Category Archives: Market Intelligence

The Procurement Game Plan: A Review Part I.2

Charles Dominick of Next Level Purchasing and Soheila R. Lunney of Lunney Advisory Group recently released The Procurement Game Plan: Winning Strategies and Techniques for Supply Management Professionals. In our last post, we set the stage with The Purchasing Professional’s 10 Commandments. In this post we’re going to continue our fairly detailed review of this book, which will span four or five posts. We’ll start by covering the first four chapters of the book that discuss organizational role, supply management strategy, talent, and social responsibility — the stage that a modern supply management professional has to act upon.

The first chapter on Procurement’s Place in the organization starts out with an overview of management’s expectations of modern Procurement — something every Procurement Pro needs to know when finding a (new) job in today’s highly competitive skill-based marketplace. We’re well beyond the time when all that was expected of Supply Management was cost savings. Now, with costs rising and consumer belts tightening, Supply Management is also being tasked to deliver productivity improvements, brand & differentiation support, customer satisfacation, cash flow improvements, great service, competitive advantage, and sometimes even revenue. It’s a tall order for a single organization — it’s good that the strategies and tools exist to deliver. (And that’s kind of what this blog is all about, but the doctor digresses.)

The chapter then dives into the types of goals that Procurement / Supply Management organizations have, and this is where the value of the book starts to kick in. Organizations, depending on their stage of maturity, either have no (documented) goals, which is very bad, vague goals (with no meaningful measurable targets), which is bad as a professional will not know how important each goal is relative to other goals, SMART (Specific, Measurable, Attainable, Relevant, and Time-Bound) goals, which are good and a minimum requirement for organizational success, or Strategic SMART goals, which are great as they also tie the SMART goals to overall organizational strategy. A world-class supply management organization puts the good of the organization before the good of itself.

The chapter also discusses strategic vs. tactical procurement, Procurement as a Profit Centre, Procurement as a Service Centre, and Procurement’s Role in Specification Writing — but the other key section of the chapter is The Procurement Manifesto. Because it can be difficult to gain buy-in from functional departments when trying to get them to accept Procurement’s involvement, it is important to have a list of reasons why it will benefit them to work with Procurement. Your Supply Management organization should have such a list and should describe then in The Procurement Manifesto that can be given to the other organizational units. For details on what to include, see the book.

The next chapter discusses Supply Management Strategy — The Procurement Playbook if you will. The existence of an appropriately written guiding document will help keep the organization on the same page and help it to achieve its goals. Such a document must contain the following five sections in order to meet the department’s needs:

  1. The Procurement Organization’s Business Plan
  2. The Procurement Organization Structure
  3. Cost Control Strategies
  4. Risk Management Strategies
  5. The Supply Management Sourcing & Procurement Methodologies

Each piece of the puzzle must be clearly defined and outlined, and each organizational member must be on the same page. For details on how to write the Procurement business plan, on what types of cost control strategies to focus on, and what types of risk management strategies might be included, see the book.

One of the key parts of this chapter is the section on standard supplier selection criteria. The authors note that you should use a hierarchy of constraints and criteria every time you select a supplier. That hierarchy must include all of the relevant selection criteria, ordered and weighted so that each supplier can be compared fairly. This is sometimes the only way to determine which supplier will be the best fit for an organization. Generally speaking, this hierarchy should contain cost, value, quality, service, social responsibility, convenience, risk, and agility at a minimum, with other factors added depending on the goods or service being sourced. The weightings and rankings will be project specific.

The next chapter on Procurement Talent Management is one of the key chapters of the books and contains one of the key messages, talent is key to success. Without it, no amount of technology or transition management will help. It does a great job of discussing the five facets of the talent management cycle — Assess, Retain, Develop, Recruit, and Unify — and how each is necessary for organizational success. It also points out that they are not sequential and, depending on organizational needs, they may all need to be addressed simultaneously. Not only is talent management more important than many organizations prioritize it in their key issues list, but it is more difficult than many organizations would lead you to believe. This is a chapter to be reviewed in depth as almost every point matters, but a key point it addresses that is often missed is that education is a retention tool. Real professionals want to learn and improve, and will value an employer that not only allows them to do that, but that sponsors their education and efforts to improve themselves. The value of educating a resource is many times the up-front investment. Many, many times. The only point I’d disagree with in the entire chapter is the statement that by working with the business schools of the universities in your area, you can hire (at no cost/credit only or at minimal cost) intelligent and hard-working interns to take away the burden of tactical work from your strategic sourcing team members. While it is true that you can hire these intelligent, eager, hard-working resources at little-cost to do just this, they will need regular supervision from your senior Procurement Professionals, and this is a hidden cost you will need to account for.

The next chapter, and the final chapter that we’ll cover in this post, is on social responsibility in procurement: the new rules for a more responsible game. Whether this is important to your organization now or not, it will soon be as more and more consumers demand environmental or social responsibility, so you better get a handle on how it is going to impact your organization now, or you’ll be scrambling later when the media has you under the gone. Not a situation any Supply Management organization wants to be in when they can eliminate the risk with some careful research, planning, and a social responsibility program – which may not have to be all that extensive or demanding.

One of the key points covered by the chapter, which is often missed by other books, is ethics. Not only does social responsibility start with ethical behaviour, but a perceived lack of ethics, real or not, can land you and your organization in hot-water. As an example, the authors describe some recent government scandals, including one that got their mayor in some very hot water. In 2007, Mayor Luke Ravenstahl accepted two days of golf in the Mario Lemieux Celebrity Invitational from UPMC and the Pittsburgh Penguins, valued at $9K. His defence is that while the city’s ethics code limited city officials to accept admission to cultural or athletic events valued at $250 or less per year, charitable outings were exempted. This may have been a charitable event, but it’s value created a perceived conflict of interest that landed him in very hot water with the media. Then, a few months later, he decided he wanted to accept free tickets to go to a Stanley Cup Final game against the Detroit Red Wings. This time, he asked for an official legal opinion first, but it didn’t matter because the ticket value was very high and another councillor said he made half of the Mayor’s salary and pays for his hockey tickets out of his own pocket and the mayor should do the same. The lesson is that even if you don’t violate the ethics or gift acceptance policy of your organization, if there is any chance your actions could be perceived by a (large) group of people as unethical, you probably shouldn’t do it. And if you have to think about whether or not something is ethical, and, even worse, think you have to ask permission, just don’t do it.

The sections on the supplier code of conduct, green procurement, and supplier diversity, which for the most part cover all of the basics, are also quite good and worth a careful read.

That’s it for Part I. In Part II, we’ll discuss the next four chapters on Strategic Sourcing, Supplier Qualification, and Negotiations. Stay tuned.

Is Your Desk Job Killing You?


Today’s guest post is from Joe Nguyen and originally appeared on “Online University” (Is Your Job Killing You?).

The past 40 years have seen a lot of changes to the American lifestyle, including the way we work. People are sitting more, getting less exercise, engaging with computers on a daily basis, and finding new ways to get stressed out. So how has this shift in the way we work affected Americans? A lack of exercise coupled with sitting down for eight or more hours at a time have contributed to a variety of health issues in America, not the least of these being the obesity epidemic. People sitting at a computer all day are at a heightened risk for packing on pounds, developing heart disease, and dying young — and yet over 80% of Americans report to a desk job every morning. In a nation that extolls working hard and working often, many may be displeased to find that at the end of the day, all that work just might be killing you.

And that’s why you should do your own supplier visits!

Thanks, Joe.

If Your Supply Management Vendor Gets Acquired, Is It A Good Thing?

Over on Software and Services Safari, Brian Sommer recently asked about Cloud Software Consolidation — Is It All Good? It’s a fair question, as there has been a lot of consolidation in this space, between SaaS/Cloud and non-SaaS/Cloud vendors alike, and a lot more is still rumoured.

The companies will always spin it as a good thing, and if the acquisition happens, chances are that the investors (that control the Board of Directors), think it is a good thing, but that doesn’t necessarily mean it is a good thing from an existing customer point of view. As Brian notes, investors are looking for deal synergies, up-sell or cross-sell opportunities, cost reductions/efficiencies, etc. and customers want to know if the product will be around several more years, whether the product will get enhanced over time and what happens to customer support. And the problem is that these two sets of goals are often incompatible.

What usually happens is:

1. Existing Customers Get the Short End of the Stick.
For example, they will be promised new, different, technical architectures that may make some of their prior integration efforts no longer valid.

2. The Acquired Product Often Gets Slated to be Decommissioned.
And the customer has to migrate or lose access to functionality entirely. (And if the innovative start up was bought by the lumbering gorilla, functionality will typically be lost.)

3. The Acquired Product Is Frozen in Time.
It may be supported for the length of time in the newest customer’s original contract, but forget about improvements. The existing customers will be lucky to get bug fixes.

4. Prices Increase
After all, the new company, which probably has a higher overhead, has to make a profit after spending all that dough on the acquisition!

5. But Vendors Still Create Incredible Works of Fiction to Explain How the Products Will Be Rationalized Into Their Product Line.
Which are too amazing to explain in a few short words!

And, most importantly, no one ever discusses the real economics of the transaction and why it was driven in the first place. And Brian does a great job of summarizing what typically drives these deals in Cloud Software Consolidation — Is It All Good? the doctor strongly recommends that you give this post a read. It is worth your time!

… As Their New SARS Could Spell the Beginning of the End! (HD Part III)

In our first post we discussed the recent snafu made by Home Depot during a recent upgrade to its online website on February 1st where some incomplete planning and testing “Left Home Depot Customers Running in Circles” (which is terrible as there was no danger and there should have been no doubt*). We concluded that, while it probably upset a few customers with its incompletely planned upgrade, it was definitely not the end of Home Depot (online) and probably won’t even make a blip on its bottom line when all is said and done. However, this isn’t to say that Home Depot doesn’t have problems. In the doctor‘s view it has big ones, which are likely getting bigger by the day, and the worst thing is that Home Depot probably isn’t even aware of these problems which are, ultimately, guaranteed to increase its unsatisfied customer count by the day as people, including programmers, aren’t perfect and systems can be even worse.

You see, as per our last post, over the last year or two, Home Depot has rolled out its new centralized automated replenishment system to the store level across all of its North American stores and this is causing, and will inevitably cause it, problems as time goes on as SARS, Storefront Automated Replenishment System, assumes a perfect world and this world is far from perfect. As a result, every imperfection gets amplified into a real world problem that is often worse than the stock-out problems the system is supposed to prevent.

First of all, ARS will only re-order stock if the stock level drops low enough or it detects inventory is moving fast enough. This won’t happen if (1) there is a POS failure, if (2) the initial inventory is reported too high, or (3) associates don’t bother to enter damaged inventory. In each of these cases, the inventory levels will appear to be high in the system, and in no need of restock, when, in fact, they are (too) low. For example, I went to the local store to get some high-end 20″ by 96″ laminate pine project panels, that cost about $38 a board. (For that price, you can get 5/8″ 4″ * 8″ sanded pine plywood.) I wanted 5. They told me they had 8, but in reality they only had 3 that were saleable. Why? (a) For reasons unknown, they only had 5 in stock. An unknown inventory error told the system there were 3 more than there actually were. But 2 were badly water damaged — chipped and covered with black mold — which no one caught because “the system tracks inventory, so why should we check it”. Since no one confirmed the inventory count or recorded the bad inventory, the system did not reorder a low-stock and/or high-moving item, leaving customers, like me, unsatisfied. What retailers being wooed with ARS fail to understand (as the vendor will never, ever tell them) is an error in POS file transmission, a data entry error in initial inventory levels, or failure to record damaged inventory will skew counts and break the system — as products will remain understocked or stocked out until the system is corrected. (This was one disappointment.)

Secondly, it won’t check whether or not the product should be stocked at all. For example, if a nut can only be used with a certain bolt, and the bolt is no longer available, why stock the nut? In my case, I wanted a certain track lighting system. After going to a number of stores, I finally found something close to what I wanted (on the display), but I had to buy the track, the lights, and the connector separately. A set would have been more convenient, and probably more cost effective, but no big deal. I quickly found the track, and the lights, which were not next to each other on the shelves for some unknown reason (and that’s ok too), but couldn’t find the connector. So I asked the associate in the department who told me that they were probably just stocked in the wrong location or temporarily out of stock, and if I came back tomorrow (or on the weekend) when the department manager was working (as it wasn’t his regular department and the store was closing in five minutes), she’d be able to either find the matching connector or order one in because it wouldn’t be on the wall if it wasn’t available. Annoying, but understandable. So, a couple days later, I return, find a long-time associate who says “sorry, we don’t carry that connector — the manufacturer is out of business and we can’t get them anymore”. This dumbfounded and annoyed me as I was told everything on the display was available, so I asked why the store was still selling the tracks AND lights if the connector was not available anymore, or at least not indicating the products were “for replacement only” and informing customers that certain products were no longer available. The answer was “because our new system automatically replenishes these parts and tells us to put them on the shelves and we have no control over what is ordered, stocked, or displayed”. What? No control over your own department, inventory, or display? Really? Isn’t that just a disaster waiting to happen?

Needless to say, at this time I asked to speak to the store manager because this is just sad when, at least in my view, Home Depot used to be the best Home Improvement store with the most knowledgeable associates and best run departments even up in the often forgotten Great White North. He said, yes, that’s how it works, and he doesn’t like it but it takes so many e-mails, calls, and approvals to override anything that it’s just not feasible to fix some of these problems. But no problem, I could take the products back, no questions asked, because of the snafu. Fine. So I leave, unsatisfied again.

I return a few days later, when the manager does not happen to be there, and then have to wait to speak to the department manager and explain the situation again, as the return desk clerk couldn’t understand how only part of a system would be for sale as if it was a complete system. (Which illustrates yet another problem with SARS — these systems aren’t designed to let you record problems or inform all affected parties of inventory problems. Why should a customer have to explain it to three different people? As soon as an associate knows of a problem, a good supply management system would let her record the problem, which would immediately be reported to the department manager and manager when they next signed in.) So, I finish the explanation and then I am disappointed again. I am told that if I want, I can go back and pick something else out, and get 10% off today, but only today. However, because I had to go back to the store a third time and didn’t want to waste time on the weekend, I stopped in on the way to the office and didn’t have a lot of time to spare (especially as I had to repeat my story again). Plus, this wasn’t a decision I was willing to make alone. So, in addition to misleading me (come back and we’ll find the part for you), I was figuratively slapped in the face with an insincere discount offer. (If Home Depot was sincere about compensating me for wasting a lot of my time, they could have given me a 10% of your next purchase voucher.) Yet another example of bad customer service, and the real reason I believe that Home Depot could be in jeopardy.

And then, to add insult to injury, a few days later I want to look at a specific product in Storage and Organization. Specifically, I want to look at it in the store, but I don’t want to go back to the store unless I know it’s there. So I check online. Is it in stock? Sure thing — 3 units. Is it in stock when I get there? No! And I’m told the store doesn’t carry the item. (Which is not the first time I’ve been told the store doesn’t carry the item when it’s not on the shelf. Which would be okay except for the fact in a few instances the item has “magically reappeared” on the shelf the next time I’m in the store.) All in all, I am now a very unsatisfied customer of Home Depot and given the apparent inability of local store managers to prevent similar situations from happening again (as they are never supposed to override the all-knowing system), the disillusionment of long-time pros who used to be able to run their department like a tight ship but are now subject to the whims of an inanimate piece of software they don’t understand, and the utter indifference of new employees who would rather just proclaim “we don’t carry it” then try to figure out a system that, as far as I can tell, isn’t useable and doesn’t work anyway — I can’t see the situation getting any better.

Now, I’m just one customer, but from what I’ve been told by associates at the local store, something like this is happening to a customer every day. And given known ARS system error rates (which vendors don’t advertise — an 80% reduction in stockouts still leaves room for errors that will never be discovered without human intervention), I believe it’s actually a few customers every day at the local store. Now this would only be 1,000 a year at the store — a drop in the bucket in a municipality with 400,000 residents split between only 2 Home Depot stores — but when you put this in perspective, an entirely different picture emerges. There are over 2,200 Home Depot stores. This means that 2,200,000 customers could be left unsatisfied every year because of an improperly implemented (S)ARS system across North America and the indifference in customer service it is slowly instilling in the store associates. And that’s not a drop in the bucket. In fact, that’s a rip current, and rip currents are dangerous things. One has to remember that, in retail, it is your brand that matters, and if your brand becomes synonymous with poor customer service, you will have a problem. The question is, will Home Depot fix the leak before the rip current forms?

*Don’t get it? Too bad … but on the bright side, you feel just like a Home Depot customer who visited the site after 11:59 am on February 1st or how the doctor felt each of the last five times he visited his local Home Depot store!

… But The End Of Home Depot May Be In Sight … (HD Part II)

In our last post we discussed the recent snafu made by Home Depot during a recent upgrade to its online website on February 1st where some incomplete planning and testing “Left Home Depot Customers Running in Circles” (which is terrible as there was no danger and there should have been no doubt*). Home Depot likely made the right business decision (despite the protests of some E-commerce folk) when it decided to start an upgrade at noon on a Wednesday, did the right thing when it put up a “Pardon Our Dust” notification page, but screwed up when it directed visitors to its blog that was filled with links back to the Home Depot e-Commerce site, which was offline and which resulted in users seeing a “Moved Permanently” page which redirected to the “Pardon Our Dust” page which, of course, redirected to the blog … in an endless circle of redirects. This was bad, but as explained in our last post, definitely not the end of Home Depot (online). In fact, it’s likely that it won’t even make a blip on their bottom line when all is said and done.

But this isn’t to say it has problems. In this blogger’s view, it has big problems, and they could be getting bigger by the day — and Home Depot probably isn’t even aware of them. What are these problems? Unsatisfied Customers! That’s right, every day it’s unsatisfied customer count is likely increasing, and it probably doesn’t even know it. How do I know? the doctor has been unsatisfied in his past 5 (five) visits and has been told each time, by at least one associate, including the manager, in the store, that they’ve been having this problem regularly lately and that there’s nothing they can do about it unless they send half a dozen e-mails and go through eight levels of approval. (Probably an exaggeration, but I’m sure the effort to try and fix the problem, which can only be done on a piecemeal basis, is not worth their pay-check or sanity.)

So why did I leave as an unsatisfied customer 5 (five) visits in a row and why am I sure that I am not alone? And why do I suspect it’s happening to thousands, if not tens of thousands (or more), of other customers across North America? Because of the (ultimate) source of the problem — a source that, I am told, is universal across every Home Depot location in North America. What is that source? It’s the supply management evil called ARS, and more specifically, it’s SARS. An unfortunate, but accurate, acronym.

So what does ARS stand for? Automated Replenishment System. And is it evil? Only when misapplied. And the mis-application in particular is Storefront Automated Replenishment System — SARS for short. And it is evil. Unchecked it is more devastating to your supply chain than a tsunami, earthquake, or other natural disaster that wipes out your primary supplier’s central manufacturing facility. There isn’t a single supply management solution that will create more of a disaster if misused than SARS. Every supply management solution from RFx through e-Auction to Decision Optimization, from e-Requisition to P2P, and inventory / warehouse management to distribution management can be misapplied and cost an organization millions of dollars in the wrong, untrained hands, but SARS doesn’t even need any hands at all to bring an organization to financial ruin! It does that all on its own. How?

First of all, we need to step back and define what ARS, or an Automated Replenishment System, is and why one has to be wary of such a technology. An automated order replenishment system is a system that tracks inventory levels in near-real time and automatically re-orders stock when a minimum threshold is reached or when, in a more advanced system, it detects that certain inventory is moving faster than expected. Based on the idea that one of the most costly events under a retailer’s control is a stock-out, which happens, on average, in 8% of products for a retailer without an ARS, the system attempts to prevent such stock-outs by detecting when a product is too low or moving too fast. It ties into the POS system and receiving system, downloads data at least daily, and calculates current inventory levels based on the last known amount, the amount received, and the amount sold, and if the inventory hit a threshold or dropped too fast, automatically sends a purchase order for more inventory to the supplier with a target delivery date. Now, a retailer, who carries thousands of products and who can’t keep an eye on every one in real time (without investing a lot of money in manpower who can make mistakes) will typically think this is the greatest thing since sliced bread the first time he hears of it, but what he doesn’t understand is that this system only works in a perfect world model, and there ain’t no livin’ in a perfect world. He can keep on dreamin’ that there is, but there ain’t. Why?

*Don’t get it? Too bad … but on the bright side, you feel just like a Home Depot customer who visited the site after 11:59 am on February 1st or how the doctor felt each of the last five times he visited his local Home Depot store!