Category Archives: Best Practices

Savings Strategy Development, A Review Part I

Last weekend I audited the online course “Savings Strategy Development” from Next Level Purchasing (now the NLPA, part of Certitrek), a course designed to introduce you to best practices that you can use to craft a top-notch savings strategy.

According to their website, this course is designed to help you learn a systematic method of establishing a cost savings strategy in your organization. In addition, you will learn how to identify sourcing and savings opportunities by analyzing your spend, plus…

  • How to define several types of savings and avoidances
  • How to create or improve a commodity classification system that optimally supports sourcing and savings initiatives
  • How to find and take advantage of easy cost savings opportunities
  • How to achieve cost savings by leveraging existing supplier relationships
  • How to negotiate savings without straining a supplier relationship
  • How to diligently manage costs by utilizing the Producers Price Index and developing your own Supplier Price Index
  • How to get everyone to apply the same, proven approach to cost savings by implementing The Ten Phase Approach To World-Class Sourcing
  • How to track the progress of your sourcing strategy
  • How to determine a methodology and strategy when writing an RFP
  • How to write an RFP that is aligned with the final contract
  • How to write an RFP that achieves the perfect balance of standardization and customization
  • How to write an RFP that is aligned with evaluation scorecards
  • How to write an RFP that ensures equitable (“apples-to-apples”) supplier comparisons
  • How to write an RFP with an optimized supplier response format
  • How to report cost savings in a way that will be embraced by executive management

 

Like the last course I reviewed, it also lived up to its promises. In addition, it also:

  • clearly differentiated savings, avoidances, and false savings to help you report your achievements in a clear, correct, and effective manner
  • provided easy methods you can use to determine your bottom line impact on your organization’s income statement
  • detailed formulas you can use to precisely calculate your hard dollar savings and cost avoidances
  • outlined the seven core components of any good savings strategy
  • provided a simple introduction to basic spend analysis
  • clearly documented all of the groundwork that needs to be done at the start of any successful sourcing effort
  • offered sound advice on how to avoid bottlenecks that can hinder your efforts and prevent you from reaching your goal quickly and efficiently
  • identified different types of savings opportunities that can result from collaboration
  • offered sound techniques for effective negotiations
  • described techniques for an effective market survey, a critical step before RFX distribution

So, is this course also worth it? Absolutely. Not only would it take you days to attempt to amalgamate all of the content you would need to match this course, and weeks to extract and absorb the relative material, but it could take you (significantly) longer still to put together an equivalent ten phase approach that could be as successful as the one outlined in this course. (And, like the last course, it is another step in the completion of the certificate program that is likely to lead to a salary bump that is multiples of what you invest.)

Creating a Proactive, Demand-Driven, Value-Creating Supply Chain

This was the title of one of the panels at eyefortransport’s Supply Chain Directions Summit on November 28 and 29 in San Francisco. The panel, which consisted of David Pieper from HP, Ashley Hall from Intel and Lonny Warner from Menlo Worldwide, offered suggestions for enhancing value in your supply chains. These were some of their suggestions:

David Pieper

  • Don’t try to do everything in-house
  • Your partner data is important too
  • Event management capability is important
  • Measure your KPI’s across your supply chain
  • Don’t just push inventory and costs down the chain
  • Collaborate closely with your strategic suppliers
  • Improve your fill rates
  • Use Dynamic Replenishment
  • Adopt innovative terms and conditions in your contracts

Ashley Hall

  • Use outsourced inventory handling services
  • Use an internal ERP for tracking all of your transactions
  • Outsource manufacturing where it makes sense
  • Use a common data standard

Lonny Warner

  • Replace inventory with information
  • Consider direct-ship strategies
  • Use information to manage your overall supply chain network
  • Use smart-docks
  • Move from make-to-stock to finish-to-order strategies
  • Collaborate

In other words:

  • collaborate,
  • achieve visibility,
  • outsource,
  • reduce inventory,
  • manage your data, and
  • optimize your network.

The best supply chains are those where everyone collaborates and shares information to achieve visibility up and down the chain. This allows for event-based management and proactive alerts notifying you of a potential problem before it occurs. For example, if a product should reach the outbound port in three days and it hasn’t and you need it in twenty-one days, there may be a problem and you need to know whether it is just delayed a day or if it hasn’t even left the warehouse yet due to a production problem that shut the line down.

The best supply chains track all of their transactions and demand data and share the information that is derived to pull inventory out of the chain, not just push it down to a supplier. They also use finish-to-order strategies for flexibility and postpone orders late into the chain.

The best supply chain partners focus on their strengths and outsource their weakness to a partner that is strong in those areas. They collaboratively optimize the network to be robust and adaptive and capable of handling single points of failure. They use new technology and do as much as they can at each touch point, using smart-dock technology, for example, to minimize the number of parties and transit points requires.

Note that eyefortransport’s sister organization, eyeforprocurement has a number of upcoming events next year custom designed for today’s procurement professionals, including the Supplier Management Forum next April in Miami. Registrations received before year’s end save $400 off of the regular registration rate and those who quote “sourcing innovation” in the discount code field save an additional $100.

AMR’s 7 Supply Chain Best Practices

The following are the best practices covered by Greg Aimi of AMR in his presentation Is the World “Flat” or Not? at last week’s Supply Chain Directions Summit sponsored by eyefortransport.

  1. Use an integrated S&OP process team
  2. Collaborate with a “transparency” information infrastructure
  3. Consider Geography and Supply Chain Network Redesign
  4. Build in Distribution Flexibility
  5. Monitor and Manage Logistics Complexity
  6. Explore RFID
  7. Customer / Supplier Collaboration

Use an integrated S&OP process team

  • Form a cross functional team that breaks down silos
  • Analyze and rationalize all sources of data with a customer focus
  • Change sales priority from revenue to profit
  • Embrace demand variability in optimization
  • Adjust forecasts more frequently based on sense-and-demand
  • Attempt to “shape” or “influence” demand
  • Push for integrated product introduction “design for supply”

Collaborate with a “transparency” information infrastructure

  • Intra enterprise departments, freight forwarders, customs brokers, international and domestic carriers, suppliers, contract manufacturers, customers, and consolidators should all be working off of the same data

Consider Geography and Supply Chain Network Redesign

  • Fight the all-or-nothing bias (multiple sources of supply mitigates risk)
  • Mitigate capacity shortages and distribution network congestion
  • Consider new and mixed geographies
  • Understand Free Trade Zones and tax implications
  • Frequent analysis to (re)position inventory optimally
  • Total landed cost modeling

Build in Distribution Flexibility

  • Develop configurable postponement capability
  • Enable multi-channel fulfillment
  • Mix traditional DC fulfillment, direct to store, and supplier direct strategies
  • Consider building outsourced networks for flexibility

Monitor and Manage Logistics Complexity

  • Automate transportation optimization and execution
  • Reduce variability (take control of shipments early, for example)
  • Form strategic supply relationships with carriers
  • Use international security requirements to raise priority of automation initiatives
  • Build a 4PL organization internally for increased 3rd party execution

Explore RFID

  • For real time sell through visibility
  • Insure products are where they need to be when they need to be there
  • Help manage new product introductions
  • Increase productivity in goods handling
  • Speed handling of SC security requirements

Customer / Supplier Collaboration

  • VMI / SMI programs
  • Late stage final product postponement strategies
  • Increase customer fulfillment flexibility
  • Use the latest systems to automate flexibility

Since many of these recommendations are posts in themselves, I will not attempt to tackle them all in a single post and simply point out that many of these are issues I have covered and will continue to cover in the months ahead.

Note that eyefortransport’s sister organization, eyeforprocurement has a number of upcoming events next year custom designed for today’s procurement professionals, including the Supplier Management Forum next April in Miami. Registrations received before year’s end save $400 off of the regular registration rate and those who quote “sourcing innovation” in the discount code field save an additional $100.

14 Purchasing Best Practices, A Review Part II

To hit home my point that I believe the online course “14 Purchasing Best Practices” from Next Level Purchasing (now the Certitrek NLPA) is worth the time and investment for an average purchasing agent, with kind permission, I am going to dive into a few topics covered in the course that I believe hit home on the importance of best practices and a well-designed course to convey them.

The course starts off by noting that the three main functions of a purchasing department are:

  • managing spend
  • supporting operations
  • risk management

and that the three main benefits of a dedicated purchasing organization are:

  • efficiency
  • effectiveness
  • organizational objective alignment

This conveys the message that purchasing is about more than cutting orders and that good procurement is more than just beating suppliers up for cost concessions (despite what some industries still believe). To this end, the best practices are designed to address the functions and goals, improving your performance and that of your organization overall.

This leads into the first best practice defined in the report, “utilize an annual buying plan”. The course defines in detail, and with examples, what a buying plan actually is and why it is key to success. A buying plan is more than just “I’m going to use competitive bidding through an auction in an attempt to reduce costs” – it’s also why you are employing the tactic, what results you expect to get, and how you quantify those expectations. The course prescribes a step-by-step methodology for the creation of a good buying plan that will assist you in the most effective allocation of your purchasing efforts and offers easy to understand methods and formulas to calculate savings and future spend, which is also important since organizations run on cash flow – a key fact that many resources on savings and buying plans ignore. Executives often assume that “savings” will decrease overall spend, but if demand is increasing rapidly, spend will still go up. But that’s okay, because as long as spend is going down relative to each unit, you are saving money – which means that a future spending increase can be a really good thing – more savings and more profit.

The fifth best practice in the course is “utilize long term contracts”. You’re probably saying “that’s obvious – everyone knows that long term contracts can lock in great volume rates and save you money”, but what’s not always obvious is that a good long-term contract can address many of the six types of risk – supply, price, financial, legal, safety, and PR – that your organization faces on a daily basis, since things can go wrong at any time.

The twelfth best-practice, which might not be as obvious, is “measuring purchasing performance”. Everyone supposedly knows that you can’t manage, and thus improve, what you don’t measure, but I’m sure not everybody knows how important measurement is or how to do it properly in a purchasing organization. The course not only provides you with a straight-forward six-step methodology to properly implement purchasing performance measurement in your organization, but also advises you on what should be measured and what shouldn’t be. The reality is that key metrics will improve performance, but trivial metrics will not.

I hope this gives you some more insight into the importance of continued education and appropriate courses for your development and why I believe “14 Purchasing Best Practices” from Next Level Purchasing is most likely worth your time and investment as a procurement professional.

14 Purchasing Best Practices, A Review Part I

This weekend I audited the online course “14 Purchasing Best Practices” from Next Level Purchasing, a course designed to introduce you to the basic purchasing best practices that you can easily implement to jump-start your purchasing career and the organization you work for.

According to NLP’s website, this course is designed to help you learn:

  • How to strategically measure purchasing performance
  • How to improve your spend management by implementing a buying plan
  • How to select the best suppliers by using cross-functional commodity teams, scorecards, and total cost of ownership analysis
  • How to improve vendor performance through a supplier performance management program
  • How to optimize supplier relationships
  • How to improve risk management
  • How to map and improve processes
  • How to leverage technology such as eProcurement and Internet Reverse Auctions
  • How to conduct benchmarking
  • How to achieve efficiency through the systemization of purchasing operations
  • How to utilize a strategic plan

And the course lived up to its promises, but that’s not what I liked about it. What I liked about it is that it:

  • contained detailed exercises and supporting materials on the creation of a strategic plan – the first step you need to undertake in your transition from an old-school purchaser to a new-school strategic sourcer(or)
  • contained detailed exercises and materials on the creation of category and commodity buying plans – the mandatory first step of any buying activity if you want to ensure success
  • emphasized the importance of using commodity teams and how they are necessary for the implementation of successful scorecards, a key tool in understanding the total cost of working with a supplier and/or the total value a supplier offers to you
  • discussed the importance of ethics in a purchasing organization and how to develop a simple, but effective, ethics policy
  • discusses key clauses you should have in every contract and provides you with a sample contract template to focus your thinking appropriately
  • indicates that sometimes legal has to be involved from the beginning (as I outlined in my post Key Concepts for Major Procurements)
  • provides concrete directions for conducting a market analysis, which is key to successful negotiations (approximately what should I be expecting to pay?)
  • provides a template for the creation of a simple, but effective, supplier rating program and identifies the key questions you need to ask
  • dives into process mapping as a method for operational improvement
  • holds to the promise of not being vague, voluminous, or unrealistic, like much of the literature you will encounter

Of course, what you want to know, is it worth it? The answer is a definite yes! It’s a steal at $200. Why? Just trying to amalgamate all of the content on your own through web searches, articles, and (expensive) books would probably take you a couple of days – then you would have to absorb, understand, and extract the material relevant to you – which would probably take you a couple of weeks since most of your searches will result in voluminous, but vague, articles. On the other hand, this course gives you the foundations in a couple of days (depending on how fast you are able to work through the course). And when you consider that it’s designed to be an eight hour (equivalent) course, that most professional day seminars cost closer to $800, you really can not go wrong. (Moreover, it is a first step to completing the certification program that is very likely to result in a salary bump that is multiples of what you invest.)