Category Archives: e-Leaders Speak

Service Leaders Speak: William Dorn of Source One on “Doing More With Less”

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Today’s guest post is from William Dorn, Director of Operations at Source One Management Services (who bring you Why Abe), and Kathleen Daly. William is a regular contributor to The Strategic Sourceror.

As companies continue to cope with the current economic conditions, Purchasing Departments, equipped with fewer resources than ever before, are expected to deliver continuous savings. Task lists lengthen due to internal and external pressures, and it becomes increasingly difficult to produce results in the form of cost reduction, cost avoidance and increased supplier value. The requirement of accomplishing more with less may be an overwhelming responsibility; but with the proper toolsets, resources and solutions available in the marketplace, Purchasing Professionals can begin to position their companies for growth as the economy recovers.

Before taking any further action, Purchasing Managers must first assess the situation in which they may find themselves. What internal and external pressures are influencing my productivity? Is my company able to withstand a supply chain disruption without serious repercussions? Do I have a risk mitigation strategy in place? Can I realistically reach my company’s goals with the resources I have available to me?

Internal pressures may be coming from many different directions. Executive Management asks for results in the form of costs savings and stable supply chains. The Finance Department requests extended payment terms. IT Departments may perceive the Purchasing Department as a cost center rather than a profit center, creating the impression that no technological investment is needed. Sales and Production Departments need inventory availability in order to deliver a product in a timely fashion. HR is not able to allocate more resources. Each department is focused on fulfilling their own responsibilities which often leads to additional constraints placed on other departments, namely Procurement.

The external environment and its increasing complexity have created additional burdens for Purchasing Departments. Let’s sum up what is taking place …

  1. Suppliers are refusing to agree to longer payment terms because they simply cannot afford the impact this would have on their cash flow. Also, many suppliers may no longer exist, and this requires buyers to invest time in forming relationships with new suppliers.
  2. Fuel prices are also starting to increase again, which will lead to rising commodity prices as well.
  3. Buyers may also experience reluctance from suppliers to participate in reverse auctions; and some are even refusing to respond to regular RFP events.

Whether Purchasing Professionals can relate to some of these pressures or, unfortunately, to all of them, the reality is that their supply chains may be unstable and action is required to bring them back to solid ground.

Now that we have covered some of the stress that Procurement Departments have been facing, Procurement must look internally to determine what efforts have been made in the past, what is working and what needs to be reevaluated. Procurement must reevaluate old strategies before implementing new ones. Slight modifications to legacy purchasing or sourcing methods could lead to more efficient processes and lower costs. You should not focus strictly on new categories; revisiting categories you have recently sourced may lead to drastically different results with a new approach. Markets change constantly and your company’s spend in a certain category may have increased, or perhaps the market demand for the product or service has decreased, enabling you to possibly leverage better pricing. Your past just may be the key to your future.

Alternative methods to what have been used in the past should also be explored. A recent study, published by AMR Research, found that organizations that rely heavily on technology could experience the same or greater inefficiencies and missed opportunities than their not-as-heavily tech-invested competitors. Procurement must reevaluate their existing methods and adoption of technology. Are you paying for an expensive, feature-rich procurement and sourcing suite, when in fact you only use 20% of the capabilities. If so, you must reevaluate the cost of deployment and take advantage of the other components, or eliminate the costs of the software by seeking out lower-cost alternatives that fit your organization’s individual needs.

Fortunately, the market for e-sourcing and procurement technologies has significantly expanded your options over the last few years. Low cost providers have emerged that often offer equivalent features to the largest tool providers. In fact, in the last several months, completely free toolsets, such as WhyAbe.com and ThomasNet.com’s Purchasing Manager, have seen a significant increase in adoption by not only companies that are new to procurement technologies, but by large organizations that are abandoning expensive toolsets in order to adopt free alternatives that serve the exact needs of their organizations. Moving to a lower-cost technology will not only help your company’s bottom line, it could help eliminate the idea that Procurement is a cost center, and could potentially allow Procurement to allocate funds into investing in new human resources.

However, regardless of which solution you adopt, be careful to use the tools properly in your organization. Purchasing and e-sourcing software solutions must be used as tools and not answers. No tool provider has the exact answer for any vertical market. Find a solution that best fits your organization’s requirements, don’t allow a technology dictate how you do business. Tools can facilitate project communications, shrink project timelines and retain templates and analysis for future use, but should not be used as a replacement for true strategic sourcing. Keep in mind that over-reliance on purchasing technology tools and processes may only automate the inherent problems with the existing processes in place. Before investing in new technology, be sure to put existing processes through a thorough analysis to identify opportunities for improvement. Whatever you do, be sure that your organization does not become an “RFP Spammer“.

Moving beyond technology, Procurement must evaluate other non-conventional options that it has available to it. Pre-negotiated contract websites (such as Master Negotiator), group buying organizations, and solution providers (such as Source One) can provide additional resources that help Purchasing Professionals accomplish goals without adding to a company’s cost structure. These resources enable buyers to let someone else manage the sourcing process for them, saving time and resources. Service organizations can provide low-risk solutions for companies of all sizes. These engagements allow access to market data, best practice processes, domain or category expertise, on-demand resources, effective tools, negotiation experience and insights, alternate sources of supply, and the establishment of long-term supply relationships.

Adopt the right blend of sourcing strategies for your organization. Many Procurement Service Providers can obtain better pricing than a GPO. Many companies excel at sourcing their strategic spends. Many purchasing departments have subject matter experts in particular categories that are considered market-leaders in their own rights. However, NO COMPANY is the best at every category. A GPO may work for you in several tactical spend areas, and can help reduce the overhead costs associated with sourcing and category management. Some spend categories are better served without the use of technology tools and require good old fashioned thinking, creativity and supplier interaction. Understand that a person who is incredibly familiar with a technology or product does not necessarily make them into a procurement guru or master negotiator. Using the correct blend of strategies in your organization can produce results far superior to sticking with one sourcing/procurement process across all of your spend areas.

One positive of this difficult economy is that it is opening the eyes of many Procurement Professionals. In the past, many Procurement departments would only seek out external help or external strategies if they were required to by executive management. In this day and age, Procurement is determining on their own that they need help and they are actively looking for it. Procurement Professionals have already realized the need to become more resourceful and proactive in their efforts in navigating the changing business climate, in many cases, much faster than the rest of their organization. Some have taken the initiative in identifying outsourcing services that provide low-risk solutions or temporarily help them increase their human capital. Adoption of contingency based sourcing consultants has seen a significant uptick, as it allows Procurement to expand their resources and tools without assuming any additional costs or risk to their businesses. With a contingency based service organization operating as an extension of a company’s Purchasing Department, there is no need to be concerned with whether or not the soft costs of an initiative will pay off in hard costs savings, as the right providers will agree to only get compensated on hard-dollar cost savings. With certain solution providers, implementation and all expenses are included in a pay for performance model and fees are contingent on achieving hard cost savings results. In the past, executive level individuals and finance departments have pursued these types of engagements. Now, the drivers of these engagements are Procurement Professionals as they reach out for help on their own. These proactive efforts will deliver improved results for a Purchasing Department.

The majority of an Organization’s internal resources should be allocated to optimization of the company’s strategic spend. If a certain product has a high supply risk and high value, it is essential to establish a secure and responsive supply base with the capabilities of meeting current and future business needs. Agreements with suppliers should be established so that both parties can share information and closely integrate systems to obtain operating efficiencies. This should result in reduced costs for both parties.

When faced with many challenges in this dynamic environment and accelerating expectations from within their organizations, Purchasing Professionals must take full advantage of the resources available to help them begin their climb out of the recession.

Thanks, William.

Service Leaders Speak: Robert Rudzki of Greybeard Advisors on “Consultants: Use Them Intelligently”

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Today’s guest post is from Robert A. Rudzki, a former Fortune 500 senior executive of supply management who now advises other companies as President of Greybeard Advisors LLC, a strategic management advisory firm. Bob has authored several business books including Beat the Odds: Avoid Corporate Death and Build a Resilient Enterprise and Straight to the Bottom Line. Bob also writes the Transformation Leadership blog for the Supply Chain Management Review. (e-mail Bob at rudzki <at> greybeardadvisors <dot> com.)

Chapter 22 of the book Straight to the Bottom Line has an intriguing title: “Consultants: To Use or Not to Use — That is the Question“.

When my co-authors and I wrote the book a few years ago, we were speaking as corporate practitioners, having led successful procurement transformations in a variety of industries.

Today, I’d like to build on that corporate perspective (in my case almost 30 years at Fortune 500 companies), to share some additional observations that emerge from my experiences working with clients as their advisor.

First of all, let me say that I reread Chapter 22 before writing this post, and found its advice sound and very timely. If you haven’t read the book, or the chapter on consultants, you really ought to.

In fact, a table that appears in the chapter is worth repeating here:

Unnecessary to Use Consultants Consider Using Consultants
Benchmarks confirm that your internal processes/results are best-in-class You lack benchmarks and are uncertain how good your processes and staff are
Company is able to make ongoing investments (people, systems) to achieve and remain best-in-class Not able to invest as needed
Best-in-Class Category/Market Expertise No particular internal strength
No urgency to achieving significant cost reductions Time is of the essence for achieving improvements
Best-in-class already, and still reaping new benefits each year Not generating significant new benefits each year
Internal staff able to effectively deal with internal politics Internal politics constrain achievement of cost reduction objectives; a “third party” might have credibility
Your organization lacks a leader, and you hope that the consulting firm can fill that gap You want to supplement your internal talent for a defined time period

Source: Straight to the Bottom LineNote: Straight to the Bottom Line is a registered trademark of Greybeard Advisors

Since Greybeard Advisors was formed five years ago, my colleagues and I have had the pleasure of working with large and medium size companies in most industry segments (including manufacturing, process, health care, services, retail). We’ve seen some excellent practices relating to using consultants (or advisors) intelligently.

We’ve also seen some poor practices that are all-too-common. In one case, we were invited in to do a “post mortem” on a consulting project by a large firm, and saw examples of fundamental errors by both the client and the consulting firm.

As I reflect on what I have seen and heard, some of the key learnings can be boiled down to the following chart. Take a minute or two to carefully review it. You should notice that using consultants intelligently requires mindset and behavior changes by both the client company as well as the consulting firm.

What Typically Happens Leading Edge Practice
Top-down directive that the procurement department will work with a specific consulting firm Procurement leader takes the initiative and sends an RFI to a broad range of potential service providers (large and small firms; consulting vs. advisory firms); short list invited to respond to an RFP
Selection criteria unknown, beyond assumed personal relationships at the executive level Selection criteria established as part of the RFP process, and are consistent with the needs/desires of the procurement organization and the company
Consulting firm uses “A” team to manage the executive relationship, but sends the “B” team of inexperienced junior consultants to learn on the job and “do the project” Firm is selected only after ironclad assurances that the “A” team of experienced advisors will be assigned; resumes of advisors are provided; and the client is encouraged to interview each advisor.
Consulting agreement is rigid and aggressive, requiring a hard commitment to a large number of full-time consultants for a defined timeframe (often 6 to 12 months, or more). Agreement is flexible, reflecting the client’s workplace realities, needs and timing
Consulting firm disrupts everyone’s “regular job” in bid to ensure that its project is everyone’s priority and is a success Firm works with the reality of client’s workplace and schedule, and is careful not to be a disruptive force
After consulting firm leaves, reported “savings” start to evaporate or can’t be found Firm has embedded processes and capabilities into the client organization, which now can create more successes on its own

(c) Greybeard Advisor LLC, All Rights Reserved

One of the fundamental choices you need to consider is whether you want to employ a “consultant” or an “advisor”. The distinction is not just semantics, it is core to what you are trying to achieve.

Do you want a hired gun to knock out some work and then depart? Or do you want an advisory approach in which process knowledge (e.g. specific best practices such as strategic sourcing and negotiations management) and commodity knowledge are transferred to your team?

To use a familiar analogy: Do you want someone to hand your team a fish dinner, or do you want your team to learn how to be successful fishermen themselves while they catch their first few fish?

Thanks, Bob!

e-Leaders Speak: Kevin Cornish of Aravo on how “Managing Supplier Risk Helps You Thwart Zombies, Mavericks, and Other Threats in the Supply Chain”

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Today’s post is from Kevin Cornish of Aravo.

Once the economy begins to rebound, some companies may start to scale back their risk management efforts.

Don’t be one of them.

If we’ve learned anything from this recession it’s that in today’s volatile global economy, businesses need to pay more attention to risk, not less. And, while there have been signs that the world economy is beginning to heal, Federal Reserve Chairman Ben S. Bernanke and others have cautioned that the recovery is likely to be both muted and prolonged.

In other words, now is not the time to ease up on scrutiny of the financial scorecards of your critical suppliers. Why? Because we’re not out of the woods yet, and because you don’t want to unexpectedly find yourself relying on a “zombie” supplier, a business that is so undercapitalized and overleveraged that it’s essentially dead. A zombie supplier won’t be able to raise the money required to get itself back online — and that means it won’t be able to deliver the parts you need to your door.

Of course, fine-tuning your supplier risk management strategies can have other benefits, as well. For instance, as we’re digging out from the worst recession since Word War II, it will continue to be critically important to keep an eye on costs, and getting your supplier house in order can go a long way to reducing another sourcing threat that’s too often ignored: maverick spend.

Maverick spending may be costing you more than you think — not only in terms of per unit price, but with regard to leverage lost in future negotiations, as well. What’s more, it’s probably happening more frequently than you realize. In one study, over half of the employees surveyed (57%) considered it acceptable to make off-contract arrangements if they can get a better deal.

Earlier this year, a procurement trends report co-sponsored by OfficeMax and Purchasing magazine revealed some intriguing statistics regarding office spend. Take a look:

Percent of office spend under management by procurement
  0-20%   :   9%
31-60%   : 21%
61-90%   : 36%
      91%+: 34%
Average contract compliance rates
  0-20%   : 16%
31-60%   : 12%
61-90%   : 41%
      91%+: 31%

That data tells me that most businesses have plenty of room for improvement when it comes to optimizing purchasing power, improving compliance, and achieving total cost management — all of which stems from knowing, and managing, supplier information with diligence, transparency, and risk awareness.

A year ago, businesses were pre-occupied with supply risk. Then, concern shifted to supplier solvency risk. Now we’re back to keeping one eye on commodity prices, even while we’re on the lookout for zombies, mavericks, and a variety of other supply chain threats (compliance, environmental regulations, sustainability concerns, etc.). Without a doubt, the lens of risk is constantly changing. However, successful companies don’t just throw out the eyepiece when it no longer works. Instead, they repeatedly readjust their focus so that they can better respond to both the threats and the opportunities in today’s business environment.

Thanks, Kevin!

e-Leaders Speak: Jason Hekl of Coupa on “The Future of Sourcing is Crowd-Sourcing”

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Today’s guest post is from Jason Hekl of Coupa.

Coupa has a unique point of view on expressive bidding, sourcing for best value, hiring and retaining deep category expertise, and multi-variate supplier bidding. It’s just not necessary for most of us.

The future of competitive sourcing won’t be centered on how to buy steel from China; it will be centered on how to buy the everyday goods and services we need to operate and thrive in a knowledge economy dominated by services business – items like IT equipment, office supplies, travel, temp labor and marketing consultants. And success there won’t be determined by supply chain experts with 20 years of category expertise. It will be up to you and me.

The future of sourcing is in CROWDS.

As information proliferates over the web, and more and more markets become increasingly transparent, pricing has become more scientific. Think airline seats. Don’t like the price of your aisle seat? Just wait ten minutes and check again, the price may very well be different this time around.

It’s naive to think a few individuals in the procurement department can single-handedly negotiate contracts that will always ensure the business gets the best price. With a few exceptions, business, and information, moves too fast for that to be realistic. The better strategy is to rely on the wisdom of the crowd to source the best deals and drive savings for the business.

Employees have always looked upon the purchasing department and preferred supplier agreements with suspicion. They know, especially now, that they can beat contract prices very easily doing a basic amount of research online. Let’s face it – the information is out there. And there’s no way to stop it. Spend management initiatives built around a ‘need to know’ mindset that controls the flow of information are doomed to fail. There’s just no way hold back that wave. So don’t.

Ride the wave instead! Don’t limit your people by restricting information flow or artificially controlling the options available to them. Empower your people to use what they know to save the company money. Think of the psychological impact and benefit of a grassroots effort inside the company – every employee has an opportunity to save the company money with every requisition they submit. Even if it’s just pennies at a time, it still adds up.

I’m talking about expanding the responsibility for finding the best deals and saving the company money beyond the procurement department. Afford every employee an opportunity to identify and capture greater savings for the business by making it easy for them to do exactly as they do with their own money – scour the web for deals. Don’t handcuff them to a handful of suppliers with negotiated discounts. Empower them to find deals anywhere on the web, and then pull them into the a purchasing platform that controls and automates the approval and ordering processes. We all buy stuff. Who doesn’t get excited by finding a great deal? Why not put that dynamic to use for the business’s benefit? Let your employees use their expertise, and the web, to find the best deals on the items they need to do their jobs.

A procurement organization, even with decades of collective experience, can’t possibly be expert in every category of spend, and quite frankly, even if it were, how much incentive is in place for the procurement manager to go out of his or her way to find the best price on every ad-hoc purchase? No, let the procurement organization focus on the big initiatives, and empower your employees to get what they need, quickly and easily (it’s got to be easier than the ‘expense it and forget it alternative’ that removes all control and visibility from the purchasing process). Trust the system you put in place to control the purchasing process and ensure the appropriate approvals, but otherwise let the crowd have at it. Don’t be afraid!

For manufacturers, who represent a smaller and smaller percentage of US GDP and the US economy, advanced sourcing techniques and tools are undeniably relevant and can produce competitive advantage.

But for everyone else, the crowds are coming. And they are empowered to save.

e-Leaders Speak: Chris Newton of Ketera on “e-Sourcing: Access for all”

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Today’s guest post is from Chris Newton of Ketera.

At Ketera, we think of sourcing as the activity of getting suppliers together, letting them know what you need, and then having them provide you with the best possible solution (product or service or a combination of both) at a price that is competitive in the market. Everybody does this, right?

Sometimes, yes. But sourcing as an organized activity, built around applications and formal processes, has been typically limited to relatively few large companies. There are many other organizations out there (mid-market and large) that have yet to benefit from such solutions. In conversations with customers and prospects, we hear time and again of the same two blocking concerns. This first often boils down to inertia and fear of the unknown, while the second usually comes back to the cost to get started. Most companies find it easy to continue with their manual (primarily email centric) process of collating supplier responses and bids before arriving at supplier contracts, and many have been scared off by historically prohibitive costs to acquire new technology systems. We believe that more and more companies will start using sourcing solutions to manage their purchases more efficiently as sourcing solutions become broadly accessible – in terms of both initial investment and ease of use.

Why do we believe this will happen? We look at Google AdWords – when it started out, very few people knew how to use it. So, few companies invested in it, and even fewer did well. It seemed too technical and too complex to understand the demand for search words, then apply pricing and figure out what was working and what was not. And it looked expensive as an entirely new marketing budget line item with questionable benefits. When the results achieved by best practice early adopters became widely known, however, and new sources of information on search words, pricing, geographical information became broadly available, the use of Google AdWords exploded. Today, it’s becoming hard to find a company that doesn’t participate. By making such relevant information available, Google has taken the mystique out of the technology and made it friendlier and less scary for marketing folks to try these technologies.

We believe sourcing will follow a similar path of adoption once sourcing applications are viewed as having less to do with technology and more to do with helping a sourcing manager do their job efficiently and effectively. We think this will be driven by solutions which are available like any other instant online purchase – immediately, easy to use without any fear of complex technology or requiring intensive training. They will be fully integrated with a complete suite of spend management applications and based on a strong member community of buyers and suppliers. They will be truly affordable to companies of any size. And they will allow a continuum of behaviour, ranging from simple “strategic shopping” actions, through structured “RFx” interactions, to advanced “Auctions” and optimizations.

So why do so many folks think sourcing is complex and solutions are expensive? Because the enterprise software industry has trained them to think that. To successfully sign big contracts for software licenses and consulting services with large enterprises, it’s critical to provide examples and demonstrations that make sourcing appear very complex to justify the expense. Some companies have done this so well, that it’s easy to overlook the fact that only a small percentage of actual sourcing activities occur in such situations. Greater benefits are available to those that apply sourcing solutions and best practice processes more often, rather than in only the most sophisticated scenarios. This requires pushing these capabilities further out into the organization, which in turn drives the need for affordability and ease of use.

Real usability means no training required. Should you need training to do things online that you already do manually? Did you get trained on Amazon before you bought a book? Once unnecessary layers of complexity have been removed (and useful complexities have been set aside for power users), the objective of widespread usage becomes realistic. Step-by-step “wizards” that walk new or infrequent users through familiar processes can be just as effective an on-the-job trainer. (An example sourcing wizard.) New buttons in procurement applications that generate sourcing events in a single click mean that buyers no longer feel they must be locked into published prices or offerings. Use of familiar terminology and abundant online tips makes the browser interface comfortable. So comfortable, in fact, that we believe that many new companies trying out these solutions to run a few test events will find them so easy to use that organizational adoption goes viral. Usage mandates aren’t required when technology really make someone’s job easier and makes them look good at the same time. (With this adoption path, vendors will be well served to offer free trials of their solutions – a welcome alternative to countless sales presentations and follow-up phone calls for folks on both sides of the transaction.)

The previously cited hurdle around inertia and fear of the unknown also crops up beyond new software user interfaces in the realm of supplier management. Old supplier relationships are easy to rely on, but companies are often best served by extending sourcing events to enable a wider range of responses. Not just to extract a lower price, but also to collect more information about the products and services that you are buying. Researching new suppliers to participate need not be a challenge. We believe in creating a ready community of buyers and suppliers that build operational history, ratings, certifications and relationships over time. This large and growing (daily) network of actively transacting suppliers who work with many other buyers then quickly becomes a valuable resource. The community then becomes the foundation for ongoing business transactions and the integrated technology that supports them within established best practice processes.

We are now seeing many of our beliefs begin to prove out in the market as this example shows: A multi-channel home shopping leader conducted a free Google search for sourcing solutions, found the Ketera site, evaluated and then signed up (themselves … self serve … using a credit card) for our on demand sourcing application. They were able to search our network of 140,000 suppliers and within a few weeks had conducted a reverse auction event for freight services that will save them over one million dollars in the next year or two. All for $500 in annual subscription fees. We think this is just the beginning of the direction this market is headed.

Thanks, Chris.