Indirect Procurement With Catalogs, Where Do You Start?

Today’s guest post is from Gert van der Heijden, the Executive editor of Spendmatters.nl, and is the English translation of his post, “indirecte inkoop met catalogi, waar te beginnen?”, that originally ran on March 27, 2014.

Organizational buyers are accustomed to thinking in Pareto analysis. This is because buying is an area where the 80/20 rule applies: 20% of the suppliers do 80% of the sales, and therefore these 20% of suppliers deserve the focus. As a result, when Procurement is designing solutions to improve compliance, they often end up with a solution that is inconsistent with what a buyer wants. One area where this often occurs is in the e-Procurement implementation of catalogs. From a Procurement perspective, it might make sense to get the spending under control, but for the end user in the organization, the critical issue is completely different.

An e-Procurement catalog implementation is only successful if the end user is lured to the catalogs and wants to use them without being forced. Compliance is only truly achieved when users follow processes of their own free will. Furthermore, one has to remember that it is the 20% of the suppliers who produce 80% of the invoices who have the most operational customer contacts and it is these 20% of suppliers who are most likely to disturb, and try to circumvent, the process. If the buyer doesn’t like the process, or it’s not easy for him to use, he will be easily swayed by the supplier (offering to make it easier with a direct order) to side-step the process and this will severely hinder your compliance effort.

A smooth process for the purchase of common items, like office suppliers, IT, and food in hospitals (for example), will provide the end user an optimal customer experience and an appreciation for the process. Only once these common, but critical categories, are fully implemented and meet the users needs, should the organization turn its attention to other, less common, categories.

One has to remember that success in e-catalog implementation and roll-out also comes from a proper application of the Pareto principle — focus on the categories that represent the majority of the user’s purchases first, and make sure the users want to use the system for these categories, and only try to go end-to-end once the staple categories are well in hand. That’s because when it comes to e-catalog success, the key is efficiency. That’s how you become truly effective with your efforts.

Thanks, Gert.

Decideware: Taking Agency Expense Management to the Next Level!

As per our recent posts, Decideware are the Agency Performance Management Experts, having brought end-to-end agency lifecycle management (Part I, Part II, and Part III) to your agency-based supply chain.

Agency-based spend is an often overlooked spend category because it’s creative (and marketing doesn’t want to give it up), outsourced, and typically hands-off (because all marketing wants is the end product — print, radio, tv, or web advertisement, campaign, etc.).

However, ignoring this spend is costly, especially if you are doing a lot of production work — because the amount that is being spent through your agencies on production is often a lot more than the creative agency fees. But this is just the tip of the iceberg. When you drill down, you often find that if you are using a lot of different agencies for your different marketing initiatives, there will often be overlap not only in the types of production companies your agencies use to create your advertisements and campaigns, but in the actual companies themselves. This means that if you can identify common tier-2 providers used by your agencies, and identify potential preferred providers, you can negotiate with those providers for preferred rates to be on your preferred provider list that you provide to the agencies (who can be told that they can only use providers for identified services from your list).

Plus, because Decideware’s new Production Management Module allows you to track all costs down to the individual project and provider level, you can make sure that the preferred rates are actually being offered to you. And if the project is large enough, or the volume of work increases, you can ask for an additional discount and track the negotiated savings as well. It’s a great way to identify cost-savings opportunities when you don’t need the absolute best provider. After all, just about any print house can do a print job and any production studio can film an advertisement. This allows you to save on the “commodity purchases” and spend those dollars on the “creative” side instead, where you are likely to receive the most value for your money.

The new Decideware Production Module is a great complement to their existing Statement of Work module (discussed in Decideware: An End-to-End Agency Lifecycle Management Solution Part II) and now, for the first time, you can truly undertake multi-tier end-to-end agency-based cost management and really get your advertising and marketing spends under control.

The Production Module, currently in beta and scheduled for full-release at the start of next quarter, is similar to the scope-of-work module in that it walks the user through the full production RFX and cost estimate workflow. After the user defines the project metadata (type, scope, timeframe, org unit, etc.), she selects the users who will participate (in editorial, view, or approval mode), defines the work products (and who is responsible for overseeing their definition), selects the vendors who will be allowed to bid, defines the desired cost breakdown (by phase and element), defines the contract terms, and then, finally, defines the approval process. Then the project is launched and vendors provide their bid package with the desired cost breakdown, which includes an identification of the sub-tier suppliers who will be used to complete the work.

It’s an easy to use and well-thought out solution for getting your rampant advertising budget under control.

Stagnant Sourcing, Part II


Today’s guest post is from Joe Payne, Vice President of Professional Services at Source One Management Services, LLC and co-author of “Managing Indirect Spend: Enhancing Profitability Through Strategic Sourcing”.


In yesterday’s post, Joe began to address the fact that despite the clear path laid out before them — the path of “take a strategic approach, see positive results” — many procurement groups are still falling behind and failing to do just this. He noted that while the reality of the situation is different for every organization, there are some trends that weigh more heavily than others and discussed two of these trends. In today’s post, he discusses two more.

Lack of Skill Sets and Vision

While everyone might jump on board and say they do not have the proper resources, this reason is a little harder for some to admit. A large portion of procurement groups are operating without the analytical skills and foresight necessary to implement more strategic initiatives. While some might see this as the result, or the validation, of Jack Welch’s infamous quote, it is also due to the traditional role procurement currently plays or has played for most of the department’s existence.

In many companies, procurement is nothing but a rubber-stamp — just another step in the issuance of a purchase order. In others, they may have implemented a three-bid process or another similar purchase control method to try and secure savings, at which point they become viewed as not a rubber stamp but as a hindrance — not a step in the issuance of a purchase order, but a hurdle. And I will stop for a second and explain that procurement is not always pigeonholed into this tactical role because it is all they can do. This tactical limitation is often just as much an indictment of a failure by management to capitalize on the full abilities of all of its resources as it is a statement on the limited capabilities of procurement professionals.

Skills carried over from education and prior experience are not like riding a bicycle. These skills fade and fall away. This limited role, when performed for a long enough period, can limit the effectiveness of any prior analytical skills that fall outside the needs of the assigned role. Luckily, one of the benefits attributed to the rise of Supply Chain Management programs at major universities is the resultant increase in incoming supply chain personnel with college-honed analytical skills tailored to the procurement industry.

Procurement may soon be equipped with the skilled resources needed for strategic changes.

Management Is Not Interested

A final hurdle for procurement groups looking to make a strategic leap is disinterested leadership. Executive management, whose approval is and would be needed for a procurement group to “resource-up” and/or take on new challenges, might not think procurement is capable of such initiatives. Alternatively, leadership may be disinterested due to their inability to see the benefits to procurement taking on strategic endeavors. This can be frustrating, but it can be solved.

Disinterested management has to be persuaded, and the easiest way to persuade is through a prolonged effective internal marketing campaign. Reports should not be seen as an administrative chore, but rather as an advertisement for a procurement department. Operating transparently should not be seen as micromanaging, but as a way to actively show interested parties how effective the procurement department can be. Other successful procurement groups — when they make the news — can also be used as leverage to convince an otherwise-disinterested leadership group that strategic procurement endeavors can be worth the investment.

Additional marketing methods could include a training program designed to mitigate the frustration that comes from procurement’s involvement with some stakeholders. One of the most effective methods is securing a “bell cow”. A procurement department wishing to be given a more strategic role should identify an influential stakeholder and work to get that person onboard with their efforts. They should then use that person as a cheerleader for the group.

Wrapping Up

There is no single reason why procurement groups do not undertake strategic endeavors, just as there is no single party at fault. However, the evidence is mounting that those procurement groups that do not set themselves up strategically will face a widening gap between themselves and the best-in-class operations.

Thanks again, Joe!

Stagnant Sourcing, Part I


Today’s guest post is from Joe Payne, Vice President of Professional Services at Source One Management Services, LLC and co-author of “Managing Indirect Spend: Enhancing Profitability Through Strategic Sourcing”.

Late last year, I wrote about the “evolution” of procurement — how the department’s practices have moved from simple purchasing, to strategic sourcing, to category management, and to a level of control and strategic involvement that I called “change management”. In the conversations that stemmed from the article, both on- and off-line, I heard from many people out there that organizations don’t need to worry about “change management”, or even “category management”, yet. Many purchasing groups still struggle with implementing any strategic change at all.

This is troubling. If you have read anything related to procurement/supply chain in the last decade, you know that procurement’s ongoing success is tied to strategic improvements. Not only has this been preached, but it has been realized at best in class companies like Apple and Toshiba, where procurement took on a strategic role, optimized supply chain operations to the extreme benefit of the company, and saw executive leadership incorporate procurement leaders more openly. As you are probably aware, both Apple and Toshiba’s current CEOs were formerly CPOs at their respective organizations.

So with a clear path laid out before them — the path of “take a strategic approach, see positive results” — why are so many procurement groups falling behind and failing to do this? The reality is the situation is different for every organization, but over time I have seen a few trends that weigh more heavily than others.

They Think They Are

One of the most common objections lobbied from stakeholders when Source One is brought in to pitch our services is “We are already doing that” or, worse, “We tried that already and it didn’t work”. If brought out early into the pitch, it is clear that the objections are being lobbied by someone protecting their turf, or who sees our being there as an indication of their poor performance. As you drill in on these concerns, you will normally find they are an indication that there is a fundamental confusion regarding what strategic endeavors actually entail.

So, to clarify: A three-bid process is not strategic sourcing. Subscribing to an index on its own is not sufficient market intelligence to make informed decisions. As I have stated previously here on SI, supplier management software is not strategic supplier relationship management.

It is inefficient to continue to dedicate resources to an issue if you believe it is resolved. Procurement groups that mistakenly believe they are engaging strategically are not going to commit resources to actual strategic endeavors, and their failure to act is to their detriment.

Lack of Resources

If a procurement group is cognizant of the tactical nature of their current practices, they still face an obvious hurdle. Despite the numerous ads and pitches from software and service providers, strategic initiatives require significant resources to design, implement, and carry out. These are resources that most procurement groups simply do not have.

We did a survey of procurement professionals a little over a year ago and released the results throughout the spring and summer of last year. The first paper was on resource shortages, and the big number was that 30% of all procurement groups feel they are understaffed. Digging deeper for statistics more relevant to strategic endeavors, 34% of all polled procurement groups have zero resources dedicated to strategic activities, and 52% of all polled groups have less than half of their resources working on strategic endeavors.

While the need for strategic action may be evident, many procurement groups simply do not have the resources available to commit to the development of these long-term strategic initiatives.

“Engineers who can’t add, operators who can’t run their equipment, and accountants who can’t foot numbers become purchasing professionals”
— Jack Welch

Thanks, Joe! I bet our readers can’t wait for Part II tomorrow!

The First Flight Around the World Began 90 Years Ago Today!

It’s hard to believe that it was only 90 years ago today that Seattle, the lead aircraft in the 4-aircraft squadron of the United States Army Air Service, took off from Sand Point, Washington for Alaska in the first leg of what would become the first successful circumnavigation of the world by flight in a journey that took 175 days and covered 44,342 km.

It’s especially hard since we can now fly halfway around the world in a day and a half and are used to getting expedited shipments to fuel our supply chain from halfway around the world in three days (or less). But back in 1924, even though some had tried, including Britain and France, no country had succeeded in flying around the world until the United States Army Air Service, led by Maj. Frederick Martin, managed to circle the globe with the squadron of specially modified DT-2s, with interchangeable wheeled and pontooned landing gear and a fuel capacity of 3,438 litres, made the voyage which involved landings in over 20 countries.

Although SI typically avoids two history lessons in the same week, this was a significant milestone in aviation. With the first air freight shipment having occurred a mere three and a half years before this iconic journey, it allowed some people to dream of a future where air cargo ruled the skies — and make that future happen!