Monthly Archives: January 2009

RFP Drafting Tips from DLA Piper

The SSON (Shared Services and Outsourcing Network) recently published an article by Kit Burden of DLA Piper, a legal services and business insights firm that represents emerging growth and high tech companies, on his Top Ten Tips for Drafting an RFP that are worth sharing, especially since some of them echo the tips this blog has given you in the past. The tips are:

  • Don’t Issue The RFP To Too Many Suppliers
    Otherwise, it will become unmanageable and drain your internal resources. Do your homework before issuing the RFP and only issue it to suppliers who are likely to be able to meet your requirements at an acceptable price level. If too many providers fall into this category, shortlist the providers with the most experience in your vertical and the most stability. Generally, the RFP should only be issued to three to six providers, unless you are in the public sector and are required to open it up to anyone who wants to submit a proposal.
  • Ask Questions That Allow for Genuine Differentiation
    As I’ve said again and again, don’t use a vendor “check-the-box” RFP template. Not only are they designed to make the vendor look good, but they don’t ask open-ended questions that will allow the respondents to genuinely differentiate themselves from their competition. Don’t ask “do you have invoice management”, instead ask “how does your application support our invoice processing function, which works as follows”.
  • Ensure the References and Case Studies are From Directly Comparable Projects or Customers
    If you’re in high-tech and the vendor only provides you with CPG client references, you’re not going to know the breadth of the provider’s capabilities and expertise in your vertical. You should do your homework and also contact the clients in your vertical that they don’t give as references. (A Google search on a few news sites and a quick review of their press releases should provide you with some good candidates quickly.)
  • Be Crystal Clear on Your Objectives
    Is your primary goal cost reduction, service improvement, support flexibility, etc? And are you looking for a product or a service? Everyone wants to save money, but the vendors need to know how you expect to achieve that goal, and what the provider’s role is to be.
  • Ensure the RFP Specifies the Ground Rules for the Entire Procurement Process
    Submission requirements, use of information, timeframes, points of contact, rules of engagement, etc. Although important in the private sector where a provider can call “foul” and file complaints, this is crucial in the public sector where government bodies are legally required to play “fair”.
  • Include a Draft Agreement or Contract
      (or the standard terms and conditions and key provisions at the very least)
    Understandings as to what has been agreed to at a commercial and business level can quickly unravel when you get to the contract drafting stage, especially if the provider thinks your “standard” terms and conditions are onerous.
  • Identify the Core Team and the Core Legal Team
    This is important for a number of reasons. If you leave out someone important in the initial stages, the whole project can grind to a halt if an executive later decides “it’s not right for our business”. And if it’s a large IT project or outsourcing project, the amount of work will be significant and not something that the project leads can do as part of their current “day job”. Big projects require serious up-front commitments to get right.
  • Be Clear on the Scoring
    Not only will secrecy on scoring lead to trouble if you’re in the public sector, but it will prevent the service providers from putting their best proposal forward as the scoring system serves to identify which functions are the most important, and what information you want first and foremost from the vendor.
  • Involve all Key Internal Stakeholders
    They need to be kept abreast of how the negotiations are going and given the opportunity to provide their input, otherwise you’ll run into resistance during project implementation every time they don’t like something because “they weren’t consulted on that and it’s wrong”.
  • Anticipate Questions and Gather the Information in Advance
    Due diligence is an essential process, and any supplier worth their salt will want to have a clear understanding of what they are being asked to take on. Furthermore, if the information provided is deficient, one can expect suppliers to argue for the inclusion of contractual assumptions/dependencies regarding the areas of uncertainty. The last thing you want to do before a negotiation is reduce your credibility and your leverage with a potential supplier.

As Kit says, the RFP process is a crucial part of the sourcing process and it is necessary to invest the utmost care and attention to it. Every hour and dollar spent during development will be reclaimed many times over during the project implementation as the project will flow smoothly and generate returns quickly. For more information on constructing a great spend management RFP, see the X-emplification and X-asperation series. Although the vendors won’t, you will thank me for it.

And just remember, you can always find RFP Help Here.

Getting the CFO on the Side of Supply Chain

A recent article in i2’s Supply Chain Leader on “linking the CFO to supply chain execution” made a great point when it notes that a company needs to have a good understanding of its total costs and sources of value to align business strategy with the supply chain. It made an even better point when it noted that sometimes the best person to help you do this is the CFO, whose skill set is a competitive asset in its own right. After all, who else in the organization is as focused on reducing cash-to-cash cycle times, achieving profitable growth, delivering predictable profit margins, and reducing the company’s risk profile?

So how do you get the CFO on your side? Take some tips from the i2 article and explain to the CFO how good supply management:

  • Reduces Cash-to-Cash Cycle Times
    Through the perfect orders and accurate purchase orders that result from properly implemented and utilized e-Procurement systems, companies can optimize purchases and eliminate overpayments through the invoice matching capabilities that are built into leading best-of-breed systems.
  • Reduces the Company’s Risk Profile
    Effectively optimizing total landed cost, despite global supply chain uncertainties, helps in the management of corporate budgets and gross margin erosions. Without good supply management, companies will frequently consider the lower unit costs in choosing global suppliers and fail to consider the uncertainties inherent in global supply chains. Several factors impact the total landed cost, including:

    • elevated transportation costs
    • longer lead-times that increase in-transit inventory
    • lost business due to customs delays or unexpected demand surges
    • increased inventory holding costs
  • Achieves Profitable Growth
    Good supply management systems not only measure and model cost reductions, but also track the KPIs necessary to quantify the impact on revenue.
  • Delivers Predictable Revenue
    Supply management helps to deliver predictable revenue and profits on a continuous basis as it utilizes systems that maintain accurate future supply and demand information and make it available on a timely basis.

Working with Your Users is Key (to Spend Management Success)

Today’s guest post is from Bernard Gunther of Lexington Analytics.
He can be reached at bgunther <at> lexingtonanalytics <dot> com.

Getting key people involved with the design of any system is good advice. This is especially true for the design and usability of your spend analysis system. The key users for any single commodity include the sourcing manager and the business line owners who drive demand for the commodity. These business line owners may include multiple people from different divisions with different responsibilities. For example, for PCs, the users could include someone from technology who ensures the machines conform to corporate IT standards, as well as someone from a major business line that drive the demand for a specific unit.

Rather than thinking of working with users as a burden, think of it as an opportunity to engage and educate your users and refine the work process. Collaborating with users will help you:

  • create a better commodity structure,
  • demonstrate that you value their input,
  • get user buy-in by incorporating their feedback,
  • find out what’s important to them, and,
  • establish a process for working with each type of user going forward.

A working meeting should cover the existing spending – showing users their spending by commodity, vendor, cost center, and GL codes – both summary and over time. You should ask for input on the commodity structure, the vendors used, the preferred vendors, and any vendors they think are missing. You should ask how they use the data; what value they get from the data and what they would like to have in the system or reports that they don’t have now. If you are doing category cubes, you should review spending patterns, contract compliance and ways to improve the information that exists. The meetings can be formal sit-down sessions with new users, or can be done by email / telephone with users who regularly work with the data and are already providing feedback.

These meetings will probably involve a lot of give and take, but they are essential to improving communication and producing a structure that makes sense to the people who have to live with it. Don’t assume everyone fully understands why these working sessions are important to the company. Let them know why their input is critical. And don’t be concerned if users initially resist these meetings. Their resistance will drop once they have an “a-ha!” moment and start getting value from the data.

In addition to an initial meeting, other milestones that may warrant follow-up meetings are:

  • When someone new takes over responsibility for a commodity. The more they know about their new position, the better they will perform. If you start out providing value, they are more likely to come back for more.
  • At the end of a sourcing event. Ensure that all the learning and changes in the category is properly reflected in your spend cube.
  • On a regular basis, say every 6 to 12 months, ensure that the key users are actually using the data. If they aren’t, why not?

This may sound like a large number of meetings, but, when all is said and done, these users are your “clients”. Is there a more productive way to spend your time than meeting with your client and making sure the service you provide is valuable to them?

Every Check Has A Cost (So Streamline Your Workflows)

Paul Graham wrote a great article last November on PaulGraham.com on how Artists Ship. In the article, which starts off by noting that one of the big differences between big companies and startups is that big companies tend to have developed procedures to protect themselves against mistakes while a startup walks like a toddler, bashing into things and falling over all the time explains that the gradual accumulation of checks in an organization is a kind of learning that is based on responses to disasters that have happened to it or other companies in similar situations. For example, after giving a contract to a supplier who goes bankrupt and fails to deliver, a company might require all suppliers to prove they’re solvent before submitting bids.

As companies continue to grow, they invariably accumulate more checks, either as responses to disasters or as a result of hiring people from bigger companies who bring more checks with them for protecting against disasters which have not yet happened (and which may never happened).

But not all checks are good. The reality is that every check has a cost, and sometimes the cost can outweigh the benefit. For example, it might be prudent to make a supplier verify it’s solvency, but the cost to you could be substantial. For example, the best supplier might be the one that can’t spare the effort to get “verified” or who falls just short of a solvency bar that’s set too high. After all, do they really need to have one year of operating capital in the bank for a six month contract?

Before a check is instituted, it’s cost should be well understood. For example, consider the example given by Joel Spolsky of Joel on Software on arbitrary approval thresholds. In many companies, software costing up to some nominal amount, such as $1,000, can be bought by individual managers without any additional approvals, but software that exceeds the nominal threshold has to be approved by a committee. This process, which has to be babysat by the prospective vendor, is quite expensive and the net result is that software that you might have sold for $5,000 now has to be sold for $50,000 to recover the costs associated with having to sell to a committee. Thus, although the purpose of the committee was to ensure the company doesn’t waste money, it could end up causing the company to pay 10 times as much for basic software.

Checks on purchases will always be expensive, because the harder it is to sell something to you, the more it has to cost. If you’re too hard to sell too, the only people who will sell to you are those companies that specialize in selling to you — and they are not likely to be the companies making the goods and services you need the most. This creates a whole new level of inefficiency where you pay exponentially more for inefficient products.

Thus, although checks are important before you make any purchase, it’s important that the checks be balanced … the cost of the check should not exceed the benefit the organization experiences as a result. So continue to do your solvency checks before handing out those million dollar contracts, but when it comes to office supply spot buys, lose the check. Worst case scenario, you go across the street.

Dumb Moments in Business not Aerospace, Automotive, or Bailout Related

Fortune recently published its “21 Dumbest in Business 2008: which had a number of doozies that weren’t aerospace, automotive, or bailout related.

The following are great examples of what not-to-do if you’re responsible and spend-conscious:

  • 999.99 for a Screensaver
    The Apple App Store briefly listed an app called “I Am Rich” that was nothing but a screen-saver whose sole feature was a glowing red jewel. Apparently, eight suckers bought it before Apple quietly removed the application.
  • “Favors” for Oil
    The Department of Interior, responsible for granting leases for energy exploration and production in federal waters, is caught with its pants down. It seems that staff were accepting gifts, engaging in illegal drug use, and having intimate relations with employees of some of the oil companies they were supposed to be overseeing.
  • Microsoft offers 44.6B for a 27.7B Company called Yahoo
    Fortunately for Microsoft, Yahoo chief Jerry Yang decides to be extremely intransigent, and the deal falls through … along with his job.
  • Bloomberg publishes Steve Jobs’ Obituary
    Despite a well-publicized brush with pancreatic cancer, Steve Jobs is still very much alive and kicking.

Of course, if you really want to be smart, don’t e-mail your employees telling them that their jobs might be in peril and how their managers will be informing them of the news if you’re not quite ready to send your employees packing, like Carat did.