Category Archives: Guest Author

Why Bother Classifying Spend? 3 Ways Spend Analysis Will Improve Your Life … Part II

Today’s guest post is from Brian Seipel, Spend Analysis lead at Source One Management Services focused on helping corporations gain a clear view of their spend data to derive actionable budget optimization strategies.

Yesterday we began our tale of two VARs that have a lot in common. Both serve the same North East region, both offer stellar customer service, and so far the relationship has been good on all sides. Each of your offices comes away satisfied after reviewing their VAR’s track record. But, as we started to discuss yesterday, that’s not all there is to the story. Today we discuss the next two ways spend analytics can change your life … for the better.

Improve Efficiencies

Beyond hard dollar savings, companies stand to save money by building a leaner, more efficient Procurement department. From the benefit described above, we can already see how our total vendor pool will be reduced through consolidation, and fewer vendors to manage means less time devoted to the procurement process. However, we will also learn more about our vendor landscape through the analysis.

Continuing the example above, let’s consider those two VARs a bit more closely. All else equal, we may find out that New York’s VAR offers a vendor-managed inventory program, centralized billing, and an online customer ordering portal. Each of these value-adds will help Procurement be more efficient, even if no hard dollar savings are generated. By properly researching the landscape, we can determine what value-adds are truly important and focus on building up these efficiencies.

Clamp Down on Maverick Spend

So far, we’ve consolidated spend to a single VAR (generating hard dollar savings via negotiated rebates and unit pricing using our newly consolidated spend as leverage) and improved our procurement process (generating soft dollar savings by understanding and implementing best practices).

We haven’t, however, talked about specific items being purchased. As the saying goes, “the devil is in the details,” and the very best supplier relationships can fall prey to maverick spend if employees are left to their own devices.

Consider all of the non-strategic, commodity spend that will pass through our VARs; items like cabling, computer peripherals, office equipment and a whole host of other small purchases are often included in contract pricing lists. But what about an employee who goes off the reservation, and orders off-contract? Your negotiated rates become meaningless. Would the purchase of an off-contract mouse by a single employee that is $5 more expensive break the bank? Likely not – however, this problem can get out of hand quickly if large groups of employees routinely ignore the on-contract equivalents. Analyzing spend and comparing it to negotiated on-contract items allows us to identify the problem and either reign in employee behavior, renegotiate the contract price list, or a combination of both to solve it before it gets out of hand.

Which Camp are you in?

If there’s one thing our tale of two VARs has taught us, it is that “you don’t know what you don’t know.” Neither VAR may look like a poor partner at the outset. However, when you look at the entire picture, room for improvement becomes more obvious (especially if we’re willing to change it up). We simply can’t see that entire picture without performing a spend analysis in the first place.

By performing our spend analysis, we put ourselves in the position of moving between the three-foot and 30,000-foot view quickly, enabling us to look at our spend and supplier relationships from all sides. Only then can we effectively manage our spend.

Thanks, Brian.

Why Bother Classifying Spend? 3 Ways Spend Analysis Will Improve Your Life … Part I

Today’s guest post is from Brian Seipel, Spend Analysis lead at Source One Management Services focused on helping corporations gain a clear view of their spend data to derive actionable budget optimization strategies.

Let’s face it, you and your team have your collective hands full keeping the Procurement trains running each day. Adding a spend analysis initiative on top of everything else being juggled? Well, that may be one ball too many to keep in the air. It seems like an unnecessary added step you simply don’t have time for and, really, what’s the point?

Through years of working with clients to develop and execute strategic sourcing initiatives, I have found there are two camps I can sort organizations into. Which side a client lands on is indicative of how much work lies ahead in terms of helping them truly control spend. Organizations will either be pro spend analysis… or barely spend time on the subject, if any at all.

To be fair, many organizations run a tight ship in terms of managing spend – but there’s still room for improvement for a good number of others. There are some great reasons to make a proper spend analysis a priority. As such, I wanted to take a minute to extol the virtues of this process to show some of the benefits you may be missing out on. See below for my top three reasons a proper spend analysis should be the next initiative you spend some time on.

A Tale of Two VARs

(Value Added Resellers)

First, I’d like to set the stage a bit. Consider the relationship between an organization and its IT hardware/software value-added resellers. In this scenario, we have two such VARs; one servicing the organization’s New York branch, the other servicing Philadelphia.

These two VARs have a lot in common. Both serve the same North East region, both offer stellar customer service, and so far the relationship has been good on all sides. Each office comes away satisfied after reviewing their VAR’s track record. But is that all there is to the story?

Generate More Savings

One of the most apparent (if not THE most apparent) reasons to analyze your spend is the impact such an analysis has on strategic sourcing initiatives. At the most basic level, an organization needs to know several key facts before developing a strategy around cost savings:

  • “How much money are we spending, and who is spending it?”
  • “Who is that money going to?”
  • “When are these transactions happening?”

These seem like simple enough questions, but getting the answers can be tricky. To kick off our VAR example, one great way to save money with such VARs is to leverage your spend volume to negotiate rebate structures and develop reduced unit pricing for all purchases. The more you spend, the bigger the rebate and the greater the incentive for VARs to offer unit price discounts – and these things can add up quickly. Consolidating spend to as few VARs as possible helps to maximize this strategy, and both our VARs service the same region. However, because New York and Philadelphia each use two separate VARs, neither will be able to negotiate as strong a rebate, and we likely won’t make much progress in commanding discounted rates. Each location may have a great relationship with its respective VAR – and Procurement wouldn’t know they were missing out on a savings opportunity until a spend analysis revealed this missing piece.

But this is just one way spend analytics will change your life.

Thanks, Brian.

Competition When it Comes to Incontinence: Retailer Sourcing Considerations

Today’s guest post is from Elizabeth Skipor, a Consultant at Source One Management Services, specializing in Marketing Procurement from the mid-market to the Fortune 500 companies. Before joining Source One, she was a category manager/specialist for a major US retailer.

Whether or not you’re familiar with or are an avid shopper for incontinence products such as adult diapers and incontinence pads, merchants like Walgreens, CVS and WalMart, are expanding their product mix to not only enhance comfort and fit, but performance in this highly competitive market.

This means product development and sourcing divisions at these fine retailers are busy trying to stay ahead of the curve. According to Nonwovens Industry, it’s in developed markets that adult incontinence is outpacing growth in more established segments like baby diapers and feminine hygiene. In my experience (as a former procurement professional of one of these organizations), this is true and mainly due to the 74.9 million baby-boomers (or Demographic, for purposes of this article) who are not only remaining active but are living longer. The number of people age 65 and older has increased tenfold in the last century and in better health than ever before (Source: ABC News).

As a former major retail buyer and category specialist for the adult incontinence category and previously procured fabrics for major clothing brands, I had to ask myself this question: What were the requirements that were rated high on the list by the demographic and what did I do in preparation for sourcing the best of the best for such a sensitive category?

Based on market research, there are three majorly important factors to consider:

  • Product Performance;
  • Comfort & Fit;
  • Discreetness

These three areas are imperative to the demographic due to the demographic remaining active longer; “People are living longer and living more of their life in better health than before” said Richard Suzman, an expert at the National Institute on Aging, the lead agency in assembling the report. Quality of life and the ability to maintain an active lifestyle remains vastly important.

When it comes to performance, if the product fails in functionality and doesn’t perform perfectly as promised, it can not only cause an uproar of poor review with your demographic and more importantly your brand in totality can take a major hit on its’ reliability, directly causing a decline in sales.

So, what’s important here?

  1. Absorption!
    Therefore, utilizing the right product for you whether it’s bladder control pads, protective underwear & briefs. In to put it gently, these products range in absorbency protection from very light to ultimate absorption; they’re also available in different lengths and thicknesses, and some offer side protection barriers for added leakage protection. These products are designed to draw moisture away from the body, eliminate odour, encompasses side shields for added projection, and offers a thicker level of protection where it’s needed the most (Source: National Incontinence).
  2. Research & development, innovation and technology
    are the forefront of any product development initiative due to consumers wanting items faster and better at competitive prices, and in this case more comfortable and discreet to wear; retailers are investing heavily on technological innovation of adult incontinence to ensure the functionality of the items create strong brand loyalty as well as sourcing from. Some recent innovations include the application elastic nettings allowing for flexible, smooth and seamless fusions for grander comfort and feel for the consumer. Taking this innovation this a step further in application in relation to hygiene and skin protection, the web configuration of the net offers a unique level of breathability and air permeability that directly affects end users’ level of comfort. As these are only a few examples, the innovation behind incontinence is rapidly increasing and fast paced, while maintaining a cost competitive advantage with not only major brands but private owned brands as well.

Whether it’s private label or name branded product, sourcing a supplier who stays ahead of the demographics’ requirements is essential to the shelf life of the product. Aside from this, extensive tests are performed to ensure the promises on the labels are accurate.

Some key performance indicators for incontinence testing include the following:

  • Rewet
  • Breathability
  • Retention Capacity
  • Elasticity
  • Total Absorbent Capacity

Thanks Liz for the deep insights into the daily life of a Sourcing Professional. Sourcing isn’t always glamourous, but, to find savings, and value, the work has to be done.

Stay tuned to SI as we will, through collaboration with Source One, continue to bring you down-and-dirty details on categories everyone has to source, but no one wants to talk about. Sometimes you have to dive into the weeds to succeed (which is something every incontinent golfer knows).

OEM Software Maintenance: Should I Stay or Should I Go? Part II

Today’s guest post is from Torey Guingrich, a Project Manager at Source One Management Services, who focuses on helping global companies drive greater value from their expenditures.

As a strategic sourcing consultant, the very broad category of “software” seems to always be an area in which companies are looking to reduce costs. . But is there an opportunity to substantially reduce maintenance costs if you want to continue utilizing the applications? Are third party maintenance providers an option?

The first step to answering these questions is to properly frame questions with IT to better determine if third party maintenance is a potential solution for your organization. Yesterday we provided you with the important Application Lifecycle questions. Today we address value from support, level of customization, and level of response.

  • Value from Support:
    • How often do we engage with the vendor support?

      Assuming you are in a stable environment that opens the door for third-party maintenance, consider the support/content you are receiving and utilizing from the software publisher directly.

    • Are we apt to upgrade with every release or do we tend to push off upgrades?/What are the pain points in upgrades and what is the perceived value we see from them?

      Third party providers provide break/fix support, troubleshoot bugs and typically provide tax/regulatory updates as well as potential support for customization, but you would not be eligible to receive updates and upgrades direct from the OEM. This is an opportunity to discuss with IT your organization’s typical appetite for change, e.g. do they immediately act on update/upgrade opportunities, or do you typically push these out for a few releases? It is not uncommon for OEMs to charge (or try to charge) back maintenance for some period of time when an upgrade is warranted, so you shouldn’t be cutting ties if you have planned upgrades or new version releases in your roadmap (assuming you are upgrading due to perceived value, as opposed to being forced off an older release by the OEM).

  • Level of Customization:
    • What level of customization does the system have and what support is in place for that custom code?

      When applications are highly customized, standard maintenance from the OEM is very unlikely to support those customizations. Many third party providers do include support for custom code in the cost of annual maintenance which may be an opportunity to alleviate the work of internal resources or other providers you may be utilizing to support customizations. Consider how customized your environment is and the level of effort IT resources (internal or external) spend to support that custom code; question your IT stakeholders on the systems that are most customized and any past issues they may have run into when it comes to customization (or if they already rely on an outsourced model to do so). Highly customization systems typically run into issues when it comes time to upgrade, so if your company has delayed upgrades or prefers to retain the current version because of the level of customization, this again may be an opportunity to look to third party maintenance.

  • Level of Response:
    • How happy are you with the level of support and responsiveness from the vendor?

      One final area to consider are the service levels/guarantees of your current support model. Third-party maintenance providers tout their strong SLAs and dedicated account management, with many offering 24×7 support and aggressive response and resolution timeframes. While some customers think this alone may be a reason to switch maintenance models, work with IT to try and quantify the frequency with which you engage the current support model and if there is truly a business impact or benefit that could come from stronger or more responsive support.

While third party maintenance providers boast large reductions in cost (many market a 40-50% decrease in annual maintenance cost), Procurement needs to work with IT to define if these providers can be used strategically given the considerations above. Considering compressed IT budgets and heavy reliance on ERP vendors, it may be high time to explore the options in the market, have the conversation with your IT leadership, and challenge third party providers to help you determine if they are a good fit given your current environment. At the very least, this option can be used as a leverage position with some of the software giants out there to negotiate maintenance percentage or mitigate increases to maintenance structures.

So now you need to decide, Should I Stay or Should I Go?

OEM Software Maintenance: Should I Stay or Should I Go? Part I

Today’s guest post is from Torey Guingrich, a Project Manager at Source One Management Services, who focuses on helping global companies drive greater value from their expenditures.

As a strategic sourcing consultant, the very broad category of “software” seems to always be an area in which companies are looking to reduce costs. The spend categorized as software is usually compromised of some net new licenses purchases, perhaps annual subscription based licensing, but almost always has a large portion of spend that is actually ongoing maintenance and support for previously purchased licensing. But is there an opportunity to substantially reduce maintenance costs if you want to continue utilizing the applications?

While third party maintenance providers are expanding their ground for many hardware and software solutions, one of the more prominent areas of expansion has been in managing annual support costs associated with ERP systems where the cost of maintenance can be a staggering, and ever-increasing, amount. While there are some conflicting opinions on the future of ERP third party maintenance given the ongoing legal battles in recent years, there is a strong case to be made that third party maintenance as a concept will not being going away anytime soon. While Procurement professionals may be enticed by the opportunity to slash a software budget, does it make sense for your company to cut to ties with native maintenance services from the software publisher and how should you go about evaluating this option for your company and/or discussing it with the stakeholders who manage those relationships?
The areas below will help Procurement frame questions and discussions with IT to better determine if third party maintenance is a potential solution for your organization:

Application Lifecycle:

  • What are the current owned licenses and associated maintenance costs/structures? Gaining visibility into the current software and maintenance environment is key to determining the scale of software maintenance costs as compared to other areas of spend within the IT budget.
  • What is the roadmap for the current software system in use? Once you have isolated the primary solutions that drive maintenance costs, it is important to set the stage for measuring stability in the environment. If a particular system is planned to be replaced or retired in the next few years, it may be a great opportunity to explore third party support for a limited time on the system being decommissioned before the new system is put in place.
  • How long has the solution been in place?/Have you recently launched or upgraded the solution in questions?/How stable is the environment? Immature and unstable environments tend to rely more heavily on OEM updates, upgrades, patches, and other content than those that have been in place for many years. Stability of the current environment is a key component in evaluating opportunities for third party maintenance as any change may be disruptive without the comfort of patches and regular updates from the OEM.
  • Is there a desire to keep the current system beyond the period the OEM offers support or are we being forced to upgrade where we would rather not? If you discover that the environment is very stable with no planned upgrades, you may have the option to actually extend the life of a certain application or release by leveraging third party maintenance where an OEM is no longer offering support.

These necessary questions are just a few of the key questions you need to ask. If the answers to these would allow a third party provider to be considered, the next step is to assess value, customization, and response. We will discuss these issues tomorrow in Part II.