Category Archives: Guest Author

Supply Chain & Distribution in the Age of Legalized Marijuana


Now, some readers will feel this topic is inappropriate for Sourcing Innovation. However, regardless of your personal view on the subject, it is a valid one given the continuing legalization of Marijuana around the world, and, more importantly, the fact it has medical uses. If you are personally against it, you can avoid the industry. But a healthcare provider cannot, especially once a licensed medical doctor has prescribed the drug.


As a result, today we welcome a guest post from Brian Seipel a Procurement Consultant at Source One Management Services focused on helping corporations understand their spend profile and develop actionable strategies for cost reduction and supplier relationship management. Brian has a lot of real-world project experience in supply chain distribution, and brings some unique insight on the topic.

(Dear reader: I need you to know how hard it was to resist writing a pot-infused pun into my headline.)

There are a lot of headaches attached to supply chain and distribution, faced by distributors and their clients alike. I can list a few, not that I likely need to – most readers will be familiar with them:

  • Regulations are, bluntly, a pain in the ass. This one doesn’t need much of an explanation. From city to city, state to state, country to country, there are a lot of rules to follow, and a lot of frustration for anyone who doesn’t dot the right “I’s” or cross the right “T’s.” If compliance is key, then regulators must have some pretty heavy doors.
  • Supply chains are often pretty inflexible. Any hiccups along the way can be devastating and, while good planning can ease the pain, nothing is sure fire. Want an easy example? For those in the north, think back to the last bad winter you faced. Any seafaring shippers can point to the last hurricane that graced their shipping lanes. Probably enough said.
  • Costs are rising. Fuel for trucks and wages for their drivers have frequently been a concern. Adding some strategic creativity to your supply chain can help stretch dollars, but the rubber can’t meet the road without expensive fuel to get it there. And a driver, of course, to keep it there.
  • Forecasting can be tricky, and demand can outstrip supply. Predicting demand (and predicting the uncertainty in that prediction) are crucial to gaining efficiencies in your supply chain. It can also be very difficult, leaving many to base decisions on assumptions and gut checks. One known factor at play here is the fact that demand far outstrips supply. There’s a shortage of truck drivers out there, and that isn’t good for anyone trying to move shipments.

Again, I likely didn’t need to remind any of you of these and many other challenges your supply chain faces. One thing you blessedly don’t need to worry about, however, is committing a felony just for shipping product.

In the Age of Legalized Pot, Distribution will be … Tricky

Sorry to bury the lead, there. However, I think it was important to do so. Given all those issues above that we all face, at least we can keep in mind that “someone out there has it a lot worse.”

You think regulations on your end are bad? States can barely get their own minds made up about the legal status of Marijuana, and that’s not even considering the fact that the stuff is still illegal on a federal level, regardless of what the states decide. That brings the regulatory landscape to a whole new level. On that note, what do you think the legal ambiguity means to an already fragile supply chain? Distributors of marijuana face a level of uncertainty not seen elsewhere.

If America has a truck driver shortage, imagine adding felony charges, stiff fines, and jail time into the equations – you can’t fault the labor pool for being cautious to enter this new arena. And even if you solve these supply chain risks in the here and now, predicting the demand of a product that is legal today but potentially a crime again tomorrow would make the best soothsayer’s head spin.

Still, this is an emerging market that has caught everyone’s attention. As Procurement pros with an eye on industry news and trends, this growing industry is, at a minimum, an interesting one to keep an eye on. So let’s dig a little further.

Weed Distribution: A Brief Review

To take a closer look, let’s travel to California’s sunny coastlines. It’s weird to think of the marijuana growers and dispensaries dotting the golden state as mon-and-pop outfits. “Not my parents,” right? Still, the term applies. Most don’t have the resources nor inclination to own most of the vertical elements of marijuana industry. Many dispensaries are happy to leave the cultivation and processing of marijuana plants to growers and act simply as the retail operation. Many growers simply want to focus on producing a high quality product, and have little time for the retail side of it all.

On one hand, it makes a lot of sense for the two to meet in the middle, forming partnerships. On the other, however, it can be painful for an organization on one side to deal with a dozen small outfits on the other. Not to mention the fact that some of those small outfits may land on the weaker end of the business acumen continuum. Besides, neither end necessarily wants to deal with the tax and regulatory management or logistics of the industry.

Enter California’s Cannabis Distributor License. Organizations under this license take up this relationship, and work with growers and dispensers to not only manage the logistics of the industry, but also myriad steps along the way – before handling the actual shipments, these organizations may also take part in the processing and packaging of the products, performing required quality control measures, and deal with the regulatory hassles that come with the territory. Just as importantly, growers and dispensaries can get a range of products from a much smaller, more reputable source.

This is a win for all parties involved. So, what is the issue?

For one thing, the California supply chain is being disrupted by a – very relatable for the rest of us – greater demand for distribution than there is right now. Plenty of dispensaries stocked up on product early on to ward against disruption, but there simply aren’t enough operators being granted licenses to keep the pipeline full.

This shortage isn’t the only concern. Plenty of attention is paid to high tax rate on one side and a banking industry that refuses to get involved in an industry still illegal on a federal level on the other. Both factors are squeezing the industry from a financial perspective.

A Look towards the Future

You may be asking, “won’t all of this get better as more states legalize?” This may be true over a long term. However, the federal government isn’t budging so far, which means every state is an island in terms of marijuana distribution. It wouldn’t matter if two neighboring states were both weed-friendly. That adjacency won’t count for anything, as state borders fall under federal jurisdiction. Hell, don’t even think about getting near some state borders as a cannabis distributor – simply approaching a border crossing zone between countries could land you in hot water, even if the distribution of marijuana within that border state is legal.

So let’s look towards what that longer future could look like. The biggest “if” factor out there is regulatory. Either states get their own ducks in a row and the federal government follows suit… or they don’t.

If they do, the cannabis distribution market could be a huge industry (we already see it growing quickly, albeit not quickly enough, in California). Limit the number of hoops to jump through and clear the way for distribution from a legal standpoint, and watch an industry thrive. If they don’t, however, I can see a slide back into the black market, regardless of the legality on a per-state basis. The lack of regulation and taxation could be too much of a draw for some to ignore.

And that would be a shame – from a quality and safety standpoint for the consumer and a revenue standpoint for the state, there are a lot of reasons advocates across the industry and interested in its success.

Thanks, Brian.

MoviePass and the Importance of Strategic Suppliers


Today’s guest post is from Bennett Glace, the primary contributor and Editorial Lead for the Strategic Sourceror. A prolific procurement and sourcing blogger, he is responsible for advocating the function’s value in podcasts, white papers, and other accessible content.

On an almost daily basis throughout this year’s summer movie season, cinemagoers have read headlines charting the struggles of MoviePass. The low-priced subscription service was intended to disrupt the traditional theatre model and get audiences excited to go to the movies once again. While initially successful, the service’s last few months now look like a cautionary tale.

In a recent Harvard Business Review essay, Eddie Yoon points out a number of flaws in MoviePass’ pricing model and approach to customer service. Using the company’s woes as an instructive jumping off point, he provides suggestions for its inevitable successors. His arguments also suggest that MoviePass and its disappointed customer base provide a case study in the importance of developing and nurturing strategic supplier relationships. MoviePass’ subscribers are right to feel burned, but it’s clear a more strategic, informed approach to assessing the ‘supplier’ could’ve saved them a great deal of exasperation and money.

To exist as a strategic function, Procurement requires a strategic approach to its supplier relationships. A key step in establishing an effective Supplier Relationship Management program is identifying suppliers who are willing and able to provide for a strategic relationship. These are suppliers who show an interest in engaging directly with Procurement, tuning into its unique requirements, and providing flexible, dependable services. When it comes to supplier selection, anything that strikes Procurement as one-size-fits-all should raise concern. Effective supplier relationships depend on personal, individualized attention. Whether this means favouring local suppliers and distributors over national options, or consolidation over dispersal, will vary based on the organization, but no supply chain professional would dispute the importance of suppliers who can offer hands-on, tailored services that enable a strategic partnership to take shape.

Over the last few months, MoviePass has shown itself to be anything but a strategic supplier to its more than 3 million buyers. Their one-size-fits all approach to pricing and customer service provided for such a massive expansion, but, in Yoon’s words, “MoviePass had to grow much faster than its customer support could keep up with.” Describing their increasingly hands-off service offering, he continues, “The constant price and product changes clearly show how little it understood what customers wanted.”

He begins by discussing the service’s much-discussed, outrageously-low price. Presented as MoviePass’ primary selling point, the $9.95 monthly subscription fee struck millions as a deal too good to pass up. Recent developments suggest it was something closer to too good to be true. Even rookie supply chain professionals know the perils of making supplier selections based on price alone. Cinema lovers, too, have now learned this lesson the hard way.

While moviegoers across the country would agree that tickets have gotten more expensive, Yoon points out that the definition of “expensive” varies considerably by region. MoviePass’ $9.95 monthly price point is a definite bargain for residents of New York or California, where ticket prices average more than $15.00, but most Kansans are unlikely to consider the service so cost effective. Yoon writes, “It is silly to think that a one-size-fits-all national strategy is the right approach for a market as technically and economically diverse as the United States.”

MoviePass’ dedication to a one-size-fits-all service offering not only left their customer base underserved, but ultimately left them struggling with unpredictable demand. As Yoon writes, “MoviePass failed to recognize how the behaviour of super-consumers, customers who are highly engaged with a category and a brand, differs from that of average consumers.” These super-consumers, attending numerous films every week are not unlike any suppliers customers of choice. Customers of choice expect and deserve value-adding incentives based on their particular needs and buying habits. It’s these extras that differentiate truly world-class suppliers and provide the foundation for long-lasting supply chain partnerships. By tailoring certain aspects of its offering to serve its loyal, high-volume buyers, MoviePass might’ve developed methods for better managing spikes in demand. What’s more, these customers would’ve felt appreciated enough to consider MoviePass a preferred supplier even through the recent growing pains.

MoviePass, for their part, seems convinced they’re here to stay. Speaking to NPR, CEO Mitch Lowe remarks, “Amazon lost money for 20 years. Netflix still loses money … our competitors are the ones who keep spreading rumours that we’re going out of business. And clearly, they’re afraid of us and would much rather have a clear playing field.” Lowe suggests that, as a supplier, MoviePass is less concerned with serving its buyers, less concerned with turning a profit even, than it is with instilling fear. The implications for the business’ corporate culture are eye-opening. Lowe paints a picture of an organization that will forsake its commitment to customer service and spread itself past the point of sustainability in order to appear intimidating. That’s not even to mention the lingering questions about how MoviePass intends to use consumer data. Back in July, Lowe (somewhat infamously) joked, “We know all about you.” While Procurement certainly desires suppliers who know its business in-and-out, these suggestions should raise red flags.

Yoon makes note of MoviePass’ troubling attitudes as well. He concludes his essay by remarking, “MoviePass’s struggles provide evidence that bullying is a bad business plan.” Here and there, Procurement has certainly impressed its peers as a cost-cutting bully. Within leading organizations, however, those days are over. The function is widely engaged in efforts to undo its negative perception, build a better brand, and contribute to a positive corporate culture. Identifying and partnering with ethical, dependable suppliers who share Procurement’s values is an important step in establishing this culture and making Procurement a strategic business partner. Continually, MoviePass has revealed itself to be a supplier of less-than-stellar character walking into a less-than-certain future. If Procurement wants to continue rehabilitating its image and protect the reputation of its organization, it can’t afford to do business with this sort of supplier – at any price.

Thanks, Bennet!

E-procurement benefits … fact or fiction? Part II

Today’s guest post is from Tony Bridger, an experienced provider of Procurement Consulting and Spend Analysis services across the Commonwealth (as well as a Lean Six Sigma Black Belt) who has been delivering value across continents for two decades. He is currently President of UK-based TrainingWorx Ltd, a provider of a wide range of Procurement and Analytic business training programs (inc. GDPR, spend analysis, project management, process improvement, etc.) and focussed short-term consulting solutions. Tony can be contacted at tony.bridger@data-trainingworx.co.uk.

In our last post we noted that it has been difficult to find anything recent in the academic world on e-procurement.  Independent academic research appears to have started to fizzle out from 2007 as the e-procurement technology wave passed and moved on – as most technologies do eventually.  However, e-procurement software vendors are still going and new development companies still seeking a new angle – despite the fact that many e-procurement systems, and concepts, have proven notoriously difficult to embed in to the culture of organisations.

We can hypothesise and speculate on some of the reasons for this:

  • E-procurement has often been touted as the panacea for all procurement department ills. Stops maverick spending, controlled approvals and extensive workflow;

This is correct to some extent.  However, this focuses on a small slice of spend (i.e how much of procurement effort is actually spend under management?).

  • Many procurement teams write large contracts but rarely take the time or effort to check compliance to contract. No one ever said that vendor catalogues and associated pricing were always correct and accurate.   Automated PO processing cannot fix compliance if the core vendor source catalogue pricing is simply wrong;
  • Spend analysis is still lacking as a core skill in many procurement teams – so validation and compliance checking of pricing to invoice compliance still seems to be a low priority agenda item. Therefore, e-procurement provides no better protection for contract compliance than any other process in many cases.
  • The generic nature of indirect spend activity remains in many cases. Simply, this means that in some categories, the variation in process to specify, order and pay means that a “one size fits all” process platform simply will not work.   There are Purchasing cards and a range of other specialised P2P options available – but the advent of products like SAP Fieldglass for temporary labour and service time recording has started to erode the value of e-procurement investment in some categories.   All-encompassing e-Procurement capability is simply being picked off at a category level.    The purists will argue that it should all be on one system.  However, the pragmatists are busy creating applications that deliver value.

Could it be that e-Procurement has simply passed its apogee?    Perhaps.

However, do problems with purchase to pay in many organisations simply reside with procurement cultures?

There is little or no doubt that many procurement departments see the entire gamut of purchasing activity as their domain to control.   Many procurement executives still initiate major P2P investment projects on the basis that this will provide an entire control platform – and that business teams will simply comply.    That assumption is flawed as many imposed P2P initiatives run counter culture and are doomed to fail – or at best simply ignored.

It can also take time to set vendors up on e-procurement, maintain workflow using cost centre files, approve POs, set spend limits etc.   There are many variations on a theme in the e-Procurement space – many systems will now claim to resolve a range of category-based issues.   However, many business unit buyers have considerable market knowledge, good commercial evaluation skills and translate their domestic purchasing skills in to the workplace very effectively i.e.  specify requirements, create opportunities and evaluate responses from multiple suppliers – and place an order.   They also can save companies money.   As the old Chinese proverb suggests, “give a person a fish, feed them for a day, give them a fishing rod, feed them for a lifetime”.

It may simply be that the majority of e-procurement platforms are designed, in many cases, to pander to the notion of total control desired by procurement teams – not commercial pragmatism around the way the purchasing and business world really works.  A mystery for sure.

However, there are alternatives.   The question is … is anyone looking?

Thanks, Tony!

E-procurement benefits … fact or fiction? Part I

Today’s guest post is from Tony Bridger, an experienced provider of Procurement Consulting and Spend Analysis services across the Commonwealth (as well as a Lean Six Sigma Black Belt) who has been delivering value across continents for two decades. He is currently President of UK-based TrainingWorx Ltd, a provider of a wide range of Procurement and Analytic business training programs (inc. GDPR, spend analysis, project management, process improvement, etc.) and focussed short-term consulting solutions. Tony can be contacted at tony.bridger@data-trainingworx.co.uk.

It has been difficult to find anything recent in the academic world on e-procurement.   What was once the doyenne of the procurement world does seem to have become very much business as usual.

However, it really does depend on how you define the term.

So, prior to running off at speed discussing an array of e-procurement related elements, let’s make sure that we discuss the right technology platform.

In 2016, I sat in on an EU conference that had a presentation session on “e-procurement”.   Having implemented an end-to-end B2B procure-to-pay platform, I had considered that it was pretty much a common technology – and well understood.  I was wrong.    I was treated to an hour on e-procurement as an RFP (request for proposal) and optimisation tool.   Not the e-procurement I was expecting.   The (real) e-procurement, from my perspective, is the good old shopping cart and payment process.  So, let’s stick with that definition for now.

At the turn of the millennium, e-procurement and the sister product e-marketplaces, were being implemented at a furious speed.  However, as fast as the companies were starting up and creating e-procurement systems, the dot com era brought the entire edifice down and left very few players standing.   I was amazed recently to discover that start-ups are still creating these platforms.  So much for the concept of a mature market.

For those that have little experience with e-procurement systems, the simplest analogy is that it’s a little like a single organisation implementation of Amazon.   The hoster (the buy side) will have access to the range of catalogues and suppliers like any Amazon user.   However, these are only generally only contracted suppliers.  The supplier makes available their catalogue and goods to organisational buyers.  If you do not work for the client company you cannot see or interact with this environment.   The supplier can have their own website catalogue (termed as “punch out”) or use third party or software vendor supplied catalogues.   Once a PO has been raised and goods despatched, invoices can be submitted, matched and paid.  All automated.

Sounds like a transactional nirvana.  However, just how successful has e-procurement actually been?

Independent academic research appears to have started to fizzle out from 2007 as the e-procurement technology wave passed and moved on – as most technologies do eventually.    This article does not suggest that e-procurement is a failure or is declining – it merely suggests that little real evidence exists to suggest that it is an outstanding success.   One may assume that if it was a major success – there would be many (and wide ranging) articles that vaunt the case for investment.

However, e-procurement software vendors are still going and new development companies still seeking a new angle.   There have been many variations – from free systems (with revenues made on services), to the more expensive, fully integrated ERP suites.    However, none of these options are cheap to implement – and can be notoriously difficult to embed in to the culture of organisations.

Why?

Stay tuned for Part II

Thanks, Tony!

Can we stop calling cost avoidance “soft savings”?

Today’s guest post is from Torey Guingrich, a Senior Consultant at Source One, a Corcentric company, who focuses on helping global companies drive greater value from their expenditures.

I’ve heard it time and time again “we don’t count soft savings” — which at times translates to “we don’t consider value beyond unit cost and volume reduction“. In recent years, many companies seem to have taken an overly broad definition of soft savings to include cost avoidance, budgeted-cost reduction, and other ways that Procurement adds value to the organization through their sourcing and negotiation efforts. Much of the work that Procurement does isn’t just reducing costs on recurring purchases, and what we consider a strategic partner from a sourcing and procurement standpoint, is helping business units to source and put in place solutions that meet their evolving needs.

So should Procurement not get any “credit” for this work?

Below are a few scenarios where Procurement professionals may struggle in quantifying savings/impact and where the bottom line cost may actually see an increase (gasp!)

New Recurring Purchases: When a new need arises for a department, Procurement can add value by helping to support the requirements definition, RFI and eventual RFP process — this is where Procurement’s role is to help business users understand the options in the market and make the best-fit decision based on their needs. Consider an organization that is growing and needs to implement an applicant tracking system to better manage their recruitment process. This is certainly a process improvement measure to better the recruitment process for the HR department, hiring managers, and the applicants themselves — but one that is not going to yield a tangible cost reduction result (and is going to add a new expense to total cost).

Should Procurement not support the RFP to put the solution in place because they cannot quantify the process improvement or completely offset the new expense?

Capital Purchases: Organizations typically define a capital plan for the year based on upcoming large-scale purchases. For instance, within the Facilities spend category, there are a number of systems that get replaced infrequently, but that represent a large financial outlay. Say an organization is looking to replace the HVAC system at a given facility or perhaps changing the doors at a warehouse — these are both scenarios that should have some degree of competitive bid associated to ensure the project is cost competitive.

Should Procurement really be comparing proposed pricing to the cost paid 10 (or more) years ago or not support the effort because there are no “hard savings”?

Increased Volume: As organizations grow, or most obviously, as they increase production, their volumes associated with direct and indirect goods will scale to some degree. Procurement may have negotiated a great deal on electricity price per kWh in the deregulated market, but once production ramps up your total electricity cost is going to increase.

Should Procurement not bother negotiating a price reduction because the total cost will increase anyway? Note, this is probably the most extreme view of “soft savings”, but is something that Procurement should align on with Finance to ensure savings are being calculated based on unit cost reduction against actual volumes!

Dynamic Requirements: Plenty of categories are driven by constantly changing requirements or where similar services may be required, but the specifications drive the cost. Commercial print is a common area for this — the print needs of an organization may be driven by their specific campaigns, events, or one-off marketing needs. Print costs don’t get broken down into the cost per coloured pixel — they are made up of various specs that come together for a complete need.

Should Procurement not support an RFP for a large scale print campaign because they can’t count savings or be forced to measure outcomes against different specifications?

Market Changes: Certain products and categories within direct and indirect spend are more prone to price fluctuation due to the raw materials that make up the final product. Take packaging for example — due to some of the extreme weather scenarios in 2017, we saw many packaging suppliers pushing increases on final product given the rise in the pulp and paper costs as the supply market was impacted. Many times these increases were mitigated or minimized through negotiation, but that did not actually result in reduced unit cost.

Should Procurement not negotiate with these suppliers or in these markets because the mitigated increases “don’t count” or wait for the cost increase to be billed just to show tangible savings?

I hope you’re all yelling a collective “no!” to these questions, but so often ideas like cost avoidance or reduction from first proposal are written off as “not real“. Understandably, as a Procurement organization looks to build its credibility within the organization and invest in new talent and solutions, hard-dollar cost reduction tends to be a big focus. But once the group moves from a tactical to strategic approach and supports business units in managing their suppliers and sourcing events, the way value and results are measured needs to reflect this changing dynamic. For the scenarios above, maybe it’s measuring impact/value from the average of bids received, or from first proposal to final value, or coming up with a NPV for that HVAC system from 10 years ago — Procurement should define the methodologies for these common scenarios and define for finance and leadership how they will be capturing value and what it means to budgets and bottom lines.

If we expect Procurement to support the evolving needs of the organization, then we must also evolve the way that Procurement and the broader organization as a whole sees and communicates the value of the sourcing and negotiation outcomes from the Procurement team.

Thanks, Torey.