be evocative: "We don’t track vendor competencies so that we can beat our vendors up when they fall behind. We track vendor competencies so that we can develop joint goals and strategies for future partnerships. We show our vendor where we want to go in coming years and what they have to do to be our number-one provider."

What results has this approach delivered to Cummins? The whitepaper claims a "10% year-over-year reduction in application defects" though a graph shows this just from 2005 to 2006. It is not clear if the quality impact is a one-time hit or one that produces continuous improvements.

The whitepaper concludes with a decent - though subjective - supplier scorecard example. So, whether you want to study how to implement a vendor capability development program or just see some cool tools used by a real company, this whitepaper is worth downloading. You can get your copy from the Toolbox For Finance website (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, May 25, 2010

When Job Hunting, It’s The Little Things That Kill You, Part IV

It's time for another installment in this series of little oversights that get your cover letter email sent directly to the trash folder. By the way, though some of these mistakes seem obvious, I have seen all of them as I continue to recruit for our open Director of Education position. That means that there is a true need for this type of advice.

Today's "little thing" is choosing which email account from which to send your cover letter. Think that using your "highly respected" employer's email address will somehow give you credibility?

Think again!

When employers receive cover letters and resumes from other employer's email addresses - in contrast to a personal account such as Yahoo or Gmail - the employer will have many questions about you, none of them good:
  • Will this person use my company's resources for his/her personal gain?
  • Does this person care about how s/he is perceived?
  • Is this person even smart enough to know how to do something simple like set up a personal email account?
  • Does this person think nothing of "sneaking around" on company time?
  • How loyal of an employee would this person be?

Pretty simple.

In case you missed earlier parts of this series, you can find them here, here, and here.

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

Monday, May 24, 2010

The Pros & Cons of Supplier Transparency

Earlier this month, I posted a blurb entitled "Should You Share Your Selection Criteria & Weightings With Suppliers?" This post generated some interesting debate both here and on LinkedIn.

One common bit of feedback came from government buyers. These are people who are very constrained by the laws that apply to their work. A few asked, incredulously, "Why wouldn't you disclose your selection criteria and weightings?"

Well, I think that it is important to acknowledge that there is a big difference in public sector procurement vs. private sector procurement. This is a difference that I don't think that all public sector buyers understand.

Simplified, public sector procurement is all about being fair to the taxpayers (of whom suppliers are a subset) whereas private sector procurement is all about doing what is in the best interests of the shareholders. A private sector's procurement department disclosing complete information to suppliers may not be the best idea for a number of reasons, not all of which apply in all situations. Here are just a few:

  1. Because you paint yourself into a corner where you cannot change, even if you learn something through the solicitation process which even the most experienced procurement professionals often do.
  2. Because complete disclosure may compromise the confidentiality of competing suppliers' information.
  3. Because it gives the losing suppliers ammunition to argue your decision in a debriefing when, let's face it, it's not a private sector purchasing agent's #1 priority to make losing suppliers happy.
  4. Because suppliers can lie in their bids when they know how important an area where they are weak is to you.
  5. Because suppliers may realize that they don't have to be as competitive when they know that certain criteria (e.g., price) has a relatively low weighting.
  6. Because it separates the truly knowledgeable suppliers from the less-knowledgeable ones - the truly knowledgeable ones will score high because they know what is important and don't have to have criteria spelled out for them to deliver an attractive proposal.

So, what are the benefits of being totally transparent? Here are a few:

  1. If you are operating fairly and impartially, the supply community - and perhaps internal stakeholders - feels that there should be nothing to hide. Any withholding of information is perceived as trying to "cover up" something that wasn't completely ethical.
  2. It helps suppliers focus on what your needs are instead of guessing.
  3. It fosters open communication with the supply base, which will need to continue throughout the term of the relationship when collaboration and continuous improvement are expected to produce additional financial benefit.
  4. To comply with laws that apply to certain purchases.

When you have the choice (i.e., when you are a private sector buyer), I personally do not advocate total secrecy or total disclosure for every situation. It is a judgment call on the part of the head of procurement to decide which approach to adopt, either on a case-by-case basis or as a standard operating procedure. Just as you would decide whether a reverse auction or a sealed bid is an appropriate form of bidding for a single purchase.

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, May 21, 2010

A Crisis In The Beer Supply Chain

I came across a fascinating article on cfo.com entitled "How To Get Beer Across The Border." This article features an interview with Dan Sullivan, the CFO/COO of Heineken USA. The interview probes a recent "crisis" in Heineken's beer supply chain.

This crisis came about due to the ever increasing popularity of the Mexican Cinco de Mayo holiday in the USA. More and more Americans are using that holiday as an excuse to partake in alcohol consumption, which apparently poses challenges for beer companies.

Heineken recently acquired the maker of the Mexican beer, Dos Equis, which has grown in popularity thanks to the "Most Interesting Man in the World" commercials. Heineken knew that Dos Equis would be in higher than usual demand on May 5, but simply getting more of that beer from Mexico to the USA in time apparently wasn't as easy as it sounded.

Explaining the challenge further, Sullivan said "In the month of April, as we're getting ready for Cinco de Mayo in the United States, it's produce season in Mexico. When truck drivers picking up beer in Mexico get to the border, they realize they can make twice as much if they take the produce because it goes bad quickly. So they'll drop the beer and pick up the produce. The beer just sits there until we can get someone else in to pick it up. We were experiencing as much as 70% order drops, meaning they get to the border and drop it."

Though the decision to outsource in an industry where supplier allegience is so fleeting is worth questioning, Sullivan defended the practice by noting the high cost of using dedicated drivers despite acknowledging the supply risk of depending on "human nature, that individual truck driver." The three-prong mitigation to this supply risk involved matching produce trucking costs and getting the Heineken team to understand that "the most important thing right now for the next six days is [getting an adequate supply of beer imported], and we'll figure out the collateral damage later. This isn't the time to pinch pennies." These words and actions are clearly an indication that there was a strategic decision that continuity of supply was more important than cost (read that again, new buyers).

The article goes on to reveal the complexity of the beer supply chain as well as Heinken's forecasting techniques. This was definitely one of the most fascinating articles I've read in a while.

Now, if you'll excuse me, I'm feeling a little thirsty after all this typing on a Friday...

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, May 19, 2010

Whitepaper Wednesday - Advanced Spend Visibility

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. This week, I’ll be reviewing a whitepaper entitled “Beyond the Basics: Using Spend Visibility to Drive More Than Category Sourcing Strategies and Spend Reporting” from Spend Matters.

The #1 question on my mind after reading this title was “OK – what else will we be doing with spend visibility technology in the future?”

If you’re a get-to-the-point person like me, you’re probably wondering the same thing. So let me just give you the quick answer to that question instead of digging into the details, which the whitepaper does quite eloquently:

  • Using mashups to draw a virtually unlimited number of conclusions ranging from how a supplier’s quality compares across multiple facilities to how actual pricing changes compare with market movements.
  • Monitoring internal contract compliance in real-time.
  • Identifying supply risk sooner thanks to integration with external systems that track the same suppliers that you do.

The whitepaper gives many details on these three functions - and a fourth that, despite the title of the whitepaper, deals with developing a sourcing strategy - so I won’t repeat them here.

One of the parts of the whitepaper I found particularly interesting was its description of the changes in the technology on which spend visibility solutions are built. A major one is a shift from using data cleansing as a technology that transforms and combines data from separate systems into a new system to a technology that “can search hundreds (or more) disparate sources while normalizing, classifying and cleansing information at the point of query.” Through implementation of this idea, the new approach will “allow users to integrate new information sources in an often simple and rapid manner (vs. requiring underlying surgery, as it would in a database or data warehousing-centric approach).”

Sounds interesting, although I still think that we'll see users continuing to be "distrustful of 'black box' approaches to gathering and analyzing spend data."

This whitepaper is an 11-pager. So I am only covering a portion of it here. If you want to dig deeper into the details for the topics I’ve mentioned here – or some topics that I haven’t, such as the whitepaper's eight thoughtful recommendations – you can download your own copy of the whitepaper from Spend Matters (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, May 17, 2010

A Negotiation Checklist

I hope that you have enjoyed the article "A 21-Point Negotiation Checklist."

Thanks to the input of an SPSM, we realized how there was a true void for such a tool. In fact, when we googled "negotiation checklist," we found some real poor quality checklists on the first page of search results such as one dedicated to mapping out all of the details of an S&M scene, a one-paragraph abstract for an article that costs $32 to access for one day, and a checklist that - believe it or not - contained the phrase "Rudeness and sarcasm don't work even if you're British."

Sheesh.

I'm glad we found a way to fill this void!

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, May 14, 2010

Should You Share Your Selection Criteria & Weightings With Suppliers?

Last week, I had the pleasure of presenting a three-hour workshop on purchasing best practices at Corporate United's SYNERGY conference. One of the best practices that I dissected was the use of commodity teams.

A very common method that commodity teams use for supplier selection is the use of weighted average supplier scoring. This is where you determine the various criteria used to identify the best suppliers, rank the criteria in order of importance, and assign a numeric weight to each criterion that is proportional to its importance in deciding on the right supplier.

Several of the attendees had successfully used this approach. However, an interesting debate broke out.

Some of the attendees said that they regularly disclose to the suppliers the criteria and weightings that are being used. Others said that are more careful with sharing that information.

The proponents of sharing said that doing so helps the suppliers really focus on what is important and try hard to impress the decision-making team on those most important aspects of the potential relationship. The opponents of sharing said that it has the exact opposite effect - suppliers will look for ways to not concede as much in areas that are not as highly weighted.

Personally, I have always shared the criteria but not the weightings because I found that losing suppliers tend to try to pick apart the mathematical computations when you give them a courtesy of a debriefing, as opposed to using the feedback to constructively identify ways that they can improve their business. Plus, I do feel that if price accounts for 30% or less of the total score, suppliers will not be as aggressive in their pricing and, let's face it, cost savings is often the most important key performance indicator on which a procurement department is measured.

Having said that, I definitely feel that the concept of sharing or not sharing criteria and weightings is a matter of personal preference rather than something that should be standardized for all organizations.

What's your preference?

Click on the comments link below to share your thoughts on this matter.

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, May 13, 2010

Should Procurement Be Subdivided By Skillset?

Over the past few years, I've observed that companies are recognizing the need for more advanced procurement activities. That's great, obviously. But what's interesting is the difference in how various companies assign these responsibilities to their employees.

Some companies require their procurement employees to raise their competency levels to handle these new activities. Other companies have subdivisions of their procurement departments dedicated to activities like market assessments, supplier financial analysis, training selection, and even the cutting of purchase orders. In these subdivisions, the employees do nothing but these specialized tasks while the procurement agents are not required to have the skills to perform those tasks.

Which arrangement does your company use? What do you see as the benefits of doing it that way? Whose job is safer: the specialist or the generalist? Why?

Click the comment link below and let's discuss!

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, May 12, 2010

Whitepaper Wednesday - A Negotiation Process

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. Today, I'll be reviewing a whitepaper entitled "Toward a Process View of Negotiations" from the Calyptus Group.

The whitepaper begins with a litany of concepts introduced from negotiation books published over the past 30 years. It isn't exactly clear what the point is of this recitation, but the whitepaper does say "The writings over the last 25 years...expound on the need for process, techniques, planning, and for decision-making. Can a new process be created based on the writings and learning about negotiations? This new process will be uncovered in the balance of this paper."

While this introduction may whet one's appetite for the consummate approach to negotiation, the rest of the whitepaper simply applies a label to certain related activities that occur during most every negotiation. That's not a bad thing, but the process outlined is not exactly an elusive Holy Grail that was missing from all of the great negotiation books that have been published in the last three decades.

So what is this process?

Six steps:
  1. Plan
  2. Share
  3. Collaborate
  4. Problem-Solve
  5. Decision Making
  6. Record

There's not a whole lot of meat between the steps to give one an idea of how to conduct each sub-process. If I have to find one worthwhile section of this whitepaper to compliment, I'd have to say that it is in the Share section. The author lists a few specific things to discuss in early negotiations to give the negotiators an understanding of the other party and to set the stage for collaboration. I do see this being an uncomfortable phase for negotiators and it is helpful to have some guidelines if you are uncomfortable breaking the ice.

That's about all I have to say about this whitepaper. Despite being 13 pages - about twice as long as most whitepapers I review - there's not a whole lot of substance. However, if a simply labeled negotiation process is what you've been looking for, this whitepaper might be for you. You can download your own copy from Calyptus' website.

And, though I usually don't do any self-promotion in the Whitepaper Wednesday segment, I'd feel I was cheating you if I didn't mention a more detailed approach for procurement negotiation: Next Level Purchasing's online class "Powerful Negotiation For Successful Buying."

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, May 11, 2010

A Disturbing Procurement Trend?

It seems like only in the past year, during the worst of the recession, did many procurement departments realize that the ability to read financial statements and assess the financial health of their suppliers was important. In many cases, the procurement team realized this fact too late. The upshot is that awareness of the importance of supplier financial analysis was raised.

The bad news is that many suboptimally educated procurement departments now seem to incorrectly believe that supplier financial analysis isn't important anymore since the economy has started to show signs of life, growth, and fragile stability. This attitude was reflected in a couple of third-party blog posts related to consultants' observations of their client's priorities.

First, Debbie Wilson of Gartner described her recent "Heat Map," which is designed to illustrate the changing priorities of procurement leaders, and wrote that the "Coolest [i.e., declining priority] topics include services procurement (down from Q3); procurement MDM (level from Q3); and vendor vulnerability assessment."

Second, Supply Excellence posted an entry entitled "Supplier Risk: Shift from financial to operational" that featured an audio clip in which Ariba's Bob Zieger said that "we are definitely seeing...a shift from more attention [on] the financial aspect of risk to the operational risk."

While I will be the first one to tell you that a procurement department needs to adjust its focus regularly as the business world changes, forgetting about evaluating the financial health of your current and prospective suppliers is a bad move. A growing economy does not guarantee that your suppliers will be immune to declining financial health. To drive this point home, consider that there were over 600,000 bankruptcy filings in the year 2006 - a year that the Economic Policy Institute called "a respectable year for GDP growth."

By comparison, slightly over a million bankruptcies were filed in 2008 - the year that what some call "The Great Recession" really took its grip. So, even in a respectable year of economic performance, there were still more than half of the bankruptcies seen in one of the worst economic years in recent memory.

Does that put the importance of supplier financial analysis into perspective?

Suppliers can go out of business regardless of the economy. Zieger even couched his report on his clients' sentiment by stating that "It's always important to maintain an eye on your suppliers' financial condition. That goes without saying" and procurement leaders "shouldn't lose sight...of the financial condition of their suppliers."

Supplier bankruptcy should never be a surprise in good times or bad. There were obviously unpleasant surprises in the past couple of years due to not enough focus on knowing how to assess supplier financial strength.

Are we headed back to an environment when we choose to be oblivious to supplier financial health issues?

I sure hope not.

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, May 10, 2010

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

Every month, Next Level Purchasing recognizes a student who has made impressive progress in learning more about the field of purchasing and supply management. We are proud to announce that the Dedicated Purchasing Student of the Month for May 2010 is...


Linda Cardona, a Sr. Global Purchaser for Volvo Group North America from Greensboro, North Carolina, USA. Linda completed all six Senior Professional in Supply Management® Program classes during the month of April! Linda also passed the SPSM® Certification exam!

Linda says "If you want to go through these lessons and obtain your certification in a month or less, review, review, review. Success is within your grasp and it can be done! Good Luck. After years in a purchasing career, a certification was long over due. Thank you NLP!"

Please join me in congratulating Linda for becoming May 2010's Dedicated Purchasing Student of the 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
Next Level Purchasing . com

Monday, May 03, 2010

Commodity Price Forecasting: Why Do You Need To Be Self-Sufficient?

I hope that you have enjoyed the article “Commodity Price Forecasting, Part I.”

Why do you need an article like this and the one that will soon follow?

Allow me to give you some background.

There are two sources I have counted on as good resources for trying to forecast commodity prices: Ariba's Supply Excellence blog and Purchasing Magazine.

Through Supply Excellence has put out some of the most useful procurement blog content available, history has shown it to vacillate between regularly publishing content and trickling to a near stop. In fact, just in the past several weeks, it featured a post that created the impression that Ariba was ready to pull the plug on Supply Excellence but then proceeded to pump out near-daily content immediately thereafter. While I hope that it remains a regularly-published resource, there are no guarantees.

That being said, there is nothing uncertain about Purchasing Magazine. Last month, the venerable publication indicated that its parent company was immediately ceasing publication of the magazine. Its website was permanently taken offline on Friday.

Both of these developments can scare commodity buyers. "Who can I rely on to get commodity price forecasts?" they ask.

My answer?

"You."

Those who relied too heavily on Purchasing Magazine will struggle, no doubt. But you can't let that sabotage your performance or your career. The key is to develop some commodity price forecasting skills yourself.

The above-linked article and the forthcoming part 2 are designed to help you steadily become more self-sufficient in your commodity price forecasting. Unfortunately, it is difficult to rely on any third party for this information.

As the saying goes, the only thing certain is that there will be uncertainty. Developing your own commodity price forecasting skills can help you deal with the fact that a long-time source of information may disappear 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
Next Level Purchasing . com

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