Category Archives: Best Practices

A Sourcing Advisory Checklist

Sometimes a sourcing advisory firm can save you untold millions, and sometimes, as in the recent cock-up exposed by Jason Busch over on Spend Matters, the engagement will lead to a total disaster. So how do you make sure you’re the superstar who brokered the agreement that saved your firms millions of dollars and not the fall-guy who takes the blame for a multi-million dollar cock-up? You manage the process from end-to-end, and you start by making sure you have the right firm as an advisory partner. What should you look for when searching for the partner who will help you succeed when others have failed? Although the specifics will depend upon your needs and the sourcing projects in hand, the following checklist, first put forth by Phillip Fersht, blogmaster of Horses for Sources, in this Global Services article is a great start!

  • Internal Knowledge Management
    The firm should be taking advantage of the latest technology to share their intellectual property internally in a manner that will allow any of their employees to take advantage of the knowledge available to benefit their customer. You should be getting more than just the experience of the reps on your account — you should be getting the experience of the entire firm.
  • Depth of Experience
    Harvard MBAs look good on paper, but you want a significant amount of deep operational work conducted at real customers in industry, not theoretical research projects conducted in the safe confines of the ivory tower. In addition, make sure at least one of the reps on your project has deep experience in the categories you will be sourcing.
  • Mix of Experience
    A breadth of experience is important, especially when market conditions change and new sourcing strategies need to be derived. In addition, make sure the firm has employees who have crossed the breadth of operational roles, including sales and customer service.
  • Ability to ‘Advise’
    The ability to ‘consult’ is good, but you need specific advice that is going to allow you to succeed beyond what you could do in-house or with the lowest-bid consulting firm.
  • True Independence Where YOUR Outcome is Concerned
    They must be focused on YOUR best interests, and not theirs’. Make sure their interests don’t lie in relationships that force them to use, or compensate them to use, particular tools, processes, or staffing agencies. Just because something works for the majority of their current clients, it does not mean it will work for you. It might, and if it does, that’s great, but if it doesn’t, they should have the freedom to put together the best solution for YOU.
  • A deep focus on IP, Benchmarking, and Research
    No one knows everything … and, more importantly, if they don’t benchmark, they won’t know how good they should be able to do.
  • Operational Business Focus and Advisory Experience Beyond Simple Negotiation
    The best advisor can offer services that guide you through the sourcing lifecycle and beyond. In addition, sometimes just having an independent party available can help you build consensus and support in complex and sensitive situations.
  • A Sensible, Proven, and Flexible Methodology
    If their method of negotiation methodology selection starts with “eenie, meeniee, minie, moe … “, simply put, you’ve chosen the wrong advisor.
  • Respected in the Market
    You want an advisor that oursourcers and suppliers respect … because if they don’t bid, you don’t save.
  • Multiple Customer References You Can Talk Too Directly
    The ultimate proof of their capability will be in their success with their other clients.

Local Suppliers, Your Opportunity is Now!

The media is full of stories about the failings and weaknesses of global supply chains. It seems we have suddenly discovered that China is far away (and not in fact a remote US state); that ’emerging’ markets do not share Western value systems; that business rules and practices are driven by culture and cannot simply be overridden or suppressed; and that historic economic muscle does not automatically translate to limitless power and control.

So now the body of experience is growing. The war stories are proliferating. And as costs rise, supply constraints kick in, quality failures become visible and threatening, [and] we find [ourselves in] an environment in which fundamental questions are being asked over supply strategies. Perhaps local sourcing makes sense. Maybe those old suppliers were not so bad after all.

So states Tim Cummins in the beginning of his blog post on how Buyer Misery Equals Supplier Opportunity where he essentially states that the current market should offer the perfect storm for local suppliers to make their case that, when everything is factored in, local suppliers are often the best choice for your business.

As Tim notes, in tough times, local suppliers can offer the following advantages:

  • lead time reduction
    You can get products next week, not next quarter. This reduces your costs and increases your profits in multiple ways:

    • reduced transportation costs
      It costs less to truck across a few states then to truck across a few provinces in China, ocean freight across the entire ocean, and then truck across multiple states through multiple regional distribution centers.
    • reduced inventory costs
      You only have to store a few weeks worth of inventory, not a few months. Considering 10% to 20% of total product cost at most companies is inventory cost, this is very significant.
    • fewer lost sales from stock-outs
      If your inventory depletes faster than you expect, you can often get more in days with expedited shipping (which is worth it if the product is a high profit margin).
  • quality improvement
    In addition to sharing the same values, a supplier in your local market is bound by the same laws, regulations, and liabilities that you are. Thus, the chances of them producing an inferior quality product are much lower. Note that this also reduces your costs as higher quality means fewer returns, and, most importantly, fewer lawsuits!
  • compliance
    Again, a local supplier is bound by the same laws and regulations that you are. Thus, they will be compliant from the start. This also reduces your cost as compliance monitoring can get very costly.
  • innovation
    Even though some foreign suppliers, desperate for business, may seem over eager to work with you, you have to remember that, in some cultures, you don’t say ‘no’ to the customer and that the supplier may not be as open to open collaboration as a local counterpart who speaks your native language natively as well. Plus, a supplier in a local market is more likely to be going through ups and downs at the same time you go through ups and downs and is, thus, more likely to be on the same wavelength.

So follow Tim’s advice and get out there and promote your services as a more reliable, ethical, environmentally-conscious, compliant, quality, innovative supplier who is ready and willing to work with your customers to find new and innovative ways to reduce costs and increase value across the board in a manner that will allow a consistent and predictable supply.

And for all of you suppliers who are saying “How do we do this?, my answer is to use the tools and services that are already available to you. Create a great web-site and have a search engine optimization firm optimize it for Google searches. Every day, more and more people turn to the web, and Google, to help them discover new sources of supply. Then, identify a marketplace (not a supply network that is limited to buyers who use a certain vendor’s software) where people are going to go to look for suppliers like you. If you’re in manufacturing, I recommend taking a good look at MFG.com. Yes, it is a pay-to-play marketplace (but then again, they’re all pay-to-play marketplaces), but at least they have an in-house team dedicated to helping manufacturers make the most of their opportunity, which includes assistance in getting set-up, finding new opportunities, and responding to RFPs. (This is because they make most of their revenue off of transactions, which don’t happen unless their manufacturers get business.)

Want to Save? Get a Handle on Services Spending!

Earlier this year, Industry Week, in their article about how “Services Supply Chain Management [is] an Untapped Opportunity”, picked up on a recent study by CAPS that found that purchased services averaged 39% of total purchasing spending. That’s a significant number – especially when it’s getting harder and harder to save on goods when energy and raw material costs are still spiking across the board. And its a worrying one when you consider that not only do the majority of companies not have a good technology-based solution to help them make the right decision, but they often don’t even know how much they’re spending on services, if they’re being billed consistently – and in line with the local market, or even being billed according to the contracted rates!

In one of my recent posts, I noted how Iasta used their optimization-enabled e-Sourcing solution to save roughly 20M on two different projects, including a 20M savings on a services spend of roughly 80M. They didn’t do this because optimization is a magic technology that always saves you wads of money (it’s not, and what it does is find the lowest cost solution that is feasible within your constraints), they did this because the organization was simply signing national contracts with large multi-purpose consulting shops at what it thought were good rates, instead of signing regional contracts with regional providers who performed the required services at local rates and who could offer discounts for local volume-based awards. They built a sophisticated RFX bid model that allowed providers to bid by resource type by location, and to offer discounts based on total dollar award across resource types and / or regions, and then fed all of the data they collected into an optimization model that had the computational strength to identify that, lo-and-behold, breaking the contract up among multiple regional providers who could give the best price in the region could save you a significant wad of cash.

In another of my recent posts, I noted how expert spend analysis consultancies like Opera Solutions (now ElectrifAI) and Lexington Analytics can often walk into a client and get them a rebate cheque on overpayments, that are common in office supplies, electronics, and there should be no surprises here, services categories. They do this not because they are experts in guilt transference or debt-collection, but because they know how to normalize and structure your data in a way that allows them to compare it against contracted rates, find overpayments, and, also, find duplicate payments that your vendor forgot to tell you about. They then prepare a report that makes it abundantly obvious that your vendor was ripping you off (whether they meant to or not), which essentially forces your vendor to either refund you or give you a credit against future services (as you have everything you need to take legal action, which is something you’d both rather avoid).

These days, services at an average mid-size company could represent a multi-million savings opportunity and savings at a large company could represent a savings opportunity worth tens of millions of dollars. Although these numbers weren’t significant in the early days of e-Sourcing when supply outstripped demand in many categories, raw material costs were low, and e-Auctions were leveling the playing field, now that you’re lucky to contain cost increases on your purchased goods to inflation, these numbers are very important. Therefore, it’s important that you get a good handle on your services spending and exploit it for the savings opportunity that it is.

So how do you do that?

  1. Do a services spend analysis
    The first thing you need to do is get a handle on how much you are spending on each services category, and how many providers you’re using in each category per region, and, more importantly, roughly how much you’re overpaying and whether there are opportunities for refunds, rebates, or credits.
  2. Identify, and order, your biggest savings opportunities.
    Stop when you get to 10 or when you’ve covered 80% of your spend. You’ll attack these first.
  3. Break your savings opportunities into two groups: those you have the expertise to do in house and those that should be done with the assistance of an expert consultant
    The ones that can be done in house will be tasked to senior category experts in your sourcing group and the rest will be tasked to your CPO to find the right external expert to help your organization.
  4. Identify the right, niche, technology solutions to assist you.
    You get good results when you use good tools. For professional services, consider using a provider like Provade with a solution that specializes in work-force sourcing. For printing, consider a provider like Noosh that specializes in print services.
  5. Implement a good end-to-end e-Procurement solution with m-way matching that integrates purchase order creation, electronic invoice management, payables management, and contract management.
    This will insure that

    • when a purchase order is cut, it is cut with the contract rate included,
    • only invoices that bill against purchase orders at the approved contract rate, and for a number of hours/days within approved limits, are accepted,
    • the payment is for the amount, and only the amount, on the approved invoice, and that
    • your negotiated savings are realized!

If You Missed the Purch-lympics, Here’s What You Missed

For the last week, Next Level Purchasing (Certitrek NLPA) has been hosting its own Purch-lympics. For the last five days, it has been posting short essays submitted by Purchasers around the globe that described a problem they encountered, the action(s) they took to resolve the problem, and the ultimate results. Each day, readers were allowed to vote on the best essay, and the top five advanced to a final voting round, which takes place today, where the winner receives a full scholarship to the SPSM Certification.

Some of these essays had good tips from Purchasers like you that you could use in your daily jobs to solve your problems. To help you identify which essays are relevant to you, here is a brief overview of what each essay covers.

  • Leonard Ruhukwa on Supplier Relatinoships Finalist
    Monitoring and being aware of the foreign currency exchange rate helps you in negotiating a realistic price from your suppliers.
  • Aung Kyaw Than on Specification Errors
    Often the best way to win a dispute with your supplier is to do your homework.
  • Grace Paddy Wanzala on Alternate Sources of Supply
    If you know your suppliers’ capacity before awarding a large bid, you know when you can safely sole source and when you have to multi-source.
  • Reybien Basto on Documentation
    If you’re stuck between a rock and a hard place, keep good records — that way you can’t be blamed for someone else’s screw-ups.
  • Jehu Selman Mamven on Bidding
    In order to procure fairly, you need to stand by the rules of the bid.
  • Evans Mudake on Implementing Payment Controls
    A good purchase order / goods receipt system is needed to insure that you are getting what you pay for.
  • G.P Thushara Sampath Gunasekara on Increasing Supplier Competition Finalist
    If you make your RFP too strict, you will eliminate competition. Before issuing the RFP, research the market to make sure at least two or three suppliers can meet the minimum requirements. If the contract is long-term, and you partner with them, sometimes a tier-2 supplier can improve to the point where they are world-class.
  • Enoch Dugbatey on Improving Cash Flow
    If cash flow is limited, appropriately constructed Purchase Frame Agreements (FAs) and Blanket Purchasing Agreements (BPAs) can ensure that materials keep flowing on schedule (as suppliers are more confident they will get paid).
  • Dylan Tao on Switching Distribution Channels
    Before accepting a price increase due to “raw material price increases” do your homework on the cost structure. If most of the cost is value-add, and not raw materials, you might actually be able to negotiate a price concession, especially if you can work with the design team to re-engineer the product to require less effort in production.
  • Bizerka Oreskovic on Creative Logistics Solutions
    Logistics doesn’t have to be limited to rail, big trucks, and super-size cargo ships. Depending on how much you need, there are alternatives – like smaller boats and, for small deliveries, even cargo areas on busses.
  • John Ransom on Evaluating Vendor Viability Finalist
    To get through these tough times, take a positive attitude, re-balance the supply chain, and identify those vendors most likely to survive and partner with them to make it through the storm.
  • Annette Opondo on Dealing with Internal Conflict
    If you’re having a hard time securing the best deal because your manager has a preferred supplier, work out the cost models in detail and properly take them through the appropriate channels.
  • Daniel Haakuria on Improving Logistics
    A good understanding of shipping schedules and nascent negotiation skills will allow you to take advantage of opportunities when they become available and allow you to obtain a much greater ROI later for a little more up front.
  • S.B. Odegha on Proving Supply Chain’s Sourcing Abilities
    Sometimes you will have to educate Engineering and other departments in order to do your job effectively, as they will insist that only they can procure certain parts.
  • Mukut Roy on Project Management
    Sometimes you have to be creative to see a project to fruition, especially when a war splits the country you’re sourcing from into two or more countries!
  • Abdul Khan on Vendor Managed Inventory
    Sometimes the best way to identify the root cause of a problem, and an appropriate solution, is to form a cross-functional team that involves the vendor. And sometimes this will lead to a joint decision that vendor managed inventory is the right way to go.
  • Alfred Onyango on Procurement Ethics
    Ethics are important, but there are times you will have to stick to your guns to make sure your department behaves ethically.
  • Sandi Derouin on Fixing Internal Customer Errors Finalist
    Sometimes the best way to gain respect in Purchasing is to help other departments out of the mess they create for themselves by not involving Purchasing in the first place. But to do that, you’ll have to do some digging to get to the truth.
  • Lynn Hoover on Surviving a Supplier Catastrophe
    Sometimes the best way to insure continuity of supplies is to maintain some production capabilities in house.
  • Khin Aye Myint on Sourcing and Sanctions
    Sanctions can throw a wrench into your sourcing plans if you are not careful. Check denied party lists carefully before sending out an RFQ, or you might not get any usable responses.
  • Burt Schilder on Implementing an ERP System
    ERP still has a lot of value if properly deployed, maintained, and used … especially if you don’t overpay for it!
  • David Ah-Tow on Obtaining Vendor Information
    Sometimes you have to work with your vendor to get what you need.
  • Denis Minnich on Obtaining Emergency Vendor Services Finalist
    If your current vendor is non-responsive to your needs, all is not lost, there is always someone else ready and willing to take your business if you look hard enough.
  • Yvetta Koleva on Negotiation
    If you want to get the best price, do your homework. Some vendors will quote as much as they think they can get away with.
  • Kacwa Ronnie on Increasing Procurement Visibility
    Sometimes it will take a lot of education on your behalf to convince management of procurement’s value.
  • Antony Naploli on Internal Customer-Supplier Relations
    Sometimes the best way to improve relations is to take an active approach and form a process improvement team to get the job done.

Avoid Corporate Death by Beating the Odds

No company is created to fail. Yet the odds are stacked against corporations surviving more than a few decades. Many once-greats are dying a slow death, losing much of what made them superior. Others have expired quickly. And new research shows that many more are starting to atrophy astheir leaders turn their focus to managing complexity — and away from leading for the future. A new, nine-element framework can help you diagnose your organization’s health, and address the factors that increase corporate life expectancy.

Robert Rudzki, President of GreyBeard Advisors, author of Straight to the Bottom Line and Beat the Odds, and blogmaster of Transformation Leadership just published his manifesto on ChangeThis (now Porchlight) — “Avoid Corporate Death: Nine Essential Elements Will Keep the Reaper From Your Company’s Door”. In this paper he notes that companies that do not lead firmly for the future have a much greater chance of corporate death than those that do, and that, more importantly, resilient organizations appear to have nine fundamental traits in common – which he has defined as the Beat the Odds (BTO) Guidance Framework.

As “proof” of its success, he offers a recent study by the Iacocca Institute of Lehigh University and BetterManagement.com that asked 700 executives to rank their companies against the framework. The result — companies with higher BTO scores also had a return on invested capital (ROIC) or a return on equity (ROE) that exceeded their corporate cost of capital. Correlation may not be causation, but it sure is impressive nonetheless. And considering that there have been more than 600,000 outright business failures in the US alone in the past 10 years, any little bit helps.So what’s the basis of the framework? The following nine rules that define how a resilient enterprise should operate.

  1. Establish a Purpose
  2. Live and Defend Your Core Values
  3. Acquire a World View / Create the Future
  4. Articulate an Inspiring Vision / Lead at All Levels
  5. Develop Strategies / Business Models / Competencies Consistent with the Foregoing, and Linked to Each Other
  6. Assure the Organization is Aligned and Energized
  7. Measure What You Want to Achieve and Nothing Else
  8. Decide! Act! Get On With It!
  9. When in Doubt, Use Common Sense

For more information on the framework, see the manifesto.