Category Archives: Market Intelligence

You’re Under-Resourced and Over-Challenged, So Remember that Consultants are Cheap!

There are two schools of thought out there when it comes to catching up with crushing workload and/or crushing customer demand (which may only be seasonal).

ONE: Consultants are parasites that charge ridiculous rates, waste precious time, and present obvious conclusions so you should hire the minimum number of FTs you need to “get by” with everyone working crazy over time until things settle down.

TWO: FTs are expensive. They demand benefits. They take fixed overhead. And, if they don’t work out as well as you’d hoped or demand drops, in many locales, you can’t just fire them, or even if you can, you have to give them severance and long-term health-care or other benefits or you can be sued or fined. So just hire third parties. Sometimes consultants, but usually service organizations (who likely employ contingent workers, but not highly skilled consultants).

Both of these schools of thoughts are wrong. Why? In the latter case, for the right job descriptions, FTs are the best resource to have as they build organizational knowledge and get more efficient over time. (But not all jobs fall into the right categories.) In the first case, while consulting does draw some of the sleaziest individuals out there, it draws less than highly demanding sales jobs or executive jobs (that statistically often have more psychopaths than law firms and media organizations). The majority of consultants want to deliver ROI. The only question is how far out of their “comfort zone” can the consultant deliver the ROI you want. (But that’s the beauty of using consultants, you can find specialists for each problem you need solved and guarantee an ROI – more on that below).

As you know, the doctor won’t pay two bits for traditional rhetoric and likes arguments that are backed up with facts and numbers. So he’s going to remind you of the nice little calculations that he presented a decade ago about why you should hire consultants to not only help you with your problems today, but help you design better processes to be more efficient, profitable, and less reliant on contingent help or consulting for repetitive tasks on a regular basis tomorrow.

First of all, we need to cost a top performer.

  1. A top performer demands a high salary.
    Usually 200K to 300K for a high-performer. Let’s say $250K.
  2. A top performer demands pricey benefits.
    Health insurance (10K+), life & disability insurance (5K), 401K matching (10K), and a performance bonus of at least 10% to 20% (25K to 50K) in a good year. This will cost you another 50K to 100K. Let’s be very conservative and say 50K .
  3. A top performer comes with overhead.
    First off, there’s all the standard overhead of maintaining the nice office, the telecommunications equipment, and the IT equipment. There’s also a share of an administrative assistant’s salary, a transportation budget, and a reasonable expense account. This could easily eat up 25K to 50K (or more). Let’s be moderate and say 30K.
  4. A top performer needs a decent vacation to recharge.
    Depending on how long this performer has been with the company, we’re probably talking 4 to 6 weeks. This is a hidden cost, as it means you’re only getting 46 to 48 weeks of work, at most.
  5. A top performer needs to keep his skills up to date, and this will require good training.
    You should allow at least two weeks for any employee. For a top performer, I’d highly recommend three or four weeks of training and education related activities. Let’s be conservative and say this person is an extremely fast learner and you can get away with two weeks. Now your top performer is only working 44 to 46 weeks, at most.
  6. Training costs money.
    Whether it’s courses, workshops, conferences, or self-study guides, expect to shell out for this. A couple of conferences and a couple of courses could easily run you 15K to 25K to keep your top performer at above average performance levels. We’ll be realistic and say 20K.
  7. There will be other costs that arise with respect to raises, promotions, recognition, and performance.
    However, since you can always make them next year’s budget problem, we’ll ignore them for simplicity.

This says that your 250K top performer, that you believe is only costing you approximately 1K a day is actually costing you over 1.6K a day in a conservative estimation, and possibly over 2.1K in reality. (350K to 450K+ over 220 days, vs 250K over 260 days)

This is pretty damn expensive. And while it’s still less than a top consultant, who will charge you 4K to 40K a day (depending upon how much market intelligence she brings with her and how much of that valuable IP she is going to perpetually license or give you), we cannot forget the following:

  • Your top-performer will have most of his or her time consumed with the tactical day-to-day operation of the business.
  • If your top-performer is struggling to complete two weeks a year of training or education related activities, he or she is not going to be up to date on new ideas, technologies, and movements within the marketplace.
  • If you’re starting to run into stiff competition or problems within your business, you can be too close to the problem to make good, objective decisions.
  • Even a top-performer can only be an expert on a handful of technologies, processes, or business functions. At least collectively, outsiders will always know more about the best way to run your business with today’s technology in today’s market than you do.
  • It’s an innovate-or-die marketplace out there today. And if we’re in a recession, that’s doubly true.

In comparison,

  • A consultant can focus purely on the strategic, and purely on the problems you need help with.
  • A consultant will spend a considerable portion of his or her time keeping up to date on new processes, technologies, and advancements. Their knowledge is there to be used.
  • A consultant can be much more objective. Furthermore, a consultant probably has a better comprehension of the state of the market you compete in than you do.
  • Even though, like any top performer, a consultant can only be an expert on a handful of technologies, processes, or business functions, you are free to pick the consultant with the skills you need to advance your business.
  • When a consultant puts in a day, a consultant puts in a day. Usually 10 to 12 hours, compared to the 9-5 with a 2 hour lunch an employee will often try to get away with when he or she can. Plus, a good consultant can’t stop thinking about your problem until she goes to sleep at night, and usually starts thinking about it the minute she wakes up.
  • Consultants live by the innovate-or-die mantra.
    and, most importantly,
  • When the project is over, you can cut the consultant loose without any additional cost. In contrast, it could easily cost you six figures to cut a top-performer loose. Furthermore, if you’re smart and do a short initial engagement with a new consultant before agreeing to a long term engagement, the loss associated with hiring the wrong consultant is next-to-nothing. In comparison, the loss associated with hiring the wrong person for a director or vice president job will be hundreds of thousands by the time you add up the losses with dismissing the current employee, finding a replacement, and getting that replacement up to speed.

So, given that a consultant can bring you the badly needed 1) expertise, 2) objectivity, 3) credibility, 4) leadership, and 5) time that you need to be successful, don’t balk at standard consulting day rates. It’s a bargain compared to the value they can bring, especially when you remember that it’s not tactical day-to-day operations that bring you substantial cost savings and new markets, but strategic improvements that consultants can bring with them.

How much?

Let’s say with your current Sourcing / Source-to-Contract / Source-to-Pay platforms, your top buyer can only do 7 major sourcing events (10M + a year) a year which garner an average negotiated savings of 6% (and the total spend under her purview is 100M), which typically result in an average realized savings of 4%. That’s not a bad ROI in this particular situation, given that your organization just saved 4M on a fully burdened superstar that cost you 400K, a 10 to 1 ROI. In fact, you’re probably saying to yourself — how could a consultant beat that.

Let’s say you brought in a powerhouse consultant for a 6 week process evaluation, strategic realignment, and platform redesign project who, for a modest fee of 300K helped you design new processes and select new systems that, when fully implemented a year later, allowed this same senior buyer to handle 15 major sourcing events a year representing 180M worth of spend (not unreasonable at all — some modern platforms and processes take events that used to take 3 months of buyer effort a year ago down to 3 weeks) and identify an average negotiated savings of 8% (and then realize 6%). In other words, 300K of consultant time allowed your top buyer to go from saving you 4M a year to 10.8M a year. Even if you gave the buyer a 20% bonus, 300K more than doubled your ROI from that buyer even after subtracting the 300K for the consultant (as the ROI went from 10 to 1 to 21 to 1). That’s FRAKING cheap! So next time a top consultant proposes to help you, ignore the top line. It’s only the bottom line that counts.

The 10 Worst Innovation Mistakes In A Recession (Update and Repost)

Are we in a recession? No.

Could we be in one real soon? Yes.

Regardless of what “the experts” tell you, two things are true.

  1. Trade Wars are BAD for the economy.
  2. Economic Alliance Breakdown (like Brexit) is BAD for the economy.

Both of these events can spark recessions, and are very statistically likely to at least spark localized recessions in some industries in some geographies. And while it’s hard to say which geographies and industries and to what extent due to the proliferance of alternative facts on even the major media outlets (which is what happens when you let party oriented moguls conglomerate holdings and reduce journalist headcount), it’s still not hard to say the risks are rapidly increasing.

It’s also not hard to say that, based on past behaviour, most organizations are bound to do the wrong thing when it starts. So, to this end, SI is reposting this classic piece from 2008 to remind you of what not to do if things get tight (which is based on a great piece on the 10 Worst Innovation Mistakes in a Recession that appeared in Business Week in January, 2008.

Moreover, making these mistakes creates a self-fulfilling prophecy that spirals you towards hardship.

  1. Fire Talent
    Talent is the single most important variable in innovation. And innovation is the single largest lever you have to increase productivity and decrease costs.
  2. Cut Back on Technology
    The rise of social networking and consumer power means that companies have to be part of a larger conversation with their customers. This requires technology. Furthermore, the best way to insure you are getting the best price is to tackle the right categories, as identified by spend analysis, with strategic sourcing decision optimization to make sure you are making the award with the lowest total cost of ownership. It’s also important to make sure that all of your invoices are submitted in an electronic format that can be automatically matched against contracted rates to make sure you are being overcharged. This requires leading-edge technology.
  3. Reduce Risk
    Innovation requires taking chances and dealing with failure. Although it’s important to control risk, trying to eliminate it entirely will just end up eliminating any chance for innovation at your company.
  4. Stop New Product Development
    This hurts companies when growth returns and they have fewer offerings in the marketplace to attract consumers. And with today’s rapid pace of technological change, you could even lose customers in a recession to a competitor who keeps innovating while you stand still.
  5. Replace a Growth-Oriented CEO with a Cost-Cutting CEO
    Most recessions only last two or three quarters and, these days, are relatively shallow. Penny-pinching CEOs don’t have the skills to grow when growth returns. Plus, a penny-pinching CEO is the most likely individual to fire your top talent.
  6. Retreat from Globalization
    Emerging markets are sources of new revenue, business models, and talent. And, like it or not, emerging economies like India and China are soon going to have more buyers for your product than the countries you’re currently selling to.
  7. Replace Innovation as Key Strategy
    … With Systems Management and Cost-Cutting. Once focus shifts away from innovation, it can be very hard to get the focus shifted back.
  8. Change Performance Metrics
    Shifting employee evaluations away from rewarding riskier new projects toward sustaining safer, older goals. This leads to risk-averse behavior and stifles innovation.
  9. Re-inforce Hierarchy over Collaboration
    A return to command-and-control management. This alienates creative-class employees, young Gen Y and X-ers, and stops the evolution of the corporation. In today’s world, companies that don’t evolve die – and they do it quickly. The average life-span of a Fortune 500 company is shrinking every year.
  10. Retreat into Moated Castles
    Cutting back on outside consultancies is seen as a quick way to save money. Yet, one of the key ways of introducing change into business culture is to bring in outside innovation and design consultants.

Remember that winners always emerge out of recessions and they always win on the basis of something new. If you don’t always have something new in your pocket, you’re not going to win. And if it is a recession, and you don’t have something brand spanking new to pull out of your pocket when the recession is over, you could literally be toast. Furthermore, even a recession provides growth opportunities. People still spend money. They still need to eat, maintain their homes, and their life-styles. The difference is that they don’t spend as much money and look considerably harder for the best deal. This means that they’re much more likely to waver on brand loyalty if you can provide them a better product on a better price – and this means that you can still grow by taking market share away from your competition.

So don’t make the innovation mistakes. If it is a recession, then whether you come out of it a winner or a loser is up to you.

Furthermore, if it is a recession, and your company supplies sourcing and procurement technology and services, then this should be a major growth period for you! After all, how else is your average blind-in-one-eye company going to save money? This means that not only do you have to make sure that you don’t make any of the top 10 innovation mistakes, but that you invest for a growth period because, if you play your cards right, it will be.

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.