Category Archives: Guest Author

Aligning Procurement Strategies to Business Goals, 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.

Part of good category management is ensuring that the sourcing strategy in place for the products/services is intentional and logical based on the market and commercial aspects of your company. Consider how you are determining sourcing, contract management, and vendor management strategies for different categories of spend: what are the guiding factors that push you towards a long term versus a short term contract, or a consolidated versus a segmented supply base? If you are applying the same strategy for every category, e.g. consolidate suppliers and sign a three-year contract, you may need to reconsider the variances in the categories and how these differences should affect the chosen strategy.

In 1983, Peter Kraljic published his ideas around how Procurement can transition from purchasing to supply management in a still-relevant 1983 article. These ideas were introduced to me when I first began my career in Procurement. I’ve kept these ideas in mind throughout my career to understand at a high-level how the inputs being sourced relate to the business at hand and how to best position a category management strategy given the market conditions associated. We’ll walk through a simplified version of Kraljic’s original ideas and how they can be applied to Procurement at any company.


Complexity of Supply Market/Supply Availability:

To simplify the original idea around “Complexity of the Supply Market” that Kraljic introduced, I want to focus on the availability of supply within the market. Across categories, there are certainly areas where suppliers or additional production are more available than others. In the manufacturing world, I’ve worked with companies that pursued long-term contracts with key suppliers, e.g. over 10 years, and even shared in the capital investment of building plants or production facilities in order to secure supply. Certainly a decision that large would be made with many stakeholders and C-suite folks involved, but it serves as an example of understanding the availability of supply in a given market and strategically responding to scarcity.

Scarce goods or services have rigid supply curves; there are limitations that prevent supply from meeting demand by simply increasing production/output. I use availability to mean more than just physically scarce resources; low availability can be brought on by high barriers to entry, complexity in extracting or moving the materials, a rapid increase in demand, or a rapid decrease in supply. Consider a manufacturing company; an example of a relatively scarce service in that market would be railroad transportation. For railroad capacity, we see high barriers to entry (e.g. we don’t see new railroad companies popping up every year) and an inability to ramp up to changes in demand (e.g. new railroad lines can’t be quickly added). When in Procurement, it is crucial need to look at the supply markets of different categories related to your business – are you being approached by suppliers frequently; are you able to easily find new suppliers to include in sourcing events; have there been any large-scale events that impact supply? Additionally, you can research the number of suppliers in the market, limitations on delivering the product/service, alternatives/substitutions available, and any other limiting factors that can affect supply to determine the relative scale of availability.


Importance of Purchasing/Criticality to the Business:

Availability of supply works hand-in-hand with criticality of that category to the business. Kraljic calls this component “Importance of Purchasing;” I position this aspect as “Criticality to the Business” to refer to the level of spend for a category and the overall impact on profit or production. To be able to measure this, Procurement needs to understand the business perspective and what drives production (either physical production of goods or sale of services). When I was taught these concepts at a steel company, one of the key materials to production was coke to fuel the furnace to smelt iron ore. Consider the core elements of your business and the drivers of production/sales as well as high volume/high price goods; this will help to gauge how critical a given product/service is your business. It should be noted that when looking at criticality, that the quality of that supply can be just as important as actually guaranteeing the volume needed. If key quality specs do not meet acceptable levels for production, there is the risk that the material may not be usable at all.

Based on availability and criticality, you can begin fitting Procurement’s spend categories into different quadrants to develop a sourcing strategy around each.

We will dive into details in Part II.


Thanks, Torey.

Sales Vs. Procurement: Who Wins Control Over Your Next Sourcing Initiative?


Today’s guest post is from Brian Seipel, an information technology and marketing Project Analyst at Source One Management Services.

A while back, I had a chance to discuss why best-in-class suppliers may be, shall we say, less than enthused about the RFP you just released. I’d like to take a moment to move away from such 3-foot concerns of RFP development and address the 30,000 foot concern: Sales’ impression of Procurement’s involvement in the overarching decision-making process. It isn’t a secret that both sides are wary of each other. The name of the game is often winning out over the other side for control of the sourcing initiative.

Procurement’s value to an organization hinges on the ability to get the right solution in place at the right price point as quickly as possible. Sales can help us do this, or throw up barriers that make this goal harder to reach. I propose Procurement pros extend the olive branch and work towards bringing Sales into the equation as partners. There’s too much to gain not to — Sales teams that recognize their place as allies rather than adversaries can deliver better targeted solutions more quickly, and be willing to negotiate more readily.

Good News and Bad News

Most Procurement/Sales relationships can be described as a tenuous, “OK-but-not-great” alliance borne of necessity. The groundwork for forming true partnerships is there, but often not capitalized on. In other words, I have some good news and bad news for you.

Good news! Both sides are in an excellent position to understand end user needs, and know how the market can address them.
Bad news… Sales is often skeptical of Procurement’s willingness to share crucial insider information about needs or plans future development — let alone allow Sales to interface with end users.Good news! When Procurement engages in open dialogue, Sales can be leveraged as a business partner, suggesting otherwise unconsidered solutions that can benefit an organization greatly.
Bad news… However, Sales rarely looks to connect with procurement in the first place, opting instead to look elsewhere in an organization for points of contact, killing such dialogue before it begins.

Good news! Both sides have the ability recognize Total-Cost-of-Ownership and Total-Value as critical long-term.
Bad news… However, as the consequences of the problems manifest, the sourcing process is often derailed — Procurement seeks the lowest cost and Sales fights for the highest revenue. The end result may be a solution not as tailored to the end users’ needs as it should be.

Working Together

Communication is key — when Sales tries to avoid interacting with Procurement or tries to skirt sourcing processes, it is because they aren’t getting the info they need. While there are reasons to remain in control of the process,

  • open up communication, but stay in charge.
    When Procurement brings key stakeholders to the table to interface with Sales, Sales doesn’t feel the need to go behind Procurement’s back or otherwise work to undermine process. Build opportunities for such communication into projects, such as open Q&A sessions wherein sales teams review the goals and scopes of work with end users in a controlled environment. Sales will be less frustrated, and will turn around proposals that are both more targeted and more timely.
  • Process is important; make sure everyone understands why.
    Set out the purpose and goals of the initiative early, and lay out key milestone dates. Let Sales know exactly what the timeline is, what deliverables are due, when negotiations will take place, and when it’s time to put best prices forward or risk exclusion. Make sure everyone is on board internally as well. Be sure to let internal stakeholders know that communication during Q&A sessions is encouraged, but communication in other situations is not — have them direct any communication from sales to you if that communication doesn’t occur in a prearranged time and place.
  • Factor in shades of grey.
    When Procurement insists that every aspect of a proposal can and should be commoditized, focusing only on lowest common denominators to compare suppliers, Sales will fight back. When Sales insists that their solution is too unique and its value too complex to fit into an RFP, Procurement fights back. Both sides are right and wrong, because sourcing isn’t black and white. Procurement does need to factor in intangibles while striving to show why breaking down costs, when appropriate, is necessary to compare competing solutions.

Procurement’s Best Frenemy

Sales goes behind Procurement’s back because Procurement hides key details and stakeholders behind walls and gatekeepers. Procurement throws up bigger, tougher barriers knowing in advance that Sales will try to circumvent them. Being open and honest about the steps above is Procurement’s best bet for putting a cease fire in place.

It can be all too easy to view Sales as an enemy when sales professionals go out of their way to buck the system. But when we step back and consider their motivations for doing so, we see not only simple ways to keep everyone working towards the same goal, but also potential for improving the outcomes of sourcing initiatives by bringing together experts on both sides of the table.

Thanks, Brian.

3 Reasons STEM Education is the Future of the Logistics Industry

Today’s guest post is from Lauren Willison, the Director of Admissions at Florida Polytechnic University.

Today’s logisticians require more than a just basic planning and routing skills to succeed. This is due in large part to the continued development of cutting-edge technology such as robotics and automated machinery, which requires logistics employers to look for professionals with advanced technical expertise. Universities are matching this demand by offering logistics degree programs that focus on STEM subjects — science, technology, engineering, and math — in a hands-on learning environment.

A higher education in STEM offers the best training for the logistics field because it offers students tactical knowledge to improve logistics management and adjust to an evolving industry landscape. Here’s how:

Extensive Training in Technology

The STEM disciplines are unique in the academic world because they are quick to change and adapt to evolving industries and careers. STEM-focused institutions stay up-to-speed by offering students exposure to emerging technologies such as 3D printing. According to EFT’s 2015 3PL and Contracting Report, 19.2 percent of manufacturers and retailers use 3D printing in their businesses; however, only 1.5 percent have the expertise, knowledge and services to use these technologies effectively. STEM students have the opportunity to use 3D printers, for example, and practice producing exact replicas of parts and products. Increasing proficiency with new technology allows STEM-educated logisticians to make faster, cheaper, more reliable and more sustainable deliveries.

Cross-Disciplinary Education

An interdisciplinary education builds well-rounded logisticians and supply chain professionals who can eliminate the skills gap in the field. Although STEM focuses on four subjects, a STEM education provides in-depth training in a wide range of technical subjects that logisticians should know. With courses ranging from hazardous materials management to Six Sigma applications, students can apply textbook concepts to in-class activities modeled after real-world problems.

Logistics is no longer a field where employees can rely on just hard skills. Soft skills, such as time management and leadership ability, is essential to move forward in a logistics career. A STEM education develops a healthy combination of both skill sets, and provides a more managerial perspective on production and services in logistics. Students in STEM learn to efficiently manage logistics processes by studying concepts such as product design, inventory control and capacity management. During the process, they also learn how to work in teams, balance heavy workloads and think strategically to improve shipping and distribution processes.

Low Student-to-Faculty Ratios and Internships

Universities wholly dedicated to STEM often boast better student-to-faculty ratios. This means students receive more individualized attention from their professors, from extra help on assignments to career advice. Students who take advantage of this dynamic gain a more wholesome perspective on the logistics industry.

Additionally, some STEM universities will partner with key players in the logistics and supply chain industry. This opens up research and internship opportunities and allows students to gain valuable field experience. An internship, particularly one with a prominent or well-respected logistics company, gives students the chance to apply new skills, excel in the field and play an active role in improving the way society manages logistics.

Thanks, Lauren.

The 8 Laws of Successful Supplier Transitions: Part II


Today’s guest post is from Brian Seipel, an information technology and marketing project analyst at Source One Management Services, a leading procurement services provider with over two decades of experience delivering procurement success.

In our last post we noted that there are plenty of reasons your organization may choose to switch suppliers. Perhaps your incumbent’s quality is slipping, or their prices aren’t as competitive as they once were. As you’ve grown, perhaps your incumbent supplier isn’t able to scale with your organization or keep up in emerging areas of your business.

However, switching isn’t always easy because transitioning to a new supplier is a scary thing, especially as there are plenty of risks. In our last post we noted that the first step managing risk is identifying risk, which we covered, and the next step is developing a strategy to manage the transition, which is the subject of this post.

Managing the Transition

Here are 8 basic commandments to follow if you want to avoid running into the risks above:

  • Before Committing, make sure your prenup is up to par.
    Nobody thinks about ending a relationship before it begins, but foresight here is crucial. Exiting incumbents can make life very hard if agreements don’t have favorable termination, survivability, and exclusivity clauses or if they fail to specify transition support owed to you in case of a breakup. Bake these items into your new agreement and all future contracts.
  • At all times, stay in the driver’s seat.
    Too often, organizations are happy to let suppliers control the implementation process. Don’t let this happen: Losing this control removes much of the supplier’s accountability, and is a leading cause for transition timelines dragging or derailing.
  • Start strong by bringing the team back to the table.
    Every new project we start with a client begins with a kickoff meeting, where all key stakeholders on both sides of the table meet. This meeting helps ensure roles are clearly defined and sets expectations for the level and frequency of communication moving forward.
  • … There is a “team,” right?
    The key corollary to the point above is — there needs to be a dedicated team. Part time committee members will always place more importance on their own day-to-day tasks, leaving implementation in the hands of the supplier (refer back to commandment #2). Put a dedicated team together, and make sure it includes members of upper management.
  • Consider the timing and scale of the transition.
    Identify the best time to make the switch based on your team’s workloads, inventory cut-in or service termination dates, and major events on your company’s horizon. Also consider whether a phased implementation may be appropriate — this will stretch your time line, but would allow more flexibility among resources.
  • Don’t jump immediately to transformation.
    Focusing first on transitioning to a familiar model and incrementally adding additional services of a new supplier can help keep a transition on track.
  • Establish an implementation calendar.
    This calendar should be accessible by all stakeholders and act as checklist of important events and timelines. Develop the calendar with suppliers to ensure they understand and can meet deadlines. For less business-critical elements of the implementation, allowing for greater stretches of time can avoid mistakes and start off a better relationship
  • Continue Communicating throughout the process.
    Remind internal stakeholders that the relationship will be most tested during implementation, and that focus needs to remain on the transition. Communicate externally to ensure the supplier keeps the full scope of work and related SLAs in mind throughout implementation and adheres to each milestone as it approaches.

Adhere to these commandments and your transition will be much smoother. Ignore them and you may find yourself dealing with some major headaches.

And If A Transition is Still Set to Fail

If you find your transition going off the rails, several speedy and decisive actions can bring it back on track:

  • Reevaluate the project plan and timelines for the transition
    At what point did the process go south, what can be done to correct, and how will the timeline need to be revamped to accommodate for a fix?
  • Changing out key players on both sides of the table managing the transition
    this may add to short term delays, but long term success. Hurt feelings always get trumped by botched implementations.
  • Reengage senior managers who quietly slipped away
    after the contract was signed and get them involved again.

Supplier transitions can be painful — but they don’t have to be.

The key takeaway is to never lose focus on a new deal just because a new contract was signed — all hands need to be on deck to ensure your transition to a new supplier lives up to the potential promised during the sourcing and contracting phases. This can seem painful, but strategizing the transition can take care of headaches before they crop up. Taking the right steps early on lessens the risks and moves the process into an opportunity to improve supplier performance and quality, streamline processes, and ultimately save money.

Thanks, Brian.

The 8 Laws of Successful Supplier Transitions: Part I


Today’s guest post is from Brian Seipel, an information technology and marketing project analyst at Source One Management Services, a leading procurement services provider with over two decades of experience delivering procurement success.

There are plenty of reasons your organization may choose to switch suppliers. Perhaps your incumbent’s quality is slipping, or their prices aren’t as competitive as they once were. As you’ve grown, perhaps your incumbent supplier isn’t able to scale with your organization or keep up in emerging areas of your business.

Compelling signs to switch, however, aren’t always enough convince the top brass to move. Why not? Because transitioning to a new supplier is a scary thing, especially if the incumbent is a key supplier.

Finding potentially huge savings and better capabilities during an RFP is all peaches and cream — until you get to the home stretch. The process of transitioning away from your comfortable, “known-quantity” incumbent becomes real and, if not managed properly, could end up costing you time and money.

Transition Risks

Plus, there are plenty of risks. We’ll start by putting a name and face to the organization’s fears. Any number of things can go wrong during a transition, with the major pitfalls being:

  • Business Disruptions
    Poorly managing transition resources takes time away from daily business activities. This can bleed into other departments if IT, finance, or legal personnel are brought in.
  • Poor Knowledge Transfer
    Dropping the ball here could set implementation back if the new supplier has to reinvent the wheel.
  • Resistance to Change
    End users are accustomed to your current supplier — they don’t know (and won’t automatically trust) that they’ll get better service or support somewhere else. The only certainty they see is that their workflow will be disrupted.
  • Missing Production or Implementation Milestone Targets
    Understaffed new suppliers growing into your business, misunderstandings about transfer roles and responsibilities, poor understanding of scopes, and other miscommunications can delay transitions or cause poor performance.
  • Waning Interest
    Upper management may be highly involved on both sides while hammering out a deal. This often changes once the ink dries, leading to stretched timelines and missed milestones.

Now, we’re not saying that any of these things are going to wrong, because every organization’s mileage may vary, and the threats your organization may face could be entirely different. But outlining the risks is the first step in managing them — building a strategy to mitigate them comes next. That’s the subject of our next post.

Thanks, Brian.