Category Archives: Best Practices

Screening Questions to ask Prospective Suppliers

A recent article over on Supply Chain Digital on “nine crucial questions to ask prospective suppliers” was in the right direction when it presented a small set of questions to screen prospective suppliers. Before inviting a supplier to an RFP, the following questions should be included on every RFI:

Can we have a copy of your Code of Ethics?
If the vendor doesn’t have one, or won’t give it to you, sound all the sirens and run for the hills. No organization can afford a publicity disaster these days.

Can you provide 3rd party proof that you live up to it?
It’s one thing to say you have an ethics policy, it’s another to follow it — and another yet to have true third party proof that you do. Make sure the certification is from a true third party and not from a small consortium of vendors that fund the certification agency.

Can we have a copy of your Quality Assurance Process?
If the vendor doesn’t have one, or won’t give it to you, then you need to ask yourself what kind of quality you can expect.

What certifications do you have with regards to this process? ISO? ASQ? etc.
If the vendor doesn’t have any certifications, how much faith can you put into the process the vendor is using?

Can you provide references from current AND former clients who did business with you for at least 2 years?
You don’t want references who have been with the vendor less than a year because the blush is still on the rose and they will be full of peace and love for the vendor. You need a real review from an experienced customer who can tell you what’s good and not so good. No vendor is perfect, and if the not so good is not relevant to your business, then their imperfection is irrelevant. Plus, if customers’ left, why? Was it due to a change in business? Or poor performance? If the customer left for due to a change in business, and they still have a good reference for the former supplier, then that speaks volumes. If the customer left due to continuously poor performance, that also speaks volumes.

Do you understand our business? Explain!

If the supplier has never supplied a customer in your vertical, and you have special needs, this could be an issue. It could also be an issue if they have never supplied a customer with special needs in your vertical or you have considerably different requirements than the average company in your vertical. Make sure the vendor has a good understanding of who you are as a company by asking this open ended question.

Who are your top competitors? Why are you better for us?

Everyone has competitors. If they don’t, then they are misguided or selling a product or service no one needs. There are no Blue Oceans any more, just open oceans that are only sparsely sailed (by a few companies who are eager explorers). Make sure they give you a few real competitors as well as a good reason as to why they are better, as this will serve to not only enforce their answer to the previous question (and let you know if they really understand your business) but let you know that they have attempted to be honest in their assessment.

Dick Locke On The Yin-Yang of the Business Universe (Repost)

Editor’s Note: This is a repost of a classic post by Dick Locke. (His guest posts are all archived.) Dick, who has delivered seminars to over 100 companies across the globe, is a seasoned expert on International Sourcing and Procurement who wrote the book.

Steven Guth proposes that “Procurement pros should be in sales“. He
implies, but never quite says, that procurement pros should have sales
skills. That’s right on. I’ve been there, done that and even got a
tee-shirt. Sales skills are essential, especially if you are in a
corporate central group that is outside of any profit centers.

Here’s the situation. I won’t mention the company name, but I hope
people will figure out who it is. They had a Corporate Procurement group of which I was a part. I received an assignment to start up International Purchasing Offices (IPOs) in Asia back in the mid 1980s. Funding those offices quickly became an issue. It had been an issue all along for the Corporate Procurement Group, with big annual negotiations and discussions about how much each profit center would pay to fund the corporate group. Now we wanted to add more people and expense for an unproven new function. They might as well have painted a big target on our backs.

The funding solution we came up with was that we had to generate our own funding and using us had to be voluntary. That meant we had to charge our users a fee and that we were in competition with two other groups. One was reps and subsidiaries of (largely) Japanese and European companies who had set up a sales subsidiary structure in the US. The second group was our own company’s buyers and purchasing managers in profit centers who felt they could source, purchase from, and manage overseas suppliers themselves.

We realized we had to not only charge less than what sales subsidiaries
charged but also less than our profit centers felt it would cost to do
it themselves. We came up with essentially a sliding scale of markups on
purchase orders. Small users might pay as much as 5%. Large users might pay less than half a percent.

I’m glad to say it worked. The operation was handling more than a
half-billion dollars per year in orders when I left. That’s not to say
there weren’t, err, “learning experiences.” One of our big issues is
that we had selected employees for their purchasing and engineering
skills, and not for their marketing skills. It required a tune up for
several of our people, not excluding me. It took about three years to
become fully self funded. If we had avoided some mistakes we could have shaved about a year off that time.

It had some very pleasant side effects. We essentially were running a
small business within a big corporation. Our people got lean,
entrepreneurial and very customer-oriented. We quickly developed an
antipathy to bureaucracy. We became really efficient. It also took us out
of the annual budget battle and the annual exercise to calculate what we were saving. (I refer to that as “lies, damn lies, and purchasing
statistics.”) We merely had to state that we received x number of
purchase orders per day from people who didn’t have to use us and were paying us for our services. That kept management happy nearly all the time.

Where is this model applicable? In companies where there is a lot of
independence on the part of profit centers, a center-led purchasing
effort, issues with funding the central department and finally where an
internal department can develop and market an advantage over their
competitors. Check it out, it may be right for you.

Dick Locke, Global Procurement Group and Global Supply Training.

This was, and is, and a great post, Dick.
(And why SI is including a few games to sharpen your sales mindset in it’s Gamer’s Guide to Supply Management.)

Spend Analysis – How Do You Get It Right?

As an expert in optimization and analytics, I’m regularly asked, with respect to spend analysis, where do I start, which solution is best, how do I get fast savings, etc. All good questions, and as per the dozens of posts on this subject over the years, they all have multiple answers, highly conditional on the skill of the analyst, the solutions available, the data available for the solutions to act on, the categories that can be impacted in the short term (as some contracts are effectively unbreakable and some vendor contracts all but prevent cost recovery), etc.

More sophisticated analysts ask what built-in reports are necessary and the most useful, how much real-time slicing and dicing capability they really need, how much can be automated, etc. Also good questions, but questions which, depending on the particulars of the situation, also have multiple answers which are dependent on what the organization is buying, who the organization is buying from, where the products and services are coming from and going to, how much data is available with respect to the product and service cost components and composition, how powerful the data amalgamation and computation engines are, how variable their spend patterns are, etc.

Which leads many people to believe that it’s almost impossible to get it right, when the reality is that, with the right type of tool and the right mind set, it’s easy to find success, but very hard to predict where and when you will find success. It’s like being a skilled professional during a market boom where the demand for individuals with your skills outstrips supply. While you don’t know who will offer you a job, if you have good references, work hard, and apply yourself to finding a job, offers will come. Spend analysis often works the same way – if you have the right tools, work hard, and apply yourself to finding opportunities, they will present themselves. It’s just a matter of digging until they materialize.

As I’ve said time and time again, you’re not likely to find your best opportunities in the canned top-N reports which for many years were the staple of spend analysis solution vendors. Because, as I’ve pointed out for years, if you go to manufacturing and ask a handful of buyers who the top 10 suppliers are, you’re going to get a set of overlapping lists which will easily allow you to identify the top 7 or 8 suppliers. The same for categories and commodities. And the AP system tells you who the top departmental and individual spenders are. You may not know the exact spends or exact volumes, but you can quickly get a pretty good idea and focus your negotiation efforts on those categories while you work towards improving your data. The net result is that these reports will only identify a few opportunities that you missed, which you will quickly identify, attack, and capture within 6 to 18 months. That’s why the year-over-year return of most spend analysis efforts falls flat within two years. The biggest opportunities are not in what you know, they’re in what you don’t know. They’re somewhere in the next 20 or 30 suppliers or the next 20 or 30 commodities that can be consolidated into moderately high spend categories that when effectively rationalized and sourced can deliver 10%, 20%, and even 30% savings as well as process efficiencies that deliver further organizational savings still.

A consolidation that will only happen if you can define category groups and supplier families and analyze collective spend and compare it to market rates and identify patterns of overspending not detectable using only top n spend reports or traditional organizational categorizations and supplier codes (where the same supplier has four different entries in the vendor master because, as a non-top n supplier, no one bothered to make sure all spend associated with that supplier was with a single vendor entry in the ERP). And you can only do this if you can slice, dice, and rearrange the data on the fly in non-traditional ways only you, as a creative intelligent being, can do. A rule-based system can only check for previously identified transgressions. It can’t check for unknown transgressions or future transgressions by organizational buyers.

So if you want a short answer to the question of how do you get spend analysis right, you make sure you buy a tool that gives you a lot of different flexibility in the amalgamation, organization, and analysis of the data available to you. It should let you build, in technical terms, “multiple cubes”, allow you to create multiple roll-ups and reports on these cubes, using multiple analysis techniques. It should let you build a cube, appropriate roll-ups, and reports that answer any question you care to ask. If you see a spending pattern or trend that is not in line with what is expected, you need to be able to dive into the data and find out why. That’s how you save money. Flexibility, a toolkit of techniques, and the creativity to apply them in different ways until you stumble on the big savings or value generation opportunity that everyone else has missed.

Now That You’ve Taken Responsibility, Get Sustainable Results

In our recent (re)post last week, we told you that if you do not get sustainable results, blame yourself. By now, you’ve owned up to your shortcomings and are ready to do something about it. Today we are going to overview steps you can take to make sure you maximize the chance of a perfect order, which, by definition, is acquired at just the right cost (which means there are no savings to be had).

As per this post, for savings to materialize, the following necessary (but not sufficient) conditions have to be met:

  • the order has to be placed with the contracted supplier
  • with sufficient lead time
  • and then shipped by the supplier on-time
  • using the approved carrier and shipping arrangement
  • with the required third party and government fees promptly paid
  • and paperwork promptly filed
  • so there are no delays and the product arrives at the warehouse on time
  • where it is properly received, inventoried, and shelved
  • and then the invoice is verified against the good received and the PO
  • and paid at the right time when everything is okay.

This is a tall task, taller than accepting the tall tale of Jonah and the whale, but not an impossible one, and no miracles are required to make it so. Just the acquisition of the right technology, implemented in the right framework, supporting the right processes, and tailored to support your organizational talent. It will take some terrific transition management to get the right organizational alignment, but such alignment is possible (and we’ll be discussing this in more detail next quarter), and the leaders will get there over the next seven to ten years.

So where do you start? Acquire the core technologies you need to streamline your supply management practices.

  • an e-Procurement solution that only allows orders for products on contracts from approved suppliers
  • a demand planning solution (which may be part of a next-generation ERP solution) that integrates with your e-Procurement solution and notifies you when order deadlines are approaching and automatically submits auto-fill orders
  • a 3PL solution that tracks shipments in real-time
  • a Trade Management solution that automatically generates the required paperwork, computes the required fees, and manages, tracks, and confirms their submission
  • an Inventory and Warehouse Management System that integrates with the e-Procurement Solution that manages receipt, shelving, and distribution
  • an e-Procurement solution that also does invoice management and m-way matching
  • an e-Payment solution that integrates with the e-Procurement solution and includes Supply Chain Finance Capabilities (including dynamic discounting, supplier financing, and pre-shipment finance, for example) to help the company determine the best payment time

It’s just the beginnings, but it’s a good start.

Too Many Marketing Fingers in the Procurement Pie? And if You Need Help, Get It.

Let’s face it. If Marketing hasn’t let you put your fingers in the Marketing Procurement Pie, then you don’t have any experience executing and managing Marketing and Agency projects in your organization. Furthermore, given the more traditional role of Procurement and Supply Management, all of the training and expertise that has been imparted to you has probably focussed on direct and indirect materials management, and not ephemeral creative services.

If you want to be taken seriously, you have to not only be an expert in your function, but very knowledgeable in the Marketing function as well. You have to know their process, KPIs, and lingo and speak it like a pro. Otherwise, you look like a n00b in a l33tsp34k forum, and you won’t be taken seriously.

If you don’t make the cut, then you better bring in help, get up to snuff, and make sure you are putting your best foot forward before taking on your first Marketing Procurement project. As per our previous post in this series, you will be put on probation and likely only get one chance to succeed. Fail on even one task, and you’ll be blamed for everything and not allowed back in until there is a change in leadership. (It’s harsh, but you need to remember where the biggest concentration of egos typically are outside of the C-Suite.)

A third-party experienced in marketing procurement can not only help you understand the lingo, the relevant KPIs from a Marketing viewpoint, and the process customizations that are likely to get Marketing’s attention, but can also help you with:

  • Analysis & Benchmarking
    Chances are you are struggling getting enough clean and current data just to analyze and breakdown Marketing’s current spending — how are you going to benchmark the industry when Marketing never bothered to save bids and quotes from agencies that didn’t win the bid?
  • Subject Matter Expertise
    In addition to helping you with lingo, KPI definition, and process customization, they can also help you prepare the SoWs (Statements of Work), MSAs (Master Services Agreements), and Rate Card templates that make sense for your organization.
  • Time Bank
    Chances are that your team is already “time bankrupt” and barely has the time to do it’s job, yet alone learn another function. Bringing in the appropriate expertise not only minimizes the amount of time you need to identify the relevant subject matter, but to run the first project successfully as you will have an expert guiding you each step along the way. In addition, an outside third party can help you with the time-intensive data collection, cleansing, and benchmarking, freeing your team up to focus on what is important.

For more information on what a third party can bring to the table, check out Source One Management Services’ new white-paper on “Fueling Effective Collaboration: How Strategic Sourcing Delivers Results for Marketing Groups”. There aren’t many resources out there on Strategic Sourcing for Procurement (and SI knows this as it’s been talking about the importance thereof since it started back in 2006), so take advantage of what there is when something comes your way.