Category Archives: Uncategorized

Sourcing Talent is Rare

Sourcing, like many facets of Supply Management, is not as easy as it seems. The skills required to identify the products and services required, identify potential suppliers, construct an appropriate RFI, evaluate that RFI, construct an appropriate RFP, evaluate that RFP, identify suppliers for negotiations/RFQ, assess the market, assess the RFQ responses against the market, select one or more finalists, negotiate, define the award, create a contract, and manage the whole process are quite numerous. Especially since that’s just the basic process. A determination of demand, of current market conditions, of expected cost, etc. will require spend analysis, (should-cost) modelling, and (statistical) trend projection. If multiple bids are competitive, and an auction is out of the question, then (strategic sourcing) decision optimization, and the mathematical modelling it entails, is also required. Plus, if the buy is strategic, then multiple stakeholders will be involved and cross-functional team-management skills will also be required. All this, and more, may be required just to get to a contract.

Then comes the actual Procurement. This will involve considerable skills in logistics, inventory, and global trade. When do you place the order? What is the best mode of transportation? Do you cross-dock or not? If the inventory is available too early, do you store it over-seas, before export, or locally, after import. If there are value-add components, do you take them or leave them, as they can considerably increase import or export tariffs? For example, sometimes the difference between shipping a cartridge in a printer and shipping it separately will save a few percentage points off of the total cost. (Check the HTS codes if you don’t agree.)

So, to re-iterate, you need the following skills at a minimum:

  • (Cost) Analysis / Market Analysis
    What are the current market conditions, what is the expected or best cost, etc.
  • Logistics
    What is the best method of transportation and how do you time it to optimize costs and revenues, etc.?
  • Needs Identification
    What do you need, when, and are there alternatives, etc.?
  • Negotiation
    What do you offer? What’s your minimal viable alternative? etc.
  • Project Management
    How do you balance your resources (time, money, talent) to achieve the goal? etc.
  • Resource Management
    What’s the best use of your limited resources? When do you buy and sell? etc.
  • Supplier Identification
    Which suppliers want to supply you? Which suppliers are acceptable to you? etc.
  • Trend Identification / Projection
    Are demands going to increase, decrease, or stay the course? etc.

These skills are not easy to come by and not easy to advance. For example:

  • Analysis
    requires mathematical skills and training
  • Logistics
    requires cost analysis and network modelling skills and training
  • Needs Identification
    requires the ability to elicit details from both analyses and stakeholders
  • Negotiation
    requires training and people skills
  • Project Management
    requires knowledge and training
  • Resource Management
    requires strong analysis skills and an understanding of the inherent value and limitations of each resource
  • Supplier Identification
    requires the ability to assess a supplier across multiple dimensions and know what those dimensions should be
  • Trend Identification
    requires analysis, statistical training, and an instinct for the right questions

Now do you understand why even if you could get approval for the staff you need, finding the right individuals might be hard?

Geek Cat Still** Says

You know I never
I never heard you talk so good
You never chat the way you should
But I like it
And I know you like it too
The way that I want you
I gotta have you
Oh yes, I do

You know I never
I never ever get home late
You know that I can hardly wait
Just to ping you
And I know you cannot wait
Wait to ping me too
I gotta chat you
Cause baby we’ll be

On the Facebook
In the Farmville pen
Behind the bushes
Until I’m begging again
In the chartroom
Lock the public out
And baby
Talk qwerty to me

Again, many apologies to Poison. Many, many apologies.

* He hasn’t changed his tune in eight years!

Category Management: Getting it Right is Key to Surviving the Trade Wars Part II

In our last few posts we told you the Trade Wars are coming. The Trump Tariffs are going to continue to come fast and furious, and the rest of the world is not going to take its time retaliating. So get prepared, because everything is going up. And how much it goes up is up to you.

You’re not going to thrive, because no one wins a war, and, furthermore, no one comes out unscathed. With care and planning you can survive, but only if you start now. So what do you need to do?

As we pointed out yesterday, you start by:

1. Understanding your Current Costs in Detail
2. Understand your Tier 2 Supply Chain in Detail

… but you don’t stop there.

3. Start By Identifying Alternative Supply Choices

For each high dollar or strategic category, identify at least two other acceptable choices of supply in two different countries than the country you are sourcing your primary supply from now. This means that you have to go out there, evaluate products, and maybe even award a minority share of the business to alternative suppliers just to make sure you can ramp up or switch supply if you need to.

4. Then Build Alternative Cost Models Around those Alternative Supply Choices

And make them as detailed as the cost models for your current supply choices. Compile all of the appropriate component and raw material costs for those suppliers, the local energy and labour costs, the current import and export tariffs, and fair margins for the supplier in question. And keep them handy.

5. Re-Evaluate on Every Tariff Change

With the models in-hand, whenever tariffs change, you can just plug in the new models. If you subscribe to data feeds, the models can be programmed to be self-updating and you can simply run a report on every tariff change to see how much the changes are costing you and when they get too high, you can switch to an alternate supply choice, that you already identified, where you buy local and sell local and avoid tariffs entirely.

Is this everything? No, but it’s a start.

Sourcing the Day After Tomorrow Part X

In Part I we recapped Sourcing today, in Part II we did a deep dive into the key requirements of the review step as it is today, and then in Part III we did a deeper dive where we explained that while some steps were critical for a sourcing professional to undertake, others, while necessary, were a complete waste of skilled talent time as the majority of the tasks could be automated. Then in Part IV we began our deep dive into the needs assessment phase which we completed in Part V. This was followed by a deep dive into strategy selection in Parts VI and Part VII and the communication step in Parts VIII and IX. And upon review of these steps, we’re still at the point where some tasks have to be done by humans whereas others can be mostly automated. We’re starting to suspect this is true across the entire sourcing cycle, but we can’t be sure until we complete our analysis, can we?

In the next step, the analysis step, we have the following key sub-steps that have to be completed every time (not just sometimes):

  • Market Pricing Data
  • Historical and Projected Spend
  • Cross-Category Materials Spend
  • TCO / TLC (Total Cost of Ownership, Total Lifecycle Costs)

In the market pricing step, you collect as much information as you can about pricing for the goods or services you are looking to acquire to be as informed before negotiations as you can be. This could require collecting consumer pricing from retailers, pricing available from GPOs/BPOs, pricing from government contracts (that are public data), import / export manifests (to determine volumes and supply/market dynamics), and pricing from similar product/services on past contracts. It could also involve collecting competitive intelligence through analyst reports, buying collectives, and other avenues.

In the historical and projected spend phase, the organization does deep analysis of historical spend and volumes across the product and services lines, similar product and services lines, and market dynamics. It then pieces all of this together to form projected trends that look at current trends modified with projected demand shifts within company product and services lines and expected uptakes or product line abandonments based on current market dynamics. It collects as many pieces of data that are readily available to try and determine if market shifts are seasonal, responsive to price changes, reactive to new product introductions, or undetermined factors.

In the cross-category “materials” spend phase, the organization makes an effort to identify the the primary components of the spend and how they should influence the spend dynamics of the product or service being acquired. For example, if it’s a metal product where steel is a primary component, they will attempt to identify how the pricing is shifting in other categories where steel is a primary component and compare that to market price shifts. If it’s a service, they will look if the primary costs are related just to talent, to organizational support, or even expenses (such as excessive travel requirements) and compare that to market costs across different divisions of the company. (E.g. extra
IT support is IT support whether contracted by Procurement or IT)

Finally, in the TCO phase, the organization will work hard to identify all the other direct and consequential indirect costs associated with the acquisition. Taxes (and whether or not they are reclaimable and the costs of reclamation if they are), import/export duties, intermittent storage fees, transportation fees, typical loss fees (due to spoilage, waste from mandatory tests, etc.), etc. will be identified and factored in as direct costs. In addition, potential indirect costs such as additional testing, expected loss during local transport, alteration costs for implementation, loss of co-marketing support, etc. will be factored in.

This sounds largely human driven, but, as we’ve discussed during previous steps, sometimes what sounds human driven isn’t. But this is a subject we will explore in Part XI!