Originally posted on on the e-Sourcing Forum [WayBackMachine] circa January, 2008.

Industry week recently ran a good article by Chris Ferrell of Tompkins Associates on “Best Practices in Freight Bidding” that had a number of good suggestions. The article offered up the following 12 best practices:

1. Obtain commitment from executive management.
   This is always a good idea, no matter what project you are undertaking.
2. Benchmark current freight costs.
   Also, separate out fuel surcharges from basic freight spend.
   This is critical. After all, how can you do better if you don’t even know how well you’re doing now?
3. Include new transportation providers in the bid process and allow carriers to bid on different markets.
   This should be obvious, but I’m afraid it isn’t. If you always have the same carriers bidding on the same lanes, they’re going to figure this out eventually and keep their rates in sync to maximize their profit, which is akin to minimizing your savings.
4. Standardize bid formats to ensure apples-to-apples comparisons.
   This should be a no-brainer.
5. Have a minimum of one year’s worth of clean historical data.
   Not sure I understand this one. You should have good projections of what your freight requirements are going to be, by market and lane, for the next year and these should be based off of solid demand projections that use at least a year’s worth of good, clean, data and preferably two or three years!
6. Look for opportunities to decrease cost by changing transportation modes.
   Never assume your current transportation network and strategy is optimal. For instance, just because ocean looks cheaper, doesn’t mean it is. Consider laptops. Their value depreciates weekly. If you can make them light enough, and pack them tight enough, air freight will be more profitable.
7. Use a multi-round bid process.
   You should definitely use a multi-round RFX, to qualify potential award recipients, but not necessarily a multi-round bid. Depending on the market conditions, the number of potential carriers, your needs, and how clearly you can specify those needs up front, a well-defined auction that takes into account all costs and factors, appropriately weighted, might be your best bet.
8. Encourage carriers to take a more holistic look at your freight.
   Good carriers will know their networks and how to optimize them much better than you will know yours. It’s their job. They might be able to come up with alternative bundles, modes, or schedules that could save you a significant amount of money.
9. Leverage volume through a relatively small group of core carriers.
   This is a basic tenet of sourcing, period. Just make sure that you split demand through a small group, and not a single carrier – because this would introduce a significant risk into your supply chain.
10. Bid freight on a regular, predetermined basis.
    Like any other bid, it shouldn’t be done ad-hoc. It should be by major sourcing project or at regular intervals.
11. Put as much effort into implementation plans as you do the bid.
    Remember that negotiated savings are just that — negotiated savings. To realize them, you need to be ready to do what it takes.
12. Track carrier performance against commitments and utilize feedback loops.
    You should not only track performance, but verify invoices using m-way matching and analyze historical performance using spend analysis to find overpayments and secure the credits or refunds before the contract expires.

Although the doctor is an expert in transportation network modeling, and well versed in freight, there are other bloggers out there who are experts in freight bids and freight auctions, a few of whom run projects on a (very) regular basis. He knows at least a few of them check this blog from time to time. Maybe they’ll chime in with a few tips of their own.

Originally posted on on the e-Sourcing Forum [WayBackMachine] circa May, 2008.

A recent article in Supply Chain Digest sung one of my favorite tunes — talent. The latest publication to note that there is a current shortage of talent and that it’s only going to get worse, it also noted that only a few companies have disciplined and sustained programs for supply chain talent development. Furthermore, most of these companies are using approaches that have worked in the past, which may not be suited to the unpredictable global environment of the present, and, most importantly, the future.

The article quotes Wharton Business School Professor Peter Cappelli who states that the process of developing the talent and skills needed for the future should be similar to today’s supply chain thinking. The key capability required by today’s companies is the ability to react dynamically as needs change, just as agility and the ability to “sense and respond” increasingly define supply chain excellence. According to Cappelli, managing supply chains is about managing uncertainty and variability. This same uncertainty exists inside companies with regard to talent development.

Cappelli equates a company’s current talent pool to the way a company thinks about its current supply chain inventory — you need what you need, but having too much is not a benefit but a cost. Cappelli sees the same thing when companies talk about having a “deep bunch” of talent, but sees the problem as being much worse. That’s because an inventory of talent is much more costly than an inventory of widgets — talent doesn’t sit on the shelf like widgets do. You have to keep paying talent. And, as the article clearly notes, the best way to have a piece of talent walk away is to tell it to sit on the shelf and wait for opportunity.

The article also outlines three keys to a supply chain approach to talent development:

• Be flexible in matching talent to needs
  Don’t arbitrarily lock talent down by division or business unit.
• Flexibly mix in-sourcing and outsourcing
  Companies should use adaptable models of internal development and then bring in outside help when internal talent can not meet the need.
• Use simulation and scenario analysis
  Don’t base your hiring plan on a static model of expected future needs. Look at all possible market developments, associated talent requirements, and create a plan that can flexibly adapt to different needs.

Originally posted on on the e-Sourcing Forum [WayBackMachine] on September 18, 2008

A basic two-way scorecard is a scorecard that allows a supplier to provide feedback on how well a buyer is providing it with information, paying on time, and managing other key elements of bilateral performance. It is designed to ensure that there is a two-way flow of information, and feedback, regarding the service that the supplier is expected to perform on behalf of the buyer. A more advanced two-way scorecard measures supplier and buyer results across a balanced set of categories with combined metrics that merge component metrics tailored for each party. It is designed to insure that there is both information flow and cooperation (and collaboration) in the relationship, as the merged metrics will only be good if both the supplier and buyer component metrics are good — and the component metrics will only be good if there is collaboration. For example, the “customer service level” metric will be computed based on the average supplier delivery time and the average accuracy of the monthly buyer forecast. After all, if the buyer tells the supplier to prepare for a slow month when, in fact, orders are about to double, should all the blame rest on the supplier who was not given a chance to prepare?

Needless to say, two-way scorecards are not only more work than traditional scorecards, but they also require more up-front effort to make them work (but they payoff is worth it). Fortunately, there is a recent piece over on the Supply Chain Digest site that describes the keys to implementing dual buyer-supplier scorecards successfully for those new to the concept. According to the article, best results stem from best practices, and the best practices they list are the following:

Rely on Senior Leadershiop

Senior leadership must emphasize internal accountability as well as supplier accountability and insist upon the new scorecarding methodology.

Choose the Best Managers

Insure the implementation is led by top-performers on each side.

Focus on Critical Items

Focus on those items and metrics that have the biggest impact on customers.

Use only with Strategic Suppliers

The approach requires long term commitment — on both sides.

Broaden the Involvement

Create cross-functional teams and insure all key areas are measured by the metrics.

Be Practical

Aim for “best-fit”, not “perfection”, in the metrics. The metrics should be easy to define and to track.

Engage the Supplier

Metrics need to be selected jointly, and agreed upon jointly.

Communicate the Value

Be sure to understand, and communicate, how the initiative is going to benefit both parties.

Recognize Performance

Rewards and recognition go a long way. Be sure to congratulate top performers appropriately.

Allow for Evolution

No one gets it (completely) right the first-time. Revisit the scorecard regularly and re-define the metrics as appropriate as part of a continuous improvement initiative.

Originally posted on on the e-Sourcing Forum [WayBackMachine] on Thursday, 6 December 2007

Recently, Michael Soon Lee posted an article over on uPublish.info on “Ten Negotiating Mistakes that Cost You Thousands” that deserves to be highlighted. Although it made heavy use of martial arts metaphors, all of the points are simple, important, and easy to understand on their own and we can easily work them into a sourcing framework.

1. Being Afraid To Bargain
Do you want to pay full price? Or do you want a deal? It’s up to you, but if you don’t bargain, you will pay full price.

2. Forgetting that Everything is Negotiable
Who says it takes seven days advance notice to ship an order? Why can’t it be five? Who says everything not on contract has to be at catalogue prices? If you’re buying $10K worth of an item – that’s worth a discount.

3. Believing It’s Not Worth Haggling Over Small Items
Let’s say you are buying for a large enterprise that buys 1M worth of Laser Toner annually and $250K worth of paper. Don’t just settle for a 10% discount on the Toner – a 5% discount on the paper is equal to $12,500. That could be your bonus!

4. Thinking About Ourselves First
Michael quotes the ancient Chinese saying “To defeat an opponent you must first think like an opponent.” Master bargainers are always thinking about what’s in it for the other party. There has to be a clear benefit to the other party for the other party to negotiate seriously. Before they give you a 20% discount, they’re going to want a significant order or commitment. A master bargainer figures out what the minimum commitment would need to be for an offer to make sense to the other party, and is prepared to ultimately make that offer.

5. Making The First Offer
As a buyer, once you make an offer, you can only go up. Try to get the seller to make the first offer because, as per the rules of the game, if it’s a buyer’s market, the price can only go down from their.

6. Being Too Nice
If you must make a first offer, make it low. And don’t be afraid of no. Remember, the negotiation isn’t over.

7. Being Too Eager
Take your time and don’t add undue pressure to the situation. The last thing you want to hear after a first offer is “okay”. That means you offered too much. Remember, in some cultures, negotiation’s do not start until after a mutual level of trust has been built between the parties – which might take two or three weeks of casual conversation and joint activities.

8. Not Doing Your Homework
Be sure to know what the current demand is, what the average profit margin in the industry is, what competitors are quoting, and what leverage you have. Otherwise, you’re not going to get the best deal.

9. Not Playing To Win
It’s true that you’re not going to win if you don’t think about the other party and are not willing to make the offer worthwhile for them, but that doesn’t mean you play to tie. Your goal is always to get the best deal you can while giving up as little as possible. After all, if the other party agrees to an offer, then they must think it’s fair and benefits them.

10. Missing Opportunities
Remember that everything’s negotiable and don’t make a single purchase off-contract without asking yourself “is this the best deal I can get?”.

Originally posted on on the e-Sourcing Forum [WayBackMachine] on Friday, 6 October 2006

In a recent edition of Supply & Demand Chain Executive, you can find the article “Sustaining Strategic Sourcing Wins” that indicates “four enablers must be addressed to ensure a successful roll-out and savings over the lifetime of your company’s strategic sourcing project”.

The article, which states that “making strategic sourcing work in the long-run is still a challenge for many organizations indicates that to sustain hard-dollar savings and continue to deliver results, companies must treat strategic sourcing as more than a one-time effort and that four enablers must be properly addressed to ensure a successful roll-out and prevent savings from being short-lived”. Specifically:

1. A center-led organization
   A sustainable, long-term procurement organization sponsored at the executive level, where authority, roles, responsibilities and individual performance metrics are clearly defined is required. Stakeholders must buy into the organization and align with common objectives.
2. Continuous improvement of skills
   Sourcing professionals must develop and maintain proficiency in all aspects of the sourcing cycle and organizations need to identify the knowledge and the skill sets of their procurement staff and develop training plans to address any knowledge gaps.
3. Processes and Technology
   Appropriate processes and technology must be in place to sustain long-term savings.
4. Specific Performance Measures
   Only realized savings impact the bottom line and a formal set of measurement processes must be in place to track usage, pricing, user compliance to established contracts and supplier performance.

This is all sound advice, and all of the above are critical to long term success, (after all, over the summer I advocated center led models, a focus on talent, eSourcing Technology, and solid metrics) but I found the article lacking, because it skipped over a critical point – underneath it all you need a sound corporate wide supply chain strategy aligned with an underlying Total Value Management philosophy.

When you get right down to it, the fundamental reason I am working with Iasta is that I am convinced they understand the importance of building a sourcing suite on a solid premise, they get that Total Cost of Ownership alone is not always enough, and they understand that true decision optimization must be built on a Total Value Management philosophy in order for their clients to get the biggest bang for their buck. They see the next evolution of eSourcing and are working hard to get there. Are they the only vendor in the space that sees what the next evolution will be? No – but I’m pretty sure I’m right in my belief that most vendors do not have a good idea what comes next. After all, only a handful of companies can be leaders, and I’m excited to have another opportunity to assist one of the companies that I am predicting will be a future leader.