Category Archives: Market Intelligence

Procurement Key Issue 2013: CXO’s Still Don’t Get the Disconnect!

This week, the Hackett Group released their “2013 Procurement Key Issues” study. This study, which was likely the last hurrah from Pierre Mitchell as a Hackett Group Employee, found that some organizations are going deeper and broader to deliver borderless procurement services, which is good, but the one thing that blatantly stands out is that your average CFO, COO, and CEO still doesn’t understand the value of the Procurement Organization.

Before I explain, let me review a few of the key findings.

1. 82% of respondents state that increasing operational agility and flexibility is a key enterprise issue.

2. 65% of respondents state that pursuing game-changing innovation/technology is a procurement initiative planned for the next 12-24 months in support of enterprise strategy.

3. 76% of respondents state that expanding purchasing’s scope and influence is a major procurement-related issue in 2013.

4. 76% of respondents state that increasing innovation and product/service report is a major procurement-related issue in 2013.

5. 88% of respondents cite strategic sourcing as a major issue.

6. 81% of respondents cite category management as a major issue.

BUT

7. As a whole, respondents are projecting:

  • a 0.4% drop in the operating budget and
  • a 0.5% drop in the FTEs in the procurement function.

 

I think this calls for a WTF!

Strategy and category management require skilled resources with the right intelligence and toolsets. This requires adequate budget.

Innovation and agility require advanced skills, expertise, and market knowledge that requires a lot of supply market intelligence, outside information, and time to study mini- and mega-trends. This also requires adequate budget.

Scope of influence comes with results, and results require talented people with appropriate toolsets and knowledge. Again, this requires adequate budget.

Furthermore, we have the situation where budgets are not being cut equally. From what I’m gathering, for the fifth year in a row, Procurement Training budgets are being slashed or are non-existent! This is driving me nutz! This disconnect of separating expectations from budget is ridiculous, especially when the organization is supposed to be scored on value. Value is ROI. ROI is return on investment. In Procurement, this is defined as savings/avoidance/revenue increase over spend. This means that if spending $10K on training will give your category managers the capability they need to go negotiate another $100,000 of the TCO (Total Cost of Ownership) through unit price, logistics, and non-value added service savings, then you increase the budget by 10K because you are getting a 10X return!

If the goal is for the Procurement organization to deliver value, then they need the budget for the technology, supply market intelligence, and training they need to deliver that value. Otherwise, expecting them to do more with less (FTEs) is just stupid. Ludicrous in fact!

If You Really Want to Future-Proof Your Career

Join the world’s second oldest profession!

A recent guest post over on VentureBeat on your career, future-proofed notes that industries that once were dominant are long in decline and that nascent sectors are ascendant and will likely shape everything that lies ahead. This includes the careers that will be available to you. Given that you don’t want to be among the 23% of workers who are unemployed to some degree, according to the latest shadow statistics that includes long-term discouraged workers not included in the BLS U-6 unemployment rate that includes short-term discouraged and marginally-attached workers (which is close to 15%), it’s important to do what you can to “future-proof” your career. (Source: ShadowStats)

To this end, the author of the guest post gives you four simple rules that he believes will help you win your future. They are:

Take Risks – Big Ones

If you see your industry on the fast-track to the doghouse, try something new, even if it means working half a world away for a while.

Take All Opportunities

Never shy away from any event, trip, assignment, or project they want to give you that will expand your experience, horizon, and opportunity.

Go Where the Future Is

Even though we had the dot-com crash, the future still lies in tech and healthcare, but tech will be more than just over-hyped software companies. And it will be most prevalent in healthcare as the population continues to age and wants to live longer and better.

Think Beyond

Whatever we’re using today we won’t be using in 10 years, or at least not in the same form. Don’t get comfortable. Look to what is coming next and prepare for it.


These are great pieces of advice, but if you really want to future proof your career, all you have to do is take up the world’s second oldest profession – Procurement! Whether you call it purchasing, sourcing, or supply management, it’s based on buying, and there has been buying at least since the ancient Anatolians were trading obsidian circa the 9th century BC. We’re a consumer culture that constantly needs to trade (money, or equivalent) for what we need, so buying is never going to go away. Paper money might, as we replace it with digital bits, but the concept won’t.

Plus, being in Procurement implies that you will have the opportunity to take risks (and will have to if you want to stand out and advance your career quickly), expand your experience (as you will have lots of opportunities to travel to suppliers around the globe and work with them), go where the future is (as there is always a big focus on emerging markets), and think beyond — as the only real way to create lasting value is to continually innovate beyond the norm.

Why You Need SIM-Powered Recovery

Two weeks ago, we explained how SIM Powered Recovery Will Take You to the Next Level by noting that it can improve your recovery results by a factor of 3, 5, or even 9 over time and asked you to download the latest Sourcing Innovation Illumination, sponsored by Lavante, on Taking Capital Recovery to the Next Level.

Today, we’re going to make it clear how that will happen. Traditionally, a recovery audit will be done by a recovery audit firm that will send in a team that will spend weeks manually reviewing invoices, payments, and transactions looking for discrepancies and revenue recovery opportunities. Depending on the deal you strike, this will cost you manpower plus a not-so-small percentage of the recovery above the manpower cost (that will be in the 10% to 20% range, we’ll assume 15%) in a time plus results deal, or a large percentage of the total recovery, typically 30% to 35% (and we’ll assume 30% after strong negotiations), in a results-only deal.

In addition, it will typically be three (3) to six (6) months before the recovery firm even attempts to recover the first dollar because it will take them that long to get through enough paperwork to find enough opportunities to make a recovery effort worthwhile. During this time, up to 20% of potential credits will disappear permanently as dispute timeframes and contracts will expire.

In comparison, it’s likely the case that you can acquire a perpetual license to a good SIM-based recovery platform for approximately 100K with 20% (or 20K) annual maintenance. And you won’t need to hire any extra manpower as all you’ll need to do is feed it your sourcing, procurement, and accounts payable data, set up some matching rules, and the platform will automatically identify duplicate, non-compliant, or suspicious payments. We’ll assume it costs 25K to integrate the data feeds and work with the provider to set up the initial rules set, and 5K to maintain the feeds on an annual basis. In addition, we’ll assume a firm that does a time plus recovery deal will bill you 150K in manpower. Given these costs, we can now compare manual-vs-SIM-based recovery efforts noting that an average company, due to cost, will only undertake a recovery effort every 2 years. (Mainly because a recovery audit firm will only want to do an audit every two years because it typically takes 18-24 months after a recovery effort before a company has the same recovery effort.)

After a recovery effort, a company will temporarily scrutinize invoices and payments more closely. During this time, the vendors will also be careful not to over-bill or duplicate bill until the buyers have stopped watching so closely and have gained confidence that the over-billings have stopped. As a result, available recovery will be less the following year. However, as the buyer gains confidence that overspending is under control, the buyer will stop watching as diligently and the vendor, if it has a history of over-billing or duplicate billing, will revert to its former ways and the overspending and recovery opportunity will creep back up to where it was.

Noting that you can expect to identify 90%+ of recovery opportunities with a SIM platform, that can process all of the data you throw at it, compared to the 60% of recovery opportunities that you can expect to find with a manual effort that stops when 80% of the spend has been identified and analyzed and when almost 20% of opportunities for recovery have been lost, we get the following.

 

Year 1 Year 2 Year 3 Year 4 Total
Overspend 1,000,000 500,000 1,000,000 500,000 3,000,000
Recovery
Year 1 Year 2 Year 3 Year 4 Total
SIM 900,000 450,000 900,000 450,000 2,700,000
Manual T&R 600,000 300,000 600,000 0 1,500,000
Manual R 600,000 300,000 600,000 0 1,500,000
Cost
Year 1 Year 2 Year 3 Year 4 Total
SIM 125,000 25,000 25,000 25,000 200,000
Manual T&R 240,000 0 240,000 0 480,000
Manual R 300,000 0 300,000 0 600,000
Recovery over Cost
Year 1 Year 2 Year 3 Year 4 Total
SIM 7.20 18.00 7.20 18.00 13.50
Manual T&R 2.50 N/A 3.75 N/A 3.13
Manual R 2.00 N/A 3.00 N/A 2.50

 

Which says that a SIM-effort is expected to return 4.3 times as many dollars into your organization as a manual time + results audit over four years and 5.4 times as many dollars into your organization as a manual results-only audit over four years!

You can argue the numbers a little bit each way, but it won’t affect the fact that a SIM Powered Recovery solution will deliver results that is orders of magnitude above what a manual audit will deliver. So download your copy of SIM Powered Recovery Will Take You to the Next Level today! (registration required)

If You Don’t Have Earthquake or Hurricane Insurance for Your Supply Chain

Get it now!

A recent graphic from Swiss Re that charts the amount of insured losses per year since 1970 clearly demonstrates that the bulk of losses were due to weather-related causes or earthquakes, with the biggest losses directly attributable to earthquakes and hurricanes. In the last forty-two years, only one year had significant losses not due to an earthquake or a weather related phenomenon, and that was the year of the September 11th attacks. Except for these attacks, losses from mad-mad disasters never exceeded 10 Billion, even in years where losses exceeded 120 Billion. So while it’s a good idea to have the standard insurance suite of fire, theft, and liability — where your supply chain is concerned, a natural (weather-related) disaster is going to be MUCH more costly.

The Cost of Catastrophes

Are Your Groceries Killing the Environment?

According to a recent article on Sustainable Brands on “sainsburys reduced supply chain footprint”, The Co-operative Group, Nestle, and Sainsbury’s say they will improve the sustainability of some of their products in response to research from the Product Sustainability Forum of WRAP (Waste & Resources Action Programme), an independent not-for-profit company funded by all four governments across the UK and the EU.

The Product Sustainability Forum just released
an initial assessment of the environmental impact of grocery products which collates information from more than 150 studies across more than 200 grocery products. The main finding, summarized in the executive summary on page 4, is that the production and sale of grocery products contribute between 21% and 33% to household consumption GHG emissions and approximately 24% to abiotic resource depletion impacts. Wow! (In English, abiotic resource depletion is the deletion of non-renewable resources such as fossil fuels, minerals, etc. One calculation for abiotic resource depletion is given in a Wiley publication on Polymers, the Environment, and Sustainable Development.) In fact, food and beverage products constitute eight of the top-ten product groups from an environmental impact perspective:

  • Alcoholic Drinks
    cider, lager, spirits, wine
  • Ambient
    cereals; canned seafood, meat, veggies, soup, pasta, and noodles; pet food; chocolate; coffee; crisps; rice; sugar (confectionary); and processed snacks
  • Bakery
    (sweet) biscuits; breads; cakes; pastries;
  • Dairy
    butter; cheese; milk; cream; yogurt;
  • Fruit & Vegetables
    bananas; onions; potatoes; tomatoes;
  • Meat, Fish, Poultry, Eggs
    beef, deli, eggs, seafood, lamb, pork, poultry
  • Non-Alcoholic Drinks
    carbonates; concentrates; juices
  • Chilled & Frozen
    Veggie & Potato Products; Ice Cream & Frozen Deserts; Margarine; Pizza; Pre-packed Sandwiches; Ready Meals

The other two groups are:

  • Household
    dishwashing products, cleaning products, laundry detergents, paper products
  • Personal Care
    batch and shower products, deodorants, nappies

What’s scary is that these “Top 50” comprise approximately 80% of all GHG emissions associated with producing, transporting, and retailing the grocery products in the UK and food and drink is 80% of these categories. So, at the current time with current practices, our groceries really are killing the environment and these 50 products are contributing up to 20% of all GHG emissions that are currently produced!

Where’s all that GHG coming from? The worst offenders, according to the initial study, are meat products (at 37.4% of grocery GHG) and dairy and eggs (at 17.3% of grocery GHG). Why? The production process for milk takes a lot of energy. It turns out that the median product embedded energy for liquid milk is 5.1 MJ/kg (Megajoules/kilogram), and at a sales volume of 5,186 Million kg / year, 26,400 TJ (Terrajoules) of energy is required to produce the milk consumed in the UK. Similarly, a lot of energy is required in the fresh poultry production cycle: 40.35 MJ/kg for a total UK market consumption of 17,600 TJ of energy. And, of course, most current methods of energy production emit copious amounts of GHG. And where meat is concerned, many animals produce methane gas, and some in copious quantities. There are other reasons, and some are contained in the report (and the rest of the reasons are in the studies surveyed by the report), but it’s the findings that are important. The current production and distribution methods for many of our staple foods are quite damaging to our environment, and the companies producing and distributing those staples have to shape up. It’s good to see that a few companies have said they will. Let’s hope they follow through.