R.I.P. Route 66, Long Live Historic Route 66

Thirty years ago today, U.S. Route 66 was officially removed from the United States Highway System, 59 years and 58 days after being named. This highway, which even today is still one of the most famous roads in America, originally stretched for 2,448 miles (3,940 km) from Chicago, Illinois through Missouri, Kansas, Oklahoma, Texas, New Mexico, and Arizona before ending at Santa Monica, California. It was one of the major routes of westward migration and business along the route tended to prosper and do well before it was bypassed by the Interstate Highway System. And it is still so iconic that portions of the route have been designated a National Scenic Byway and some states are adopting bypassed sections into the state road network as State Route 66.

For decades this was a main route for the movement of military equipment in the USA and, especially before the introduction of the interstate highway system, was a major route for trucking companies shipping goods from the coast to the mid-west (as one could get from Los Angeles to Chicago going down only one road). The route was so central to US logistics that there is even a TMS (Transportation Management Services) company that goes by the name Route 66 Logistics.

The history of this route, before, during, and after service and of the historic associations trying to preserve it over the last 30 years is fascinating (and goes well beyond what the younger generation, whose entire knowledge of the route might be from Cars, will remember). If you have the time, check out the linked Wikipedia article and related resources.

Buy, Buy, Buy, Once Bitten Twice Shy

Many procurement functions and executives see price negotiation and reduction as the primary element of their role. In doing so, they run the risk of missing out on the major benefits that can be obtained by focusing on other aspects of the wider value picture.
Full Value Buying: Moving Beyond Price Negotiation, Peter Smith & Jon Milton, 2015 (Spend Matters)

Why? Is it because they think price trumps all? Is it because they don’t think there’s value in non-price factors and services? Is it because they once focussed too much on the bigger picture, didn’t do their homework, greatly overpaid, did not realize any savings, got hung out to dry, and are now once bitten, twice shy? And does it really matter?

As SI has been proclaiming for years, it’s not TCO (Total Cost of Ownership), it’s TVM (Total Value Management). It’s not how much you pay, it’s the return you receive. As Finance will tell you, it’s all about the ROI. Paying a bit more for a value-added service from the supplier that saves you money is a good return. Paying a bit more in a dual-source strategy to large suppliers with high-volume production lines to prevent otherwise likely stock-outs is often the best insurance policy you can buy. And paying a bit more to use a supplier you are certain does not use child labour, does not subject its workers to poor working conditions, and does not use conflict minerals, banned raw materials, or illegally obtained goods and services costs a lot less than the PR nightmare and lost sales that could result from a brand scandal.

But these are just some ways to increase the value of a purchase. In Mr. Milton and Mr. Smith’s latest paper on Full Value Buying they describe techniques, such as specification improvement and demand management that can generate returns above the 10%+ that an organization can typically save through skillful spend analysis or decision optimization (which are the only two traditional sourcing techniques that generate consistent year-over-year savings in the double digit percentages).

In the paper they address four major mechanisms that can affect the cost of a buy and the upper bound on cost savings that each factor can traditionally bring:

 

Mechanism Saving Potential
Purchase Price (TCO model) 20%
Specifications 30%
Whole-Life Factors 50%
Demand 50%

 

These numbers may seem high, but consider the following. Changing the specifications slightly to allow a lower cost material to be used which can also be used in a more efficient (and cost effective) production process can easily shave 50% to 90% off of 40% (or more) of the cost if a (rare earth) metal that costs $50 an ounce is replaced with a metal that costs $10 an ounce. Changing the design that allows the product to be easily disassembled and valuable metals recovered (upon forced recovery subject to environmental disposal laws) can turn a losing collection business into profitable recovery one. Buying Accounts Payable and Marketing extra monitors so they don’t have to print PDF invoices to enter them or documents they need to reference when composing project specifications can cut organization paper demand by over 50%. And these are just a few examples.

the doctor strongly encourages you to check out Mr. Smith’s (co-authored) latest piece for more details on how these mechanisms can be applied across a range of categories to not only bring costs down, but even value up to the organization. After all, he went to Washington. (Figuratively and literally.)

Navigating & Keeping Up with Digital Agency Landscape: Part III


In this three-part series of articles, Kathleen Jordan, Associate Director at Source One Management Services takes a look at the complex digital agency landscape and provides insight on the process of agency sourcing: considerations when sourcing, vast digital agency options, and the need for bridging the gap between marketing and procurement departments. Kathleen Jordan is a strategic sourcing subject matter expert with a wide range of experience in the marketing category who works closely with marketing professionals and helps alleviate challenges encountered when overseeing agency relationships.

In Part I of this series we reviewed common considerations for sourcing digital agencies. Then, In Part II, we took a look at the vast types of digital agency options and what they mean for a company’s sourcing strategy. Today, in this third and final part, we discuss the importance of aligning Procurement and Marketing for Digital Agency success.

Marketing and Procurement teams may not always see eye-to-eye. Both teams have different goals, measures for success, and serve as unique functions in an organization. However, the digital space is a fast-paced environment with various options and the alliance of these two departments when sourcing digital agencies can have substantial strategic benefits for the company overall.


Procurement can help Marketing identify current trends and potential risks.
Marketing strategies are constantly changing, altering what services agencies provide. A thorough RFP process will bring to light an agency’s service portfolio (or lack thereof) not only for current marketing campaign initiatives but also with respect to future strategic options. This process also highlights pricing options and helps provide insights into industry standards.

Procurement can identify areas of improvement in compensation structures and contractual terms and conditions.
This helps Marketing optimize their budgets. Procurement teams have a deep understanding of company budgets and possess a whole slew of strategies to stay within them. Aligning these two departments helps ensure that the Marketing budget is used wisely while ensuring that contracts are put in place that drive further value from the products/services purchased.

Procurement can also carry out a proper end-to-end agency search.
This ensures that the selection criteria are met and that only an agency that can deliver what they pitched with full transparency and strong execution is onboarded. Beyond pricing, properly defined RFPs can provide marketing with a full view of how agencies compare in their offerings. Sourcing an agency that is a creative fit is also important; Procurement teams can facilitate the process for identifying agencies that are not only budget friendly, but also suit marketing’s creative vision.

Procurement can also help Marketing enhance contracts to include KPIs based on metrics that can be tracked on a regular basis.
This ensures that Marketing is able to effectively measure performance. As mentioned in part one of this series, there is the potential for scope creep, missed deadlines, and poor communication when seeking outside help from an agency. Procurement’s involvement in the sourcing process can help prevent these challenges by putting performance metrics in place from the start. This vendor management structure can help boost productivity but also foster a strategic relationship between the Marketing organization and the digital agency.

In some cases, bringing in a procurement consulting firm may be helpful in bridging the gaps between Marketing and Procurement teams. The right Procurement consulting firm will have the needed category and relationship-building expertise to align the two different departments. They can act as a mediating force that remains close to the goals of each team with the objectivity needed to maximize success.

Options for digital agencies are aplenty. Full-service digital agencies, handling all work from strategic and creative to media and production, can serve as a good fit if you are seeking out a one-stop shop and are looking for the ability to ramp up and down quickly and easily with a dedicated account team. Smaller shops give you greater visibility into their processes and your account may be considered a key one in which you have the attention of agency executives. More niche agencies can also provide you with access to greater expertise given they have a focus on one core competency and do it really well. Overall, there are benefits to both agency models and Marketing and Procurement must collaborate to determine the benefits that will meet their company’s objectives and pursue those opportunities further.

Sourcing Your Salary: What Should You Be Paid?

This is a good question. Not only are salaries in the Procurement profession all over the map, but so are the salary surveys and reports produced by different organizations, including the ISM, CAPS, and the APS. However, these can sometimes be hard to get, and, with the exception of the ISM, not regularly produced.

But there is an alternative, and now that it is in its fifth year, it is becoming a very reliable one. That alternative is the Next Level Purchasing Association Annual Salary Survey, and it is a survey you should be familiar with. This survey, which collected data from over 1,300 participants, provides very reliable salary data for North America (39.6%), Africa (24.9%), Asia (22.9%), and Europe (7.1%) and starting data points for South America (3.2%) and Australia (2.3%).

As expected, the highest salaries are in North America, followed by Europe, Asia, and Africa; the average supervisory salary in North America is almost 50% more than the average salary, compared with 30% more outside North America; and salaries increase according to position title. And, despite the proliferation of equal opportunity employment advertisements, we should not be that surprised (especially given the number of women in corporate board rooms), that male procurement professionals not only make more money than their female counterparts, but they also get more higher-level opportunities. And, as those of us who have both climbed the ladder and jumped ship know, Procurement professionals who are recruited from the outside make more than those who are promoted from within. Once you’re inside, you’re on a standard progression track with a small raise tied to each progression. But if another organization is desperate enough, you can get the high end of market value, even if it’s 30% more than you are currently making, and a signing bonus.

However, not all of the results are as one might expect. Two findings in particular that stick out are the facts that

  • Buyers of indirect goods and services make more than those who buy direct goods and services
  • The use and size of bonuses in procurement is trending steeply upward

While a decent amount of market intelligence and negotiating capability is often required to identify and seize the opportunity in an indirect (services) category, the expertise required to properly should-cost model a direct materials category such as custom hardware or aircraft engines is staggering. For any modern piece of electronic or engineered equipment, you often need an advanced university degree just to understand what you are buying on top of the knowledge required to do a great purchasing job, which will likely require a background in operations management as well. Given the average level of education and skill required for direct vs. indirect, one would expect direct buyers to be paid more.

And while the doctor has been promoting performance-based compensation in Procurement for years, because the right incentives can often produce absolutely amazing results (just like appropriately incentivized sales people can lead to incredible growth), it was not something he expected to see. The average (laggard) organization believes that a Procurement professional’s job is to save money, that she should do the best job possible (even if she has to work 60 hours a week), and that her only reward for going above and beyond and identifying hidden millions in savings should be knowledge of a job well done.

the doctor strongly encourages you to check out the Purchasing & Supply Management Salaries in 2015 (Login required) report. A Basic Next Level Purchasing Association (NLPA) Membership is required, but basic membership is fee and Sign Up is simple.

Time to see how you stack up.