Tuesday, September 27, 2011

Your Company's Engineers Think They Are Great Dealmakers, But Are Just Pawns

If you missed last week's Next Level Purchasing Association (NLPA) webinar, you missed some great tips from Dr. Soheila Lunney on how to keep suppliers from conducting "backdoor selling" as a way of inflating their profits at your organization's expense. One of the key points covered was how sellers are trained to avoid dealing directly with procurement departments.

Dr. Lunney cited an educational sales article in which the author taught sales reps about the benefits of selling to people outside of procurement. The author wrote that procurement professionals "are there because they have the skills needed to succeed in their task. Trying to sell to them using conventional means is analogous to one trying to inflict pain to an inanimate object like say a stump, or someone with no nerves in their body."

Instead of selling to procurement professionals, the author recommends "
employing a strategy and tactics to neutralize their impact and minimize their ability to negatively impact your efforts and objectives. How do you do this [is] by selling to the people who truly derive the 'value' from your product; once they are sold, enlist them in helping you manage and marginalize the 'procurement man.'"

So while engineers, IT professionals, and other internal customers are cutting deals and getting duped into thinking they are great bargainers, the only reason they are involved is because sales people want to avoid the department that really knows how to negotiate.

So, the next time that one of your internal customers is found to be leading a procurement negotiation without the procurement department's involvement, share that sales article with him and ask him how he feels that the salesperson he is dealing with might be referring to him as a "chumpion."

To Your Career,
Charles Dominick, SPSM, SPSM2
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM® Certification Online At
www.NextLevelPurchasing.com

Monday, September 26, 2011

Could Apple's Supplier & Competitive Strategies Be Spooking The Stock Market?

With so much press speculation about a double-dip recession being imminent, I cannot help getting sucked in by headlines that may offer a clue on what's to come economically. Such was the case today when I saw the headline "Is Apple Fearful of a Consumer Slowdown?"

That headline actually scared me. After all, if Apple is scared of the short-term economic prospects, certainly investors will be spooked and the stock market will tumble (again).

What I expected to see when I read the associated article was some information about how Apple executives are viewing the short-term economic situation. There was nothing of the sort. What I did see, but didn't expect to, was a tie-in with Apple's supplier and competitive strategies.

You see, the article did not cite any sources within Apple regarding the electronic device manufacturer's take on a possible economic slowdown. It merely said that a third party analyst reported that "has slashed orders to its Asian suppliers of iPad parts by 25%."

While outsiders have interpreted this to mean a variety of things - including the possibility that consumers are hunkering down in the face of a bad economy - one of the industry experts thinks that it's merely a matter of Apple's supplier and competitive strategies being deployed - an observation he calls the "bad-ass competitor hypothesis."

So, what is the "bad-ass competitor hypothesis?"

The article describes it as "Apple purposefully over order[ing] parts to lock out competitors. Then late in the quarter they scale back knowing it's too late for rivals to react and too bad for suppliers who wouldn't dare mutter a bad word about their sugar daddy."

While very few people know whether or not this is true, it's undeniably interesting. It if is a tactic being used by Apple, it's a good example of procurement being deployed in a strategic way: to keep competitors at a disadvantage.

I hope that, if Apple's order reduction is true, it is because of this competitive strategy instead of a recognition of softening consumer buying power. I also would love it if such reason for the order reduction became public knowledge so that investors could rest easier.

The last thing anyone's stock portfolio needs is a good business strategy to be misinterpreted as a harbinger of more economic struggles.

To Your Career,
Charles Dominick, SPSM, SPSM2
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM® Certification Online At
www.NextLevelPurchasing.com

Friday, September 23, 2011

The NLPA Dedicated Member of the Month for September 2011 Is...

Every month, the Next Level Purchasing Association (NLPA) recognizes a purchasing professional who has made impressive progress in learning more about his/her field. We are excited to announce that the NLPA Dedicated Member of the Month for September 2011 is...

Martin Molnar, a Senior Procurement Consultant from Prague, Czech Republic. In August, Martin completed all six Senior Professional in Supply Management® Program classes and passed the SPSM® Certification Exam!

"I work as an independent procurement consultant and advise my clients mainly on how to improve their sourcing processes. As part of my job I need to continuously demonstrate that I have the right knowledge and skills to do the job. That's why I joined the SPSM® Certification Program. Having completed my SPSM® Certification, I can now demonstrate that I am educated in all aspects of purchasing. I have decided to finish my SPSM® Program as soon as possible and had to dedicate lot of evenings for learning. It was, however, time well spent as the SPSM® courses bring extensive amount of information from the field. I enjoyed each and every course, printed out all materials, listened to the audio and went through the extra material to each of the courses as well. This helped me to understand the topics in more depth and also helped me to better remember a lot of the information.

If you want to earn your SPSM® Certification quickly, you do need to devote a significant amount of your time, but I definitely say it is worth it and do not regret a single second that I spent with the courses. And, thanks to the quality of the materials, I return to the courses regularly when looking for my inspiration."
Next Level Purchasing and the procurement community around the world congratulate Martin and his dedication to having a more successful purchasing career!

To Your Career,
Charles Dominick, SPSM, SPSM2
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM® Certification Online At
www.NextLevelPurchasing.com

Thursday, September 22, 2011

Supplier Diversity: Underrated As A Way For Procurement To Be Viewed As Strategic?

Last night as I was watching a few minutes of TV, I was shocked at what I had just seen cross my screen. It was one of those moments where you just blink your eyes a few times and wonder if you really saw what you think you just saw.

What did I see?

I saw a commercial about one organization's supplier diversity program.

The organization was UPMC. And the commercial discussed the evolution of a small, diversity supplier that got started with just $35 in startup money and was given a shot by UPMC. Since being hired by UPMC, that supplier has grown, hired people, and made its community better through its success.

Now, UPMC is a huge healthcare organization. It could use the money and the air time to advertise any number of impressive things, from its leading neurosurgeons to its new, cutting-edge clinical facilities to its competitive health insurance plans. But UPMC decided to invest in promoting its supplier diversity program.

Why?

No one outside of UPMC and its advertising agency knows for sure. But, in developing my opinion, I'd like to refer back to one of the reasons for supplier diversity that I wrote about in a 2006 article entitled "Starting A Supplier Diversity Program": "[Organizations start supplier diversity programs because those] organizations have a diverse customer base. By showing support for the demographic groups of its customers, an organization hopes to strengthen its appeal to them." I'll bet that staving off certain recent public relations controversies in the community in order for UPMC to appeal to its customers has something to do with it.

Let's take a minute to review those controversies...

You see, UPMC recently closed one of its hospitals in a lower-income Pittsburgh neighborhood, funneling patients to one of its other hospitals in a higher-income neighborhood. In addition, UPMC is embroiled with Highmark in a nasty, public feud whereby UPMC healthcare providers will soon no longer be accepting Highmark's insurance because Highmark has purchased a competing hospital system. Both of these developments have, I don't want to say "ruined" but perhaps, "tainted" UPMC's reputation in the community.

So, how can UPMC win back public support? Apparently through publicizing community-oriented efforts like working with diversity suppliers.

What's interesting to me is that Public Relations, as an organizational function, typically gets a lot of senior executive respect and support. Procurement hasn't always gotten that same level of respect and support in a lot of companies.

Therefore, a well-done supplier diversity program in a company that values good community and public relations can help a procurement department contribute in a way that senior executives consider strategic - by helping Public Relations accomplish its objectives. Now, think about most procurement departments: supplier diversity activity is a rather small portion of those procurement departments' overall activity.

It makes you wonder whether you should step back and reevaluate how big of a role supplier diversity should play in your organization, doesn't it? Growing supplier diversity, in some organizations, could be a very underrated way for Procurement to be viewed as strategic.

By the way, you can watch a video of the commercial on UPMC's website here.

To Your Career,
Charles Dominick, SPSM, SPSM2
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM® Certification Online At
www.NextLevelPurchasing.com

Monday, September 19, 2011

Will You Have An Early Warning That Your Supplier Is Going Bye-Bye?

I hope that you have enjoyed the article "How To Spot a Poorly Managed Supplier."

Life works in strange ways when odd coincidences happen. I had the above-linked article queued up for a few months, yet just today, one of our SPSM alumni contacted me asking for some guidance about a situation he was experiencing with an apparently troubled supplier.

It seems like our SPSM had his finger on the pulse on a supplier who was showing some signs of financial distress, yet had some challenges convincing his company's senior management that trouble was a-brewin'. With this supplier being privately-held, he didn't have much objective data to reference in making his case. Then, his supplier turned his company over to a factoring agency (a collection agency that tries to collect pennies-on-the-dollar for immediate payment), giving further evidence of financial desperation.

While the reporting requirements of publicly-held companies help give you early warning of financial distress, you can still obtain financial risk-related data for your privately-held suppliers. Many services exist and, personally, I've extensively used the services of Dun & Bradstreet (affectionately known as D&B). I have found occasional inaccuracies in D&B's data, but their supplier reporting capabilities definitely do a procurement department more good than harm. There are other services that I have less personal experience with - Bureau Van Dijk and Cortera are a couple of examples - but that can help in a similar way.

Look, no supplier is going to say "Hey Mr. Procurement Manager. We're going to be running into some financial troubles in about eight months. Just thought you should be prepared for that." Therefore, you should look for the warning signs of supplier distress, which means routinely applying smart purchasing best practices like the ones described in the article and gathering the information that is out there from third-party services, when needed.

To Your Career,
Charles Dominick, SPSM, SPSM2
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM® Certification Online At
www.NextLevelPurchasing.com

Friday, September 16, 2011

Social Networks in Procurement

A couple of announcements from companies we've worked with have come across my inbox lately. And the common thread in these announcements is social networking in procurement.

Social networks in general are certainly not a new concept. And with mixed reviews about the recently-launched Google+ - ranging from "it will put Facebook out of business" to "do we really need another Facebook wannabe?" - it is clear that just launching a new social network is not newsworthy.

Fortunately, the two procurement-related announcements represent a variation on the social networking theme. They are not just social networks per se, but they use social networking tools to support their procurement mission. And that's fresh. And consistent with what we are doing with the Next Level Purchasing Association.

So, in this post, I will cover those three social network-related sites for you.

Next Level Purchasing Association. The Next Level Purchasing Association is an all-online, free, and modern model that was launched in April 2011 and replaces the outdated traditional association model of the 20th century. All the typical benefits of a traditional association (e.g., magazine, seminars, etc.) are provided plus much more. Part of that "much more" is a Networking section of NextLevelPurchasing.com. There, procurement professionals from throughout the world can - and do - interact via a clean interface that is like "Facebook for procurement professionals." While the networking aspect of the Next Level Purchasing Association is pretty cool, it is only one part of a more robust service. For more info, go to http://www.NextLevelPurchasing.com.

Buyers Meeting Point. Buyers Meeting Point started out a few years ago to be pretty much a social network, from what I can tell. But the company has been quite nimble and has adapted to the marketplace, which seems to be demanding more than just another social network. While they still emphasize social networking using their LinkedIn Group, Buyers Meeting Point is carving out its niche through its coverage angle. They are dedicating a lot of virtual space to continually covering events (e.g., conferences, webinars, etc.) and reviewing books of interest to procurement professionals. It's an interesting angle and they seem poised to do it better and more consistently than others. With this change, Buyers Meeting Point seems like a service to watch out for in the years ahead. For more info, go to http://www.buyersmeetingpoint.com.

My Sourcing Team. This procurement social network seems to have a very sharply defined focus - to connect MRO category managers so that they can share intelligence and, as a result, all do their jobs better. It is a joint venture between Spend Matters, Procurement Leaders, and an individual investor who is a sourcing professional. Though the site has "that social network look," from the descriptions of this site, I'm not so sure "social network" is an adequate description. It appears to be more of a professional collaboration platform, which could be a twist that gives it a lot of traction. My experience is that commodity managers can be somewhat nervous about benchmarking and collaborating directly with peers, but perhaps that will change as the old guard inevitably gets replaced by the new guard. If the fresh faces entering commodity management bring their inhibition-free approach to online sharing into their worklife, My Sourcing Team seems well positioned to help them connect with their like-minded peers more easily. For more info, go to http://www.mysourcingteam.com.

So, there you have it. Procurement social networks with a twist. While these developments are undoubtedly exciting, one thing is certain: the technology will change as the world changes and it will only get more interesting in the future.

To Your Career,
Charles Dominick, SPSM, SPSM2
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM® Certification Online At
http://www.nextlevelpurchasing.com/

Thursday, September 15, 2011

Do 61% of CFO's Lack Understanding of Procurement's Potential?

I just read an insight-spewing article entitled "That Rising Feeling: CFOs are fretting about the prospect of inflation, but are split on how to respond." The article includes quotes from several CFOs who share their concerns about cost increases and their strategies for combating them. While the entire article was quite revealing, the graphs - which I have included at the bottom of this full blog post - really told quite a story.

One pair of graphs irked me, actually. One of those two graphs shows that 59% of CFOs have said that inflation had directly impacted their business in the past 12 months. The other indicates that, of those CFOs' companies that have been impacted by inflation, only 39% of them have negotiated with suppliers to manage and/or reduce the impact of that inflation.

So, 61% of CFO's allow costs to rise without tapping the potential of their procurement departments to negotiate with suppliers in order to mitigate those cost increases?

As the saying goes, "what's wrong with this picture?"

Another graph that is telling is the graph that shows the type of inflation that CFOs are most concerned about. With rising energy prices, metal prices, and cost of other commodities making up three of the top four inflation concerns, it should be clear that procurement departments can play a heroic role in helping CFOs sleep better at night. Why CFOs aren't tapping into that resource with more gusto is confusing.

It's time to educate the CFO on what procurement can do to put the smackdown on inflation.



To Your Career,
Charles Dominick, SPSM, SPSM2
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM® Certification Online At
www.NextLevelPurchasing.com

Monday, September 12, 2011

How Earning A Purchasing Certification Is (And Isn’t) Like Training For A Half-Marathon


This weekend, I completed my first half-marathon. While completing the 13.1 mile run in a time that surprised even me was fulfilling in and of itself, with me being who I am, I couldn’t help but draw parallels in my mind between earning a purchasing certification and training for this event. I’ll dedicate this post to exploring how these two pursuits compare.

First the similarities…





  • All achievement starts with a goal. Whether pursuing your purchasing certification or training for a half-marathon, you start by defining exactly what it is you want to accomplish. For some, it may seem easy. For others, it may seem like an impossible challenge. Deciding that you have something you want to strive for is the first step in accomplishing anything that you will be proud of later.
  • Achieving anything beyond what you can do now requires at least some sacrifice. As a business owner and a father of two children (one of whom is a special needs child), I’m a busy guy. It would be easy for me to use the “I don’t have time” excuse for almost anything outside of my work and family. So, to run the half-marathon, I had to make time. That meant getting up early while my family was still sound asleep. On mornings where I ran long training runs, sometimes “early” meant before 5AM. That wasn’t always easy and sometimes it meant going to bed early when I would have liked to watch the end of a baseball game. Earning a purchasing certification requires sacrifice, too. It might mean studying when you are normally chillaxing in front of the TV or getting up a little early. But now that I have the satisfaction of saying that I ran a half-marathon, do you think I am saying “Boy, I really wish I would have slept in those days three weeks ago?” Heck, no! And once you have those credentials after your name (e.g., SPSM) indicating that you’ve earned your purchasing certification, I doubt you would miss that sleep either.
  • You can prove (and be proud of the fact) that you’ve met a standard for excellence. A five-kilometer (5k) run is relatively easy. You see people of all ages, in all conditions, with varying degrees of experience run 5k’s. But with half-marathons, you see mainly people in very athletic condition and whose bodies are well-sculpted. People who know what they are doing. People who have been running a while. Completing a half-marathon means that you’re serious about what you do – you’re no amateur. In the purchasing profession, there are many people occupying purchasing positions who simply landed in those jobs by accident. But to earn a purchasing certification requires much more than simply “landing” in a job. It requires being serious about your profession. It shows that you are no amateur. It shows that you are on the same level as the “well-sculpted” members of the profession. If someone asks how you know that you are a good runner, what do you think is more convincing, saying "Because I think I am" or "Because I completed a half-marathon?" Pretty easy answer, right? Well, if someone asks you how that you know that you are a good purchasing professional, what do you think is more convincing, saying "Because I think I am" or "Because I have earned a purchasing certification?" I don't think I have to tell you the answer to that one!
Now, the differences…
  • Earning a purchasing certification is painless. During my training – and certainly after the half-marathon – I had to soak in a tub of cold water to relieve the pain in my knees. I could be found hobbling around the Next Level Purchasing Association headquarters like an old man with my stiff gait. Quite frankly, some days it hurt to train! Studying for a purchasing certification doesn’t hurt one bit.
  • When earning a purchasing certification, you don't get penalized for getting ahead of schedule. I started training for the half-marathon using my intuition before I consulted a professional plan. And I kind of wore my body down too early. I found that you're only supposed to do three training runs in excess of eight miles. I did seven. And I felt it! But race day is race day, I couldn't do the race sooner. In contrast, with a self-paced purchasing certification like the SPSM®, if you get ahead of your plan, that's OK. You can take the exam sooner. You don't have to wait for race day. And you don't have to feel like you have to keep on training beyond the point that you are ready.
  • Achieving the next level of a purchasing certification doesn’t require re-doing all the work of the first level. Now that I’ve completed a half-marathon, what’s the next big thing I could do in running? That’s right, run a full marathon! That’s 26.2 miles. Twenty-six point two new miles. My 13.1 miles from this half-marathon don’t count. Quite frankly, I don’t think I could physically do 26.2. I might do another half-marathon, but it hurt too much to consider doing a run twice that distance. Well, if you earned the SPSM® Certification, earning the SPSM2® Certification doesn’t require re-doing the SPSM® which is a prerequisite. You just move on to the SPSM2® Program and test on just that new material. That’s so much more attractive than doubling your running mileage!
  • Finishing a half-marathon in the past gets less relevant as the years go on. If someone came up to me and claimed to be in as good as shape as me because they ran a half-marathon 40 years ago, how believable would they be? Not very, right? You have to continue to work hard to sustain your running proficiency. When you earn a purchasing certification, sure it will expire, but maintaining it through recertification is relatively easy. In the case of the SPSM® Certification, that simply involves earning 32 Continuing Education Hours in purchasing and supply management topics from approved sources every four years. So, it’s relatively easy to stay a champion in purchasing compared to staying a champion in running.

I’m sure I’ll think of more similarities and differences between the two achievements and, when I do, I’ll post them in the comments below.

To Your Career,
Charles Dominick, SPSM, SPSM2
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM® Certification Online At
www.NextLevelPurchasing.com

Friday, September 09, 2011

Input Cost Volatility: From Roller Coaster To See-Saw

Input cost volatility is a topic on every procurement leader's mind these days. But input cost volatility isn't new. However, the patterns of input cost volatility certainly seem to be changing.

In the past, commodity costs would rise, peak, decline, bottom out, and repeat the cycle. That roller coaster-like cycle would often span years. These days, the cycle seems to be much shorter.

We recently saw commodity costs rise and then, in June, take a step backwards as reported in last month's Leading-Edge Supply Management magazine (the official online magazine of the Next Level Purchasing Association) as well as in my blog post of August 5th. Was that the beginning of the downward part of the cycle?

If you were paying attention to stock market news articles, it seemed to be. But then in July, as you can see in the just-released September edition of Leading-Edge Supply Management, commodities rebounded. (NOTE: for access to the magazine, join the Next Level Purchasing Association, it's free)

Still, we talk about volatility. No one knows exactly how the next few months will pan out for input costs, but we very well may see the roller coaster pattern of years gone by replaced by more of a see saw pattern. Therefore, I recommend studying as much as you can about input cost drivers.

One resource that I'd recommend checking out is a free webinar coming up on September 21 entitled "How to defend product profits in the 'new normal' of input cost volatility" from Genpact. You can learn more about this webinar at
http://www.genpact.com/FinanceAndAccounting/volatility-solutions.aspx.

In these crazy times, you can never learn too much.

Disclosure: Genpact's procurement outsourcing division is a training customer of Next Level Purchasing. However, the webinar mentioned above was recommended because of its value. No compensation was received for promoting it.

To Your Career,
Charles Dominick, SPSM, SPSM2
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM® Certification Online At
www.NextLevelPurchasing.com

Tuesday, September 06, 2011

Your Supplier's Negotiating Strategy: Know It, Beat It

I hope that you have enjoyed the article "Defeating A Supplier's Negotiating Strategy."

In the article, I gave a couple of examples of suppliers' negotiating strategies and how they could be identified and countered. I'll use this blog post to describe one more strategy.

I call this negotiating strategy "taking the sauce off of the pizza." While everyone's favorite pizza toppings vary - and some people don't like any toppings, including the cheese - most of us expect at least sauce on our pizza.

New suppliers will sometimes try to unseat an incumbent based on the promise of a lower price. How do they achieve such a lower price? They strip components or attributes of the product or service away.

Sometimes, this is a good thing. It's like value analysis: if a component or attribute of a product or service isn't adding any value, then it should be eliminated and it's cost taken out.

However, with these types of situations, you have to recognize when a new supplier's proposal is stripping value along with cost. Going back to the pizza analogy, you may be able to have a meal that beats back your hunger if you have sauceless pizza, but are you sacrificing satisfaction by foregoing an important ingredient like sauce just to save a little bit of money?

If you are sacrificing satisfaction, then it may be worth spending more. You really have to scrutinize new suppliers' proposals, identify how lower cost is possible, determine whether there is a potential sacrifice to be made, and decide whether any sacrifice is worth the cost savings.

Coincidentally or not, it's lunch time...

To Your Career,
Charles Dominick, SPSM, SPSM2
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM® Certification Online At
www.NextLevelPurchasing.com

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