Monthly Archives: March 2012

Sometimes, Less Really Is More!

Regular readers will probably have noticed that SI has decreased its post rate in 2012 by 30% to 40% while some blogs in the space have increased their post rate by up to 100%. Why did it do that? The same reason Salon cut its post count by a third. By moving from a model where they published multiple posts, where most were only summaries of a major news events covered by someone else, to a model where they published fewer, but more in-depth, stories, they increased traffic by 40%.

And even though, the main reason SI moved to less was because it feels you, dear reader, are just being over-whelmed, similar logic applies. You’re already overworked, so why do you need to read the same thing three times, and, more importantly, read three stories where none of them tell you what you really need to know or give you a good picture of the situation. Plus, as we explained on Monday, Work is Murder, so we’re going to make sure everything you read has some meaning and completeness behind it. Plus, we want to make sure you have time to read the in-depth papers that SI comes out with from time to time, including the recently released free e-book on Spend Analysis which really does constitute the definitive guide and the forthcoming white-paper on Taking The First Steps on Your Next Level Supply Management Journey.

And to prepare yourself for this upcoming question, the doctor would like you to ask this question and try to answer it. How do you imagine your Supply Management future? (If you don’t have a good answer, he would recommend picking up one or more of Dominick & Lunney’s Procurement Game Plan, which was reviewed this week, Payne & Dorn’s Managing Indirect Spend, which was reviewed in late January, or Rudzki and Trent’s Next Level Supply Management Excellence, which was reviewed late last summer. They’re all great starting points to try and answer this question. If you can’t imagine your future, you’re going to have a hard time getting there.)

Procurement Game Plan: A Review Part II.1

Charles Dominick of Next Level Purchasing and Soheila R. Lunney of Lunney Advisory Group recently released The Procurement Game Plan: Winning Strategies and Techniques for Supply Management Professionals. In our first post, we set the stage with The Purchasing Professional’s 10 Commandments. In our last post, we covered the first four chapters of the book that discuss organizational role, supply management strategy, talent, and social responsibility — the stage that a modern supply management professional has to act upon. In Part II, we will continue our detailed review with a discussion of strategic sourcing, supplier qualification, and negotiations — the subjects of chapters 5 through 8 and critical skills for strategic sourcing success. This post will focus on strategic sourcing and supplier qualification.

The chapter on strategic sourcing starts off with a short and concise definition of what strategic sourcing is — the rigourous process of identifying the right supplier. Not necessarily the supplier of cheapest or highest quality, but the one that offers the greatest overall net benefit to the organization with respect to the project and organizational goals.

The chapter has a detailed discussion of the steps that is not much different than what you would find in any paper or book on the strategic sourcing process, but does a good job of pointing out that the version of the strategic sourcing process you implement does not matter as the key is that proper strategic sourcing is collaborative and organized process that promotes cross functional teams for unified decision making with the guidance and leadership of executive level supply management. It also gets the implementation right — start with easy wins, move on to bread-and-butter categories, and end with tougher, non-traditional categories that are usually ripe with savings — but does not necessarily get the starting points in each category right. Sure office supplies are easy wins because this is a category you can always take 10% off of, but if it’s a relatively small spend for your organization, it’s not worth it. Sometimes just getting a category under contract that is not currently under contract on a core purchase will save you five or ten times as much. In order to properly segment the categories, you have to start with a proper spend analysis. It does point out the importance of spend analysis for understanding the savings opportunity in each category, but this has to be done before you segment the categories into your three sourcing waves. The reality is that no indicator, including the four great indicators defined on page 74, is enough to guarantee a category has, or does not have, savings. A more detailed spend analysis is always required.

One section of the chapter on strategic sourcing I particularly liked was the skills for future nontraditional category strategic sourcing. In order to be able to gain support of the organizations with the sacred cow spending and work with them to get these costs under control, you are going to have to learn their business — and this is going to require new skills. This point is so important it’s too bad that this wasn’t a chapter in and of itself.

Another section that was great in this chapter was the section that defined the eleven signs of ethical competitive bidding. If you want successful strategic sourcing events, you need the participation of the best suppliers on the market. And the only way you’re going to get that participation is if they believe you are a customer worthy of their product. If they see you doing shady back-room deals, you will not be perceived as a customer-of-choice, and it is likely that they will only participate in your events when they are in financial trouble — which is not a situation you want your supplier in.

The chapter on supplier qualification starts with a section on predicting supplier performance — which is a great place to start. If your prediction is that a supplier will not perform well, and there are multiple suppliers likely to perform well, it probably makes sense to not invite the supplier to your event. If your prediction is that only a handful of suppliers will perform well, maybe you should forget the auction and go straight to negotiations, in order of predicted performance. The three questions it provides are a great place to start. A supplier who does not have a core competency in your category, who does not have experience satisfying requests with requirements like yours, and who does not have the right capacity is not likely to perform well. The third question is more important than you think. If your contract would take up more than 15% of their business, and they are busy, not only will capacity be tight, but if your demand fluctuates significantly, it could have a significant impact on their ability to perform. Inversely, if your requirements constitute less than 1% of their demand, while they may have the capacity, they may not have the incentive to service you timely if a customer that represents 10% of their capacity suddenly needs an extra production run.

The sections on the evaluation of big and small suppliers are also good reads, as suppliers should be evaluated carefully, but I’d be wary of testing the escalation plan (which requires calling points of contact and timing their response) until you are in actual negotiations. If every buyer called every supplier during the initial supplier qualification phase, they suppliers would be overwhelmed and unable to respond to anything or get their jobs done. They’d have to hire more people just to answer phones all day. Their cost to serve would increase, and, as a result, so would your cost. The section on dual vs. single source was always great. The answer to this question is never as easy as it seems.

And the discussion of risk mitigation is equally challenging. However, the suggestions that you get a sample, ask for a money-back guarantee, and conduct a quality audit are all good ones. A supplier confident in their work will generally agree to all this and the added comfort will smooth the relationship. An audit will take time, but as the authors note, choosing the wrong supplier is guaranteed to take even more time, more money, and an endless array of aggravation and frustration. Take the time to get it right.

The Procurement Game Plan: A Review Part I.2

Charles Dominick of Next Level Purchasing and Soheila R. Lunney of Lunney Advisory Group recently released The Procurement Game Plan: Winning Strategies and Techniques for Supply Management Professionals. In our last post, we set the stage with The Purchasing Professional’s 10 Commandments. In this post we’re going to continue our fairly detailed review of this book, which will span four or five posts. We’ll start by covering the first four chapters of the book that discuss organizational role, supply management strategy, talent, and social responsibility — the stage that a modern supply management professional has to act upon.

The first chapter on Procurement’s Place in the organization starts out with an overview of management’s expectations of modern Procurement — something every Procurement Pro needs to know when finding a (new) job in today’s highly competitive skill-based marketplace. We’re well beyond the time when all that was expected of Supply Management was cost savings. Now, with costs rising and consumer belts tightening, Supply Management is also being tasked to deliver productivity improvements, brand & differentiation support, customer satisfacation, cash flow improvements, great service, competitive advantage, and sometimes even revenue. It’s a tall order for a single organization — it’s good that the strategies and tools exist to deliver. (And that’s kind of what this blog is all about, but the doctor digresses.)

The chapter then dives into the types of goals that Procurement / Supply Management organizations have, and this is where the value of the book starts to kick in. Organizations, depending on their stage of maturity, either have no (documented) goals, which is very bad, vague goals (with no meaningful measurable targets), which is bad as a professional will not know how important each goal is relative to other goals, SMART (Specific, Measurable, Attainable, Relevant, and Time-Bound) goals, which are good and a minimum requirement for organizational success, or Strategic SMART goals, which are great as they also tie the SMART goals to overall organizational strategy. A world-class supply management organization puts the good of the organization before the good of itself.

The chapter also discusses strategic vs. tactical procurement, Procurement as a Profit Centre, Procurement as a Service Centre, and Procurement’s Role in Specification Writing — but the other key section of the chapter is The Procurement Manifesto. Because it can be difficult to gain buy-in from functional departments when trying to get them to accept Procurement’s involvement, it is important to have a list of reasons why it will benefit them to work with Procurement. Your Supply Management organization should have such a list and should describe then in The Procurement Manifesto that can be given to the other organizational units. For details on what to include, see the book.

The next chapter discusses Supply Management Strategy — The Procurement Playbook if you will. The existence of an appropriately written guiding document will help keep the organization on the same page and help it to achieve its goals. Such a document must contain the following five sections in order to meet the department’s needs:

  1. The Procurement Organization’s Business Plan
  2. The Procurement Organization Structure
  3. Cost Control Strategies
  4. Risk Management Strategies
  5. The Supply Management Sourcing & Procurement Methodologies

Each piece of the puzzle must be clearly defined and outlined, and each organizational member must be on the same page. For details on how to write the Procurement business plan, on what types of cost control strategies to focus on, and what types of risk management strategies might be included, see the book.

One of the key parts of this chapter is the section on standard supplier selection criteria. The authors note that you should use a hierarchy of constraints and criteria every time you select a supplier. That hierarchy must include all of the relevant selection criteria, ordered and weighted so that each supplier can be compared fairly. This is sometimes the only way to determine which supplier will be the best fit for an organization. Generally speaking, this hierarchy should contain cost, value, quality, service, social responsibility, convenience, risk, and agility at a minimum, with other factors added depending on the goods or service being sourced. The weightings and rankings will be project specific.

The next chapter on Procurement Talent Management is one of the key chapters of the books and contains one of the key messages, talent is key to success. Without it, no amount of technology or transition management will help. It does a great job of discussing the five facets of the talent management cycle — Assess, Retain, Develop, Recruit, and Unify — and how each is necessary for organizational success. It also points out that they are not sequential and, depending on organizational needs, they may all need to be addressed simultaneously. Not only is talent management more important than many organizations prioritize it in their key issues list, but it is more difficult than many organizations would lead you to believe. This is a chapter to be reviewed in depth as almost every point matters, but a key point it addresses that is often missed is that education is a retention tool. Real professionals want to learn and improve, and will value an employer that not only allows them to do that, but that sponsors their education and efforts to improve themselves. The value of educating a resource is many times the up-front investment. Many, many times. The only point I’d disagree with in the entire chapter is the statement that by working with the business schools of the universities in your area, you can hire (at no cost/credit only or at minimal cost) intelligent and hard-working interns to take away the burden of tactical work from your strategic sourcing team members. While it is true that you can hire these intelligent, eager, hard-working resources at little-cost to do just this, they will need regular supervision from your senior Procurement Professionals, and this is a hidden cost you will need to account for.

The next chapter, and the final chapter that we’ll cover in this post, is on social responsibility in procurement: the new rules for a more responsible game. Whether this is important to your organization now or not, it will soon be as more and more consumers demand environmental or social responsibility, so you better get a handle on how it is going to impact your organization now, or you’ll be scrambling later when the media has you under the gone. Not a situation any Supply Management organization wants to be in when they can eliminate the risk with some careful research, planning, and a social responsibility program – which may not have to be all that extensive or demanding.

One of the key points covered by the chapter, which is often missed by other books, is ethics. Not only does social responsibility start with ethical behaviour, but a perceived lack of ethics, real or not, can land you and your organization in hot-water. As an example, the authors describe some recent government scandals, including one that got their mayor in some very hot water. In 2007, Mayor Luke Ravenstahl accepted two days of golf in the Mario Lemieux Celebrity Invitational from UPMC and the Pittsburgh Penguins, valued at $9K. His defence is that while the city’s ethics code limited city officials to accept admission to cultural or athletic events valued at $250 or less per year, charitable outings were exempted. This may have been a charitable event, but it’s value created a perceived conflict of interest that landed him in very hot water with the media. Then, a few months later, he decided he wanted to accept free tickets to go to a Stanley Cup Final game against the Detroit Red Wings. This time, he asked for an official legal opinion first, but it didn’t matter because the ticket value was very high and another councillor said he made half of the Mayor’s salary and pays for his hockey tickets out of his own pocket and the mayor should do the same. The lesson is that even if you don’t violate the ethics or gift acceptance policy of your organization, if there is any chance your actions could be perceived by a (large) group of people as unethical, you probably shouldn’t do it. And if you have to think about whether or not something is ethical, and, even worse, think you have to ask permission, just don’t do it.

The sections on the supplier code of conduct, green procurement, and supplier diversity, which for the most part cover all of the basics, are also quite good and worth a careful read.

That’s it for Part I. In Part II, we’ll discuss the next four chapters on Strategic Sourcing, Supplier Qualification, and Negotiations. Stay tuned.

The Procurement Game Plan: A Review Part I.1

Charles Dominick of Next Level Purchasing and Soheila R. Lunney of Lunney Advisory Group recently released The Procurement Game Plan: Winning Strategies and Techniques for Supply Management Professionals. We’re going to do a fairly detailed review of this book over four to five posts, but to start, we’re simply going to cover the purchasing professional’s 10 commandments because they do a great job of covering the basic mindset a Procurement or Supply Management professional has to have if she is to expect a successful career.

The Purchasing Professional’s 10 Commandments

  1. Thou shalt always make decisions in the best interest of thy employer.
    Good purchasing agents avoid any real, and even perceived, conflicts of interest.
  2. Thous shalt always involve thy internal customers throughout the purchasing process.
    Good purchasing professionals never act alone.
  3. Thou shalt never make price the only criterion in a purchasing decision.
    Good purchasing agents take quality, delivery, and other relevant criteria into consideration also.
  4. Thou shalt measure thy performance and communicate thy performance to management.
    Good purchasing professionals know and show their value.
  5. Thou shalt treat suppliers fairly.
    Good purchasing professionals don’t attempt to take advantage of suppliers’ mistakes nor trick them into accepting unfavourable terms.
  6. Thou shalt embrace change and new technologies.
    Thou shalt not resist them.
  7. Thou shalt negotiate with the understanding that there may someday need to be a close relationship with the supplier across the table.
    Thou shalt not burn thy bridges, especially before crossing them.
  8. Thou shalt realize it is a global economy.
    Thou shalt never make assumptions that thou knoweth every supplier available.
  9. Thou shalt acknowledge that thy manager’s job is to develop and implement a strategy for development.
    Therefore, thy shalt challenge thyself to solve problems independently rather than involve thy manager in tactical crises that can be reasonably resolved at your level.
  10. Thou shalt commit to continuous improvement of thy skills.
    Thou shalt never let a year go by without learning new practices used by other purchasing professionals.
  11. Thou shalt always exceed expectations, consistently delivering more than anticipated.
    Good purchasing professionals will also fulfill obligations sooner than expected.

In our next post, we’ll review first part of the book on organizational role, supply management strategy, talent, and social responsibility — the stage that a modern supply management professional has to act upon.

Is Your Desk Job Killing You?


Today’s guest post is from Joe Nguyen and originally appeared on Online University.

The past 40 years have seen a lot of changes to the American lifestyle, including the way we work. People are sitting more, getting less exercise, engaging with computers on a daily basis, and finding new ways to get stressed out. So how has this shift in the way we work affected Americans? A lack of exercise coupled with sitting down for eight or more hours at a time have contributed to a variety of health issues in America, not the least of these being the obesity epidemic. People sitting at a computer all day are at a heightened risk for packing on pounds, developing heart disease, and dying young — and yet over 80% of Americans report to a desk job every morning. In a nation that extolls working hard and working often, many may be displeased to find that at the end of the day, all that work just might be killing you.

Work Is Murder
Created by: Online University

And that’s why you should do your own supplier visits!

Thanks, Joe.