Managing Indirect Spend: An In-Depth Review, Part I.1

Late last year, Joe Payne and William (Bill) Dorn of Source One released their first book on Managing Indirect Spend (Amazon) which is a culmination of everything they have learned while doing nothing but Strategic Sourcing since 1992 — before it was cool. Clocking in at 422 pages, this is an incredible resource for anyone who wants to get a handle on indirect spend, which has increased significantly since outsourcing and right-sizing rose to fame in the 1990s.

This book, which should be on the desk of everyone looking to get a handle on indirect spend, is loaded with so much information that there’s no way SI could do it justice in just a post or two — so it’s not going to even try. Just like the book is broken down into four parts, our review, over the next few weeks, will be broken down into four parts — and then into sub-parts where there is just too much to comment in with a single post.

Today we’re going to review the first part of Part One – The Process, and, specifically, the chapters that cover the first three parts of their six part process, namely:

  • Data Collection & Spend Analysis
  • Research
  • The RFx Process

We’re all familiar with the basic process, and if you are a regular reader who has downloaded the free e-book, no registration required, Spend Visibility: An Implementation Guide, then you are very familiar with the data collection and spend analysis process. However, the chapter still makes some good points that need to be reiterated, particularly in regards to building sponsorship and understanding the category. Lack of sponsorship will kill your project faster than a minnow can swim a dipper, and to get it you need the end user’s support as well as senior management. As Joe and Bill state, this will require sitting down with the users and letting them know that they are not being singled out by your spend project, that your project’s success depends on them and is their success as well, and that your project is designed to tie to their objectives (as it should be). In addition, the following is a great checklist of information you will have to review with your users before starting a serious sourcing project on the category:

  • business relationship (with current suppliers)
  • product or service utilization specifics
  • location impact
  • financial implications
  • contractual obligations
  • reports, requirements and actual utilization
  • service requirements and expectations
  • supplier ranking

Joe and Bill also provide some great advice on how to handle the three different types of responses that you will encounter when requesting data from incumbent suppliers — acceptance, avoidance, and pushback — and questions to consider during supplier interviews.

Moving on to the research phase, they provide a breakdown of the eight (8) elements that need to be researched during any sourcing initiative (that you want to be lucky) as well as some great tips for collecting market intelligence through the RFI process. While modern tools, including Source One’s own WhyAbe, make the creation of RFIs drop-dead simple, getting responses and, in particular, the responses you want can be challenging for a variety of reasons. Suppliers might not think you’re serious, might not want to expose what they consider to be sensitive data, or might not be comfortable with the tool. A carefully constructed process has to be put in place, followed, and sometimes augmented by other approaches for the research phase to be truly successful. Joe and Bill lay out their advice, garnered from almost twenty years of experience dedicated to sourcing projects, in detail and offer a blueprint for your success.

Then they jump into the full RFX process, which might consist of an RFP and / or an RFQ/RFB and dive into the typical elements of a good RFP and RFQ as well as the evaluation process that should be followed and the response that should be provided if you want your suppliers to participate in the process again. One point that they make that most other resources miss is the need to include disclosure and liability sections in the RFx document. This is critically important when inviting new, unknown, suppliers to an open event. If these suppliers aren’t awarded the business, they may sue you on the premise that the invitation for bid was in fact an invitation to do business and that the RFx constituted an MOU to be replaced by a future PO or contract once the information was provided. Slimy and shady to say the least, but this has happened. They also discuss the reverse auction process and when it is preferable to an RFX. Finally, they end their discussion of the first half of the sourcing process with a discussion around the need for flexibility and creativity in the sourcing process, a discussion that’s often overlooked. Significant savings are never found by doing the same-old, same-old or just applying one or two sourcing technologies. They are found when the parties come to the table, broaden their horizons, and look for new, creative, and innovative ways to meet organizational needs. And, as Bill and Joe state, suppliers are often much more motivated and engaged when buyers take an alternative approach. So be flexible — and stay tuned. Part I.2 is coming!

How Supply Chain and Fulfillment Services Improve Your Brand

Today’s guest post is from Jesse Langley, a blogger and self-professed internet geek who writes mostly about education technology, education reform, job searching, and all things internet, including business logistics. Today’s post discusses The Opportunity of Order Fulfillment and gets to the heart of Fifth Gear’s recent white-paper on “Branding Beyond the Sale”.

The connection between supply chains and fulfillment services along with branding success is becoming more popular and evident. Once considered only necessary “back office” cost centres, both functions are now held in high esteem as effective branding mechanisms.

Supply chain management attracts different definitions in diverse companies and industries. However, regardless of the definition in your company, there is a growing regard for supply chain gurus and efficiency. Observers who favour this position proudly point to Tim Cook, who was selected as CEO of Apple after Steve Jobs had to step down because of his terminal illness. Cook’s career at IBM and Compaq established him as one of the leading supply chain management talents in the U.S.

The sleek, strategic integration of related functions within a business or multiple companies that are components in the full supply chain reinforces and strengthens your brand as no amount of expensive advertising campaigns can. Managing your supply chains efficiently and in a customer-focused manner establishes your brand as one deserving of customers’ trust and loyalty.

Quality fulfillment services accomplish the same brand enhancement goal, often more effectively. The explosion of e-commerce has catapulted high qualify order fulfillment services to the forefront of brand awareness and trust. Effective order fulfillment, when used properly, can accentuate the natural customer anticipation while awaiting the arrival of treasured items ordered via the Internet or from catalogs.

When you employ professional fulfillment services, that customer anticipation can morph into joy and new levels of trust in your company to deliver on its promises. While the popular phrase in force is “engaging” your customers to “care” about your products, services and company, this result is valuable, but only the start. Using superior fulfillment services can go far beyond simple engagement. These services create a level of trust in your products that every company, large and small, wants more than any other result.

Think of the brick-and-mortar retailers that have achieved this goal, e.g., Nordstrom. Unlike most other retailers, they need not spend valuable time on drastic sales, price cutting or specials that drop below desired price-points, they are so trusted that they can price their quality products to ensure profitability. Nordstrom has historically concentrated on quality and customer-oriented fulfillment services to create a loyalty that transcends classic “what have you done for me lately” customer attitudes.

Take advantage of order fulfillment services to harness their power to establish and fortify your brand. Pay close attention to your supply chains, though, as even the best order fulfillment company cannot package and deliver your product on time and as agreed if they lack the inventory they need.

You need to create a high-performing integration of products that customers want, at prices they are happy to pay, employ an efficient supply chain to ensure product availability, and use outstanding fulfillment services to deliver products to your customers when you promise them. Do not cut corners on talent, product or fulfillment costs. You may have a wonderful uptick in initial sales, but suffer the fate of much of your competition, fighting to entice these same customers to buy more products in the future.

Trusted companies have world-class products, outstanding customer service and quality products. Accomplishing these objectives allow you to proudly trumpet your brand, create loyal customers and continue to increase revenue and profits.


Thanks, Jesse.

SAMBC? WTH? Can’t They Just Say Only Customer Service Matters?

Or at least a better acronym? This one is a Seriously Impractical Customer Orientation. In fact, SICO is a better acronym — Success Is Customer Oriented! Anyway, we are referring to Service As Measured By the Customer (SAMBC), the metric that is replacing “perfect order” at P&G, as described in this recent SCB article on how The Perfect Order Isn’t So Perfect.

According to P&G, the perfect order metric doesn’t get the job done because it causes your service to become very internally focussed. And as we indicated in yesterday’s post, you can’t just focus inward. First of all, as we indicated yesterday, you will fail your customer if your supplier fails you. Secondly, you will fail your customer if you don’t insure that they get what they need, when they need it — and this is often more than just delivering a product on a specified date. As noted by Deidre White, Associate Director of Customer Service, an undue focus on the perfect order results in the loss of opportunity to create value for our customers and ourselves.

As Dale S. Rogers, Professor of Logistics and Supply Chain Management at Rutgers notes, while the perfect order might offer the advantage of simplicity, it’s ill-equipped to deal with the complexities of most global supply chains today. Furthermore, the trend toward outsourcing has created a network of independent partners, each of whom plays a critical role in getting a shipment to its destination. By limiting its performance assessment to what goes on within its own plant or distribution center, a company like P&G fails to get the big picture. What looks like a smooth-running operation could easily be considered a failure by the end customer.

The lack of joint scoring on the traditional perfect order metric is what causes it to fail. For example, consider the example of a 100-case shipment that is five cases short because of space constraints. A supplier who puts the missing cases on the next shipment considers the order filled. The customer thinks otherwise. And it’s the customer’s opinion that counts. An unhappy customer can result in lost sales down the road.

So how do you implement SAMBC? That’s a good question. According to the article, there’s no one-size-fits-all solution in a SAMBC process as each customer has its unique set of metrics and priorities. The article notes that the suplier must adjust its own to meet them. And that the SAMBC metric is the percentage of measured customers at which we are at or better than expected service targets, where the targets are established by and with each customer. That’s a scorecard. And SAMBC can be implemented the same way — with a “balanced” scorecard that measures the customer goals. Specifically, a scorecard that takes into account the customer measures of success and weights each measure according to the priority placed on it by the customer. It will have many of the same metrics — on time delivery, quality, etc. — as a “perfect order” scorecard, but it will be completed by the customer and each measure will be weighted differently by each customer. That’s likely all there is too it.

Peter Smith Nails Why the doctor Does Not Do Predictions

Traditionally, the New Year is a time to think about how we can become better people … and of course, the chance for writers and analysts to sit at their keyboards with a cold beer and make a list of wild guesses, predictions and ill-informed comments, desperately pretending we have some particular insight into the world!
Peter Smith, Ten New Year Resolutions for 2012, BravoSolution.com

the doctor has insight into what you need to do today, but has no more insight into what the Supply Management world of tomorrow will look like for your company beyond what anyone else has. He can predict what is likely, but all it takes is one earthquake, political uprising, or stock market crash to turn everything on its end. Fortuntately, Peter’s paper is filled with advice for today and not tomorrow.

In particular, the doctor likes resolutions:

2. I will make sure we do proper risk assessment on our key supply chains – and that doesn’t just mean our “top ten suppliers”.
How exactly are you keeping track of your key suppliers’ financial situation, their accreditations or quality record? What is your mitigation strategy in case of supplier failure or natural disaster, for each of your critical raw materials / sub-components? Do you have any sense of which firms at second or third tier level in your supply chains could actually cause your organization severe problems? What about corporate social responsibility issues? the doctor would bet that you are not keeping track of key suppliers’ financials, not keeping an eye on the quality metrics, don’t know which 2nd or 3rd tier suppliers could bring your supply chain to a grinding halt, or know about the poor working conditions at the factory in Da Nang.

5. I will put the supplier closer to the heart of our process and technology strategy
As Peter says, if the supplier screws up, you have failed in the eyes of the IT / Marketing / Production VP. So look at your supplier information, risk, development, relationship management strategy — closely. If you don’t help your supplier to succeed, you ultimately won’t succeed.

7. I will move to the next level of Spend Analytics sophistication.
As per SI’s recent white-paper on Spend Visibility: An Implementation Guide, almost any attempt by an organization to analyze spending patterns is likely to be fruitful, especially if there hasn’t been a serious prior attempt. It is easy to find thousands of breathless testimonials about a particular product or method — independent of the quality of the product or method — because almost any product or method will find savings if a spend visibility initiative has never been launched before. “In the land of the blind, the one-eyed man is king“. But, what is not so obvious is that this initial burst of savings is short-lived; and that many of the “quick saves” that result are unsustainable. The key question is what to do next; in other words, how to implement a true strategic spend visibility initiative that will return value and keep returning value over time. There are too many spend visibility products that are lying unused or on the shelf, after the first burst of excitement has passed; and too many organizations who are tired of hearing a spend visibility message that has no further relevance to them. That’s why you have to take spend analytics to the next level and why you should download the FREE, no registraiton required, Spend Visibility: An Implementation Guide today (if you haven’t already).