Monthly Archives: March 2015

Hi-ho. Hi-ho. It’s Off PO We Go!

Or do we?

A few years ago Jason the prophet Busch wrote a post over on Spend Matters that asked can (and should) we eliminate purchase orders (POs) entirely? In the post he quoted Tom Linton, CPO & Supply Chain Officer at Flextronics, who suggested that we eliminate POs entirely as a result of his mandate to eliminate work before you automate, automate work before you move it and always make sure you improve outcomes in any given scenario.

Mr. Linton is entirely right — there’s no point in automating unnecessary work. And in many circumstances Purchase Orders are entirely unnecessary. If the contract specifies a delivery schedule with approved rates, then there is no need for a Purchase Order since it would just be replicating what’s in the contract. Similarly if it’s for services and approved projects, resources, and rate-tables are defined against a project schedule (unless overtime exceeds the maximum overage allowed).

In this situation, you can just conduct the 3-way match against the goods receipt and the contract when the invoice comes in and you are still certain that you have payed the right price for the right good from the right supplier at the right time.

But what about the situation where there is no (master) contract? What then? You just match the invoice to the goods receipt? I hope not! In this situation you can verify you are paying for the right goods from the right supplier at the right time — but not the right amount. You need to verify that the price is right (because, as the line goes, it can all be yours if the price is right). So in in this case you need something. A requisition? Nope – that’s not sent to the supplier, that’s sent to your supervisor/manager for approval. A one time contract for a single purchase? Isn’t that just a purchase order?

The purchase order can’t be eliminated, because proper purchasing procedure dictates that all purchases should be for approved products from approved suppliers at approved prices and such approvals should be documented in some form — be it a contract schedule or rate card, purchase order, catalog, or approved rate range for a T&E expense — and there are some instances where the only viable option will be a purchase order.

But an effort to eliminate as many purchase orders as possible will be a good and productive one because, like invoices, each and every purchase order comes with a processing overhead cost that adds up and costs the organization significantly over time.

In Commemoration of the One Hundred and Thirtieth Anniversary

A wandering minstrel I –
A thing of shreds and patches
Of ballads, songs, and snatches
And dreamy lullaby
And dreamy lullaby

My catalogue is long,
Through every passion ranging,
And to your humours changing
I tune my supple song!
I tune my supple song!

Are you in sentimental mood?
I’ll sigh with you,
Oh, sorrow!
On market’s coldness do you brood?
I’ll do so, too
Oh, sorrow, sorrow!
I’ll charm your willing ears
With songs of buyers’ fears,
While sympathetic tears
My cheeks bedew!
Oh, sorrow, sorrow!

But if patriotic sentiment is wanted,
I’ve patriotic ballads cut and dried;
For where’er our buyer’s banner may be planted,
All other local banners are defied!

Our warriors, in serried ranks assembled,
Never quail – or they conceal it if they do
And I shouldn’t be surprised if nations trembled
Before the mighty troops, the troops of …

 

If One Wants to Avoid Cost, Then One Should Avoid Cost At All Costs

One would think this would be obvious by now, but it’s not. Most organizations still talk about savings, savings, savings long after there are no savings left to be had instead of cost avoidance (and the successor topic of value generation). The best way to save money is not to spend any in the first place.

More specifically, it’s great if you negotiate the cost of a case of paper from $50 down to $40 but it’s even better if you don’t buy the case in the first place! That’s a 100% savings instead of a 20%! Now, it’s probably safe to say that paper spend can’t be eliminated, but most printing goes into the recycling at most companies the day it is printed, and that certainly can. How? Look at why people feel the need to print reports, articles, invoices, etc? Is it because they are in AP and they have to manually enter data coming in on a scanned PDF that can’t be properly parsed with OCR into the AP system, and they only have one monitor? Is it because the sales team / executives only have a small laptop screen and can’t see the report details adequately? In the first situation another standard monitor for $150 will eliminate the need for the AP staff to print out paper every day and save you cases on a monthly basis for years to come! In the second, spending $300 to $500 on a large screen will save the executives from having to print.

And SI is really glad to see it’s not the only blog taking up the cost avoidance cause. In a recent post by the maverick on the new CPO site (in which the doctor is currently doing a lot of collaboration to define what a CPO is, what she needs to know, what she needs to do, and what no other site will tell you) in which he addresses how Most Firms Ignore Cost Avoidance [And] Destroy Economic Value, we find out that it is just important, if not more so, because, to be blunt, cost savings is just a special cast of cost avoidance where you avoid paying the supplier more than you need to in order to acquire the product (while insuring the supplier is still sustainable).

At the end of the day, it’s all about spending as little as possible to get what you need in a sustainable manner. This essentially says it’s all about avoiding as much spend as possible while still getting what you need in a sustainable manner. Cost Avoidance is key, regardless of what your definition is.

Societal Damnation 45: Lack of Math Competency

Back in 2010, SI ran a post on how This is Scary! We Have To Fix This that referenced a MSNBC article on Why American Consumers Can’t Add that reported on a recent study that found:

  • Only 2 in 5 Americans can pick out two items on a menu, add them, and calculate a tip,
  • Only 1 in 5 Americans can reliably calculate mortgage interest, and, most importantly
  • Only 13% of Americans were deemed “proficient”. That means

    less than 1 in 7 American adults are “proficient” at math.

Ouch!

And while Procurement needs to be able to deal from a full deck of skills (and SI has compiled a list of 52 unique IQ, EQ, and TQ skills a CPO will need to succeed which will be explored in future posts over on the new Spend Matters CPO site where the doctor and the maverick are co-authoring a number of series on the CPO job description and the requirements therefore, starting with The CPO Job Description: An Overview), many of them rely on math. In fact, with so many C-Suites demanding savings, if a Procurement Pro can’t adequately, and accurately, compute a cost savings number that the C-Suite will accept, one will be tossed out the door faster than Jazzy Jeff gets tossed out of the Banks manner.

However, the United States is not the only country with a numeracy issue. If you review the recent OECD Skills Outlook report that presented the initial results of the global Survey of Adult Skills (that focussed on reading, X, and numeracy), you see that of the 23 countries listed, Australia, Canada, UK, and France, all of which are home to head-offices of global multi-nationals with big Procurement budgets and bigger need for top talent, are all below average with the United States. While over 60% of Japanese adults have a higher level of Math proficiency, in Australia and Canada, it’s slightly over 40% and in the US it’s barely over 30%. However, this still doesn’t meant that these people can do basic calculations required for tips, mortgages, or savings calculations. For example, higher starts at Level 3 (where the survey respondent scored 276 to 326 points) and the description of level 3 is “tasks at this level require the respondent to understand mathematical information that may be less explicit, embedded in contexts that are not always familiar and represented in more complex ways“. Tasks involving multiple steps and problem solving are level 4, and the percentages here are dismal. Less than 10% in the US and barely over 10% in Australia and Canada. (In Japan, it’s around 20%!) This means that less than 1 in 10 adults in many countries have the basic math skills necessary to do mathematically intensive jobs which include the majority of the sciences, economics and finance, and Supply Management!

And performance seems to be getting worse every year. This is not a good sign in an inflationary economy with restricted demand where advanced analysis, modelling, and optimization is required to find efficiency and savings. We need more math, and less electro-mechanical devices that purport to do it for us. (Otherwise, we won’t even be able to compute just how damned we are!)