Tuesday, November 30, 2010

Rewards As An Alternative To Penalties In Contracts

I hope that you enjoyed the article "Tips For Negotiating With A Sole Source." I wanted to use this post to expand upon one of the items from the article, specifically "Create tiered risk/rewards scenarios for Service Level Agreements."

Obviously, with any contractual relationship, you want the supplier to perform well. A traditional way of "forcing" the supplier to perform well is penalizing the supplier for poor performance. This often takes the form of a liquidated damages provision that requires a supplier to pay your organization a predetermined amount in the event that it fails to meet a contractual obligation. (Note: if you want to learn more about how to write liquidated damages or other contract terms, consider enrolling in our online class "Supply Management Contract Writing.")

While the threat of having to pay does scare some suppliers into good performance, liquidated damages or, informally, "penalty" clauses:

  • Are tough to get suppliers to agree to;
  • Often don't get consistently enforced by buying organizations and, therefore, can end up being considered legally waived; and
  • Can hurt a supplier relationship when mistakes are punished.

An alternative is that "risk/reward" scenario described in the article. Let's walk through an example.

Let's say that a large grocery chain sends its broken cash registers to a supplier to repair. The supplier has proposed a price of $99 per repair and will not budge when the grocery chain attempts to negotiate. The supplier will also not agree to the grocery chain's demands for a liquidated damages provision that would require the supplier to pay $20 per day for each day that the supplier takes to complete a repair beyond the five-day requirement. Being without a sufficient number of cash registers harms the grocery chain's operations, so they have a vested interest in getting repairs completed as soon as possible.

An example of a scenario that the grocery chain could propose that would give the grocery chain the assurance of good performance and may also lead to even better revenue for the supplier (which the grocery chain would be pleased to fund) is as follows:

  • The price per repair would be $97
  • For repairs that are completed in three days or less, the supplier would be able to bill at $101

Compared to the original arrangement, the grocery chain got two things it wanted: a lower price and a lever that will compel the supplier to want to perform. The supplier got an opportunity to earn even more revenue than it proposed if it is able to perform better. Obviously, if the supplier feels it can easily increase its repair time, this would be attractive.

Now, this scenario may not be the one that gets accepted. Some additional negotiation may need to occur so that both parties are satisfied. But it shows a way to tie performance into price which, in some cases, may be the only way to successfully reduce prices and get better performance out of a sole source supplier.

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, November 26, 2010

Corporate Procurement Principles For Black Friday Shoppers

Today is "Black Friday" in the USA - the day after the Thanksgiving holiday when many people have the day off of work and, therefore, go shopping for Christmas gifts, which are heavily discounted for only the early morning hours. With cash register lines dozens - sometimes hundreds - of people deep, I try to avoid being tempted by the deals.

However, if you are one of those who brave the crowds in seach of that bargain, here are some corporate procurement principles and how they can apply to Black Friday shopping. Hopefully, you can use them and return home satisfied.

1. Consider total cost, not just price. Let's say that getting to a store at 6AM can help you score a GPS for 15% less than you can buy online for $100. $15 sounds like a good savings on one item. But I've never waited in a Black Friday checkout line that required less than an hour to reach the cash register. So what is your time worth? If you feel that an hour of your life is worth more than $15, then the GPS isn't a good deal for you. A smart corporate procurement professional will compare differences in tangential costs between two alternatives rather than merely comparing prices. Black Friday shoppers should, too.

2. Evaluate quality alongside cost. Let's say a store has a touch screen MP3 player for $39. That price may make you say "I gotta get one of those!" But have you read the online reviews? It might have a one out of five star rating because it's junk. Is it still a good deal if the low-priced item doesn't work? Nope. A smart corporate procurement professional will research and consider the quality being purchased for the cost in evaluating the attractiveness of a deal. Black Friday shoppers should, too.

3. Prepare for things to not go as expected. Just because a store advertises an item doesn't mean that they will have it in stock when you get there. Just because a store has seven cash registers open doesn't mean that they will be staffed by competent cashiers. You need to be prepared for disappointments and think about what you will do if things don't turn out as you had hoped. A smart corporate procurement professional will have a contingency plan. Black Friday shoppers should, too.

Now, if you'll excuse me, I'm going to end this blog post now so I can go shopping...just kidding!

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, November 24, 2010

Net 30 Terms: A Thing of the Past?

One of the major, recent shifts in the procurement profession has been how organizations have changed their standard payment terms en masse.

Net 30 used to be the seemingly universal standard payment term used by almost every organization in the USA. Last night, I gave a procurement-finance presentation at a local purchasing association. Out of curiosity, I asked for a show of hands of those who use net 30 as their standard terms.

Out of a crowd of 60, four people raised their hands.

More people acknowledged having a standard of net 45. A few more use net 60. And even a few use net 90.

"My, oh my," I thought. "If I would have asked that same question five years ago, almost everyone would have said net 30 terms were their company's standard."

The big question in my mind is whether these extended payment terms are here to stay. With the economy (slowly) rebounding, credit loosening, and suppliers trying to regain their dignity, will we see a return to the days of net 30 terms?

Personally, I think that because the prevalence of these longer terms was induced by significant macroeconomic forces, that it will take significant macroeconomic forces to warrant any type of across-the-board tightening of payment terms.

What do you think?

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, November 22, 2010

Can A 15-Minute Call Save You Money On Corporate Purchases, Too?

You know a company spends a lot of money on advertising when you can recite their tag line from memory. A great case in point is Geico's "A 15-minute call can save you 15% on your car insurance."

So, when my homeowners and auto insurance policies came due earlier this month and I saw that the premiums had risen even more sharply than they had in the past - every insurance company sneaks in annual price increases to "penalize" loyal customers - I knew it was time to make some of those 15-minute phone calls. Sure enough, I found that switching to Allstate brought my annual insurance spend down tremendously.

Similar situations happen in corporate purchasing departments as well. Mediocre suppliers raise their prices until one day they "awaken the sleeping giant" and you make some calls and end up with a more eager supplier offering more reasonable prices.

January is the classic time for suppliers to begin sending out those dreaded annual price increase letters. And January is right around the corner.

Now, naturally, there are some suppliers that are too deeply entrenched in your organization's operations and strategy to switch. So, you will negotiate those increases with them.

But what categories that you manage are ripe for switching suppliers with little ramp up time needed and little risk exposure? Where just a phone call can lead you to better pricing and equal or better performance?

Use the comment link below to share your thoughts.

Take into consideration Sourcing Innovation's cautions about switching suppliers in the name of cost savings.

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, November 19, 2010

Video: Getting The Most Out Of Your Purchasing Training Investment

I prepared this video to help the Procurement VP's and CPO's of our clients get faster and better results from their eLearning investments. I think that the advice contained in this video can help anyone who is considering a purchasing training initiative. Enjoy!




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

Thursday, November 18, 2010

Cyber-Theats: Still A Ticking Supply Chain Time Bomb?

I've written before about how cyber-attacks threaten supply chains and how you should be prepared. So, I feel it is part of my duty to pass along to you information about new potential supply chain threats.

Here's the latest. A computer worm called "Stuxnet" has infected tens of thousands of computers worldwide. According to an article on Comcast.net, this worm "can be modified to wreak havoc on industrial control systems around the world, and represents the most dire cyberthreat known to industry."

Experts are saying that the merging of networks and computer systems makes organizations particularly vulnerable to this threat. Indeed, two of the companies that I know that were victim to a cyber-attack had separated their Internet connections from any computer that accesses the main company network.

Why should a procurement professional like you even care about this? After all, aren't these worms something that only the IT geeks should be concerned with?

Well, consider these excerpts from the aforementioned article:
  • "The complex code is not only able to infiltrate and take over systems that control manufacturing and other critical operations, but it has even more sophisticated abilities to silently steal sensitive intellectual property data."
  • "Attackers can use information made public about the Stuxnet worm to develop variations targeting other industries, affecting the production of everything from chemicals to baby formula."
  • "This code can automatically enter a system, steal the formula for the product [a supplier is] manufacturing, alter the ingredients being mixed in [the] product and indicate to the operator and [the supplier's] antivirus software that everything is functioning as expected."
  • "Stuxnet specifically targets businesses that use Windows operating software and a control system designed by Siemens AG. That combination...is used in many critical sectors, from automobile assembly to mixing products such as chemicals."

Sound like a supply chain threat yet?

You bet.

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, November 15, 2010

When Procurement Takes Over T & E Management

I hope that you have enjoyed the article "T & E Management: Procurement's Domain?" and the accompanying podcast.

The management of the travel & expense category - much like the management of categories like personnel benefits, contingent workforce, and fleet - is increasingly finding its home in procurement departments across the world. The podcast shares a CPO's insights into why this is the case. For example, the topics that the podcast addresses that the article doesn't includes:
  • How the T & E category is expected to grow in the next year
  • Two overlooked cost savings opportunities in the T & E category
  • Whether or not technology solutions are required for good performance with the T & E category
  • And much more!

So, if you thought the article was helpful, I think the podcast will be worth your time to listen to. Check it out on our podcast page where we have around 20 hours of interviews with procurement experts available for your listening pleasure - for FREE!

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, November 12, 2010

Guide To Partnering With Next Level Purchasing

Here at Next Level Purchasing, we field a lot of requests to "partner." Some we're interested in exploring, others are merely clutter that we barely have time to respond to. So, I thought that I would put together a quick post to (a) help potential joint venture partners cut through the clutter and present themselves most effectively and (b) help others recognize that proposing a partnership would be wasting their time.

Here are some guidelines to partnering with Next Level Purchasing:

1. Have a track record. We are only interested in joint ventures with organizations that have been around a while and are known in their niche. If you have just started a business or are thinking of doing so, I wish you luck but we are only interested in investing our time in exploring joint ventures with proven entities. I can't tell you how many unemployed individuals ask to be our "representative" in their country.

2. Have an idea. If you reach out and ask if we can partner, have specifics on what exactly the joint venture would entail. If we speak, I will ask you how you see a joint venture working. Please don't reply by saying "I don't know, what ideas did you have?" If you contact us, you should be prepared.

3. Estimate the quantifiable benefits to all involved. We are very interested in joint ventures that will help us add value to our students and the members of the Next Level Purchasing Association. Of course, we are interested in ways of growing revenue and getting leads, too. Additionally, maybe you want to add value for your customers. And you probably want something out of the deal. So what are the benefits of your idea for each constituency?

4. Be ready to implement immediately. Joint ventures that are put off for a later time usually wither on the vine. If it's worth doing, it must be worth doing in the next month or so. Don't make it too complex because it will never get done.

I'm sure I'll think of more guidelines and, when I do, I'll post them in the comments below.

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, November 11, 2010

Should You Learn How To Park Your Total Cost Mindset For Certain Purchases?

I enjoyed reading an article on Comcast's site today that said that General Electric was planning to purchase 25,000 electric vehicles by 2015. That's quite a spend category in itself, don't you think?

What I find thought provoking about this initiative is that the point of it is to "accelerate the adoption curve" for electric vehicles according to no less than GE's CEO. You see, GE makes devices that charge electric vehicles. The more electric vehicles are embraced by the driving public, the more chargers GE will sell.

So, choosing electric vehicles vs. conventional vehicles has nothing to do with it being a lower cost alternative. In fact, it may be the highest cost option available as the article says that electric vehicles have "not caught on" due largely to "the high cost and limited battery range."

There are many situations where internal customers of procurement departments have made cost a very low priority for them and the procurement department struggles to get them to see the lower-cost-equals-higher-profitability-and-better-job-security light. But, there are scenarios where the case to ignore total cost has such a strategic tie-in and executive-sponsored support, that procurement departments may be wise to put the brakes on any thoughts of challenging the decisions.

I would love to hear your examples, either of times when you had to yield to a cost-is-not-an-issue demand or times when you were able to influence your internal customers to make a U-turn and agree to a lower cost option. Click the comments link below to share your stories.

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, November 10, 2010

The Last Days of Labor Power?

Here at Next Level Purchasing's headquarters, we are situated right next to an elementary school. As of Monday, the teachers of the Moon Area School District are on strike. So, within a few steps of our building are teachers holding picket signs.

I guess that's their god-given right or something. But, in this economy, one can't help but want to tell them that they should be happy that they even have a job.

Naturally, I resisted that temptation. One of the reasons - other than me being a gentleman - is that perhaps they should enjoy what I think are the last days to enjoy the privilege to walk out of work.

The employment picture is ugly, with the US unemployment rate hovering around double digits for what seems like almost a half-a-decade. Sure, a forecasted economic rebound will help that a little bit. But is anyone else seeing the forces that seem to suggest that we'll never recover the jobs lost since December 2007?

The forces I'm talking about include:
  • The fact that, if something can be bought less expensively from outside of the US, it eventually will be bought from outside of the US
  • The Federal and State minimum wages make hiring workers for low-value tasks prohibitively expensive
  • The automation and "Internetizing" of certain things is an irreversible trend

I think that this third point affects teachers the most. Online education has only grown. Next Level Purchasing is proof of that.

Where once purchasing departments were relegated to the best training they could find in their location, now they can choose the best purchasing training in the world. Think of the possibilities for childhood education. Instead of hoping to get the best teachers in the region for our schools, we someday may have access to the best teachers in the world. The geographic barriers to the best education will be removed, which would require a lot fewer teachers.

Additionally, I think that as more markets open up - there are more non-US countries than India and China, you know - we're going to see a world where there is more parity in the standard of living between countries. That means that impoverished countries will become more like the US and the US will become more like impoverished countries until there is more of a balance, relatively speaking.

None of that is good news for US labor.

So instead of giving those picketing teachers with their no-value-proposition-signs (e.g., "New buildings need teachers" WTH?) a piece of my mind, I say to them "Enjoy the last days of labor power." These will be remembered as the good old days someday.

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

Tuesday, November 09, 2010

November 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 excited to announce that the Dedicated Purchasing Student of the Month for November 2010 is...




Leah Cole, a purchasing professional for Feld Entertainment in Palmetto, Florida, USA. Leah completed all six Senior Professional in Supply Management® Program classes during the month of October! Leah credits her success to being determined to complete the program and following through.

Next Level Purchasing and the procurement community around the world congratulate Leah and commend her for her dedication to having a more successful purchasing career!

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, November 08, 2010

Local Jobs And Total Cost And Bankrolling By The Government, Oh My!

Rich Lord of the Pittsburgh Post-Gazette is becoming one of the country's better reporters for sniffing out government procurement controversies. In an article in today's edition, he sheds some light on some details behind a million dollar procurement of lights by the Allegheny County Airport Authority. In this procurement, the Airport Authority spent nearly 30% more than it could have by selecting another supplier.

So is there something shady going on here?

Not necessarily. The winning supplier had some advantages that apparently warranted the premium.

What were those advantages? They included the following:
  • They supported local business and jobs: the distributor of the lights is located in Allegheny County and the manufacturer is also local, based in a Pennsylvania town just outside of the county.
  • The Airport Authority estimates that it will achieve an "estimated $160,000-per-year savings on its electricity bill" by using the winning bidder's lights, which put "out more light per watt than products made by bigger competitors."
  • The Airport Authority had previously won a grant from the State of Pennsylvania which covered half of the cost of replacing its outdoor lights with LEDs. This grant factored into the supplier selection as the article that that if "the authority hadn't bought products that created in-state jobs...it would have lost the $800,000 state grant."

In my view, this was a fair deal as long as:

  • The total cost calculations and estimates were done correctly;
  • The total cost represents the best long-term deal to the taxpayers of Allegheny County; and
  • The supplier selection criteria were published in advance of bid submission.

Of course, competitors to the winning supplier are barking about the award, saying things like the winning manufacturer must be "trading off something," claiming that the winning manufacturer's lights "may burn out more quickly," and requesting engineering evaluations.

Time will tell how bright this decision was.

And, when it does, here's hoping that the Airport Authority documents what it did right or wrong and applies any lessons learned to future purchases so that it can avoid being the subject of a Rich Lord column.

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, November 05, 2010

Look Who Is At The Center Of The Latest Procurement Controversy: The Girl Scouts!

Last week, the Associated Press picked up on an interesting procurement story: the Girl Scouts of the USA were seeking bids for the uniforms they currently buy from an American supplier in New Jersey. Among the four bidders invited to participate, two were from outside the USA including one from China.

The fact that an organization is evaluating all of its global sourcing options isn't exactly what I consider controversial news - outsourcing to China has been going on for decades and became mainstream practice at least 10 years ago - it has certainly gotten some attention in the media and among political leaders. US Congressman Bill Pascrell (D-NJ) wrote a passionate plea to the President of the Girl Scouts, saying that he is dismayed that the Girl Scouts "would even think of moving their business from a family-run and veteran-owned small business in New Jersey to China." Should the work be offshored, Congressman Pascrell calims that it will cost the US some 90 jobs.

Though the media and political leaders are practically characterizing the Girl Scouts' sourcing initiative as villainous, the Girl Scouts are defending their actions as "good business practices." The Girl Scouts' Vice President and General Manager of Merchandise, Barry Horowitz, was quoted as saying, "Like any manufacturer who uses fabric, we have an obligation to deliver the best value to our members and their parents. We can't know if we're doing that unless we test the market."

It's really hard to argue with that logic. However, amidst his incredulous expressions of emotion in his letter, Congressman Pascrell does actually touch on a couple of important issues.

First, he notes that he was told by the incumbent supplier, Jackie Evans, Inc., "that they have never missed a delivery deadline." He goes on to stress that lower prices may come as a trade-off for lower quality and suspect social responsibility, writing that "our American Girl Scouts could soon be wearing uniforms made abroad in part by young girls who would be deemed not old enough to work in the United States." He advises the Girl Scouts to "consider factors other than just simply the bottom line cost of production."

All very valid points and surprising coming from a politician (sorry, I'm a little bit jaded when it comes to our elected leaders). But in the Congressman's words, you will find criteria that should be considered in every supplier selection: quality and delivery performance and social responsibility right alongside cost.

The Girl Scouts claim to recognize this with Horowitz saying "We have a strict arrangement with vendors that they need to ensure that all appropriate laws are adhered to...We're very rigid about who does our work." That, I'm not convinced of. Someone from Mattel probably said the same thing prior to that big lead-painted toys scandal of a few years ago.

If the Girl Scouts select a Chinese supplier, will they conduct periodic, surprise on-site audits to confirm compliance with their supplier code of conduct? Or will they just give the supplier the rules and trust that they will be complied with like so many other organizations ill-advisedly do?

It sounds like we'll find out soon as the Girl Scouts expect to complete this sourcing process by the end of the year.

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, November 04, 2010

Does "Spend Matters" matter more than ever?

Of all of the procurement blogs that are still out there – many have come and gone quietly over the last five years – there is only one that I know of that has been active longer than the Purchasing Certification Blog. That blog is Spend Matters, which beat me to the procurement blogging punch by just a few months.

Once authored strictly by founder Jason Busch, Spend Matters has steadily tossed a few more voices into the mix. Busch still cranks out around three posts a day but, though his output has remained constant, his posts as a percentage of total posts are far from 100% as additional authors increasingly fill Spend Matters’ virtual pages with their insights and opinions. Beyond the content growth, Spend Matters also has two sister sites, leaving one to question whether Spend Matters can still be appropriately labeled a “blog.”

In an exclusive interview with the Purchasing Certification Blog earlier this week, Busch argued that Spend Matters is still “very much a blog - but also a number of other things as well!” Indeed, the company’s recent expansion activities are pushing the boundaries of the traditional definition of blog.

For example, last week, Spend Matters launched what I consider to be the most ambitious of its recent expansion plans by partnering with the UK-based Procurement Excellence blog to form Spend Matters UK/Europe. When discussing how he identified the need for a dedicated UK/European site, Busch saw something that Europe lacked and the US had an abundance of: well-researched opinions about procurement technologies and practices. “There’s not a strong source of opinion when it comes to what is working and what is not in the UK and Europe - it’s not informed by any type of practitioner perspective,” Busch says. “I think that practitioners are looking for guidance and opinion.”

Though the branding of both the US and UK/European sites will be uniform, don’t expect that Spend Matters UK/Europe will simply be regurgitating Spend Matters US’ content with European spellings (e.g., programme vs. program, organisation vs. organization, labour vs. labor, etc.). While many of the same high-level themes will be covered by both sites, Busch promises that the new UK/Europe site will focus on the characteristics of procurement, technology, and business unique to Europe. “We might have a write-up on, say, Emptoris, SAP, or Ariba but have a different take [in Europe] in terms of positioning products based on features, functions, capabilities which we think are more important to highlight for an audience there” versus the audience in the US, he says.

For such a grand joint venture, I was surprised to learn that Busch and Peter Smith, the founder of Procurement Excellence and the head of Spend Matters UK/Europe, met each other through the blogosphere. “We had lots of people in common but I started reading his site [and] he started reading mine,” Busch recalls. “We connected at various points and finally got connected face-to-face.” They hit it off so well that within a year had decided to partner with each other.

Another recent change that went into effect at the same time as the UK/Europe site launch was Spend Matters’ introduction of a new tag line: “For Your Business and Your Life.” While Busch would from time-to-time venture outside of corporate procurement topics in the past, this new tag line accompanied by authors who wrote about non-procurement issues had me curious whether readers would notice an increasing percentage of non-procurement topics on Spend Matters.

Busch cautions his audience not to worry that Spend Matters’ dedication to procurement will be diluted. “Our focus will absolutely stay on buying: There’s buying in our business, there’s buying in governments, and there’s buying in our lives,” Busch states, noting that he and his team want “to really get across that what we do in the workplace in procurement and supply chain often has a lot of transferable elements to our personal lives as well in terms of total cost [and] in terms of looking at the longevity of a decision in terms of was it the right one two or three years after the fact versus not.”

If you noticed that Spend Matters’ aggressive expansion had begun at the same time that Purchasing Magazine stopped publication, you may be wondering if that was a coincidence or if Busch wanted to fill the void left behind. “I did see a big opportunity at that point but it wasn’t at all to get into the trade publishing business in terms of print,” Busch reveals. “We think the world is going online, we think people value opinion over just reporting now, we think people are getting things in more digestible sound bites than before” which enabled Spend Matters to appeal to Purchasing Magazine’s audience without adopting the bleeding-to-death print model.

With the longevity of Spend Matters, one can sense that there is more expansion and innovation ahead. In closing the interview, I asked Busch what to expect in the future for Spend Matters that might be of particular significance to readers of the Purchasing Certification Blog. “We are big on getting the message out there on education and training and you’ll see continued coverage of that next year,” he promises. “We think there’s, in general, just a good opportunity to educate folks on their options for learning out there…We want to make sure we’re covering that sector as well.”

I personally am looking forward to what’s to come in the next few years from Spend Matters. As it evolves, I am betting that it will look less and less like its humble beginnings as a one-man blog but continue to be one of the most valuable, go-to resources for the procurement community.

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, November 03, 2010

Whitepaper Wednesday - Contract Lifecycle Management

Today's installment of Whitepaper Wednesday is written by Erick Opdenbosch, SPSM. Please help me welcome Erick as a new contributor to the Purchasing Certification Blog!

Welcome to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. Today, I will be reviewing a whitepaper entitled “Contract Life-Cycle
Management: Contract Management Solutions Are Now a Critical Competitive Advantage” from Enporion.

The paper describes why it is important to have good contract management follow up. It is necessary to make sure that all the parties involved in the contract are doing their jobs. In addition to supplier compliance, there is also the operational and regulatory compliance that have to be addressed.

Imagine that after signing a contract, there is no follow up with the supplier. What if the supplier makes adjustments to the delivery times and does not notify the buyer? There is a need to monitor the supplier performance to ensure that the goods or services purchased are delivered and guaranteed as specified. As stated in the whitepaper, “In today's world, well managed supplier relationships play a critical role in business success and profitability.”

Now, on the other side, there is also the operational compliance. Not only are suppliers held responsible to comply with a contract. The buying organization has to also comply with multiple tasks such as the payment process, design reviews, or certification procedures. And finally, but not less important, there is the regulatory compliance. The whitepaper suggests that the “implementation of a contract management solution will also give you the tools necessary to view and monitor the internal policies and procedures and discover if the intended operational and financial results are being achieved.”

Many of us procurement professionals have heard of the Sarbanes Oxley Act of 2002, better known as SOX. Although it was introduced to reform accounting practices and protect investors, it involves procurement as well. In describing how compliance with regulations can be a major part of the contract management process, the paper focuses on four sections of SOX and how procurement can help in terms of complying with it:

Section 302: Officers of public companies are personally responsible. In other words, the officers of these companies personally guarantee that all financial information is accurate. In procurement, we impact the finances of other areas in the company, hence it is necessary to control the purchasing processes and alert the right person of any current or future financial event that can be characterized as out of the ordinary.

Section 404: Requirement to report on internal controls of financial information. Internal controls will be evaluated on their quality and effectiveness. Purchasing processes contracts that have an impact on the financial statements. Then, it is necessary to compile the information in such a way that it can be accessed by the appropriate person, i.e. Auditors, if required.

Section 409: Timely disclosure of material financial impacts. In the event of a financial impact, the company is required to notify the public within 48 hours. For instance, imagine that there is an unplanned need for a smaller organization to purchase an asset valued at 20 million dollars. This would be considered a big impact, and if it was not reported before, or if it is an urgent purchase, the company has up to 2 days to report it.

Section 802: Altering documents in an attempt to influence legal actions. There will be criminal penalties for those who alter information, even if it is not the signing officer. We, as procurement professionals, should be ethical about all our actions and ensure that documentation is retained.

In Mastering Purchasing Fundamentals, one of the courses that are part of the SPSM Certification, the purchasing process is defined as a sequence of 9 steps. Two of those steps are following up and closing out the transaction. These two steps ensure that both parties comply with contractual obligations and that, if there are provisions that go beyond delivery, these are controlled and made accountable for. Contracts should be followed beyond the point where signatures are obtained.

Should you purchase an application to track contract performance or do it yourself the way you do today? Well, take a look at the whitepaper and find out what better fits you.

http://www.enporion.com/media/whitepapers/Enporion_CLM_white_paper_Oct2008.pdf

-Erick Opdenbosch, SPSM

Monday, November 01, 2010

The Sole Source vs. Non-Sole Source Cost Indexes

I hope that you have enjoyed the article “More Sole Source Procurement Solutions.”

In the article, I talked about how creating two indexes - one that tracks cost changes in your highest spend sole source items and a second one that tracks cost changes in your highest spend non-sole source items – can help you garner top management support for eradicating sole source situations. In this post, I will provide more details on how to create those indexes.

To create these indexes, start with a list of items that you buy, sorted from highest spend to lowest. Then, eliminate from that list any items that are not frequently and repetitively purchased.

Identify the first ten items on the list that are purchased from a sole source. Determine the average unit price you paid for each of them last year and this year. If you have pricing from prior years for each item, that’s even better. But you need at least this year and last year. Add up those average unit prices for each year as if you bought one unit of each item to come up with a composite value for each year. Then, determine the percentage change from last year’s composite value to this year’s.

Next, identify the first ten items on the list that are purchased from a non-sole source. This doesn’t mean that you bought them from multiple suppliers, only that more than one capable supplier was available. Determine the average unit price you paid for each of those items for each of the years that you tracked for the sole source items. Do the math to come up with a composite value for each year. Then, determine the percentage change from last year’s composite value to this year’s.

If the percentage change in the composite value for sole source items is greater than the percentage change in the composite value for non-sole source items, you can begin to make a business case about how much your organization is penalized for creating sole source situations. Creating a chart showing this trend over several years can provide a very compelling visual tool for communicating how bad sole source situations are.






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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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