Author Archives: thedoctor

Your Supply Chain is in Flux. Last Chance to Find Out How Big those Oscillations Are!

A few weeks ago we asked if your SRM was in a State of Flux because good SRM is critical to smooth supply chain operations. Later or sooner your supply chain is going to be disrupted, and without good supplier relations, you will not have any notice, or any help dealing with the disaster that is headed your way. (The chances of your organization NOT not having a major supply disruption in the next 12 months are less than 15%. Think about that.)

Then, a couple of weeks ago we remind you that your SRM, despite what you may think, is in a state of flux and that you should find out where. Especially now that you have the chance to do it for free. State of Flux, a provider of Supplier Relationship Management software and services, and the initiators of the ground-breaking SRM Research Report, are undertaking the seventh annual study which aims to understand not only the state of the practice in SRM, but what is needed for companies to get the executive sponsorship and support they need to not only master SRM but excel.

Last year’s 2014 publication was one of the most ambitious Supplier Relationship Management reports ever published — clocking in at 216 pages of data, results, and expert interpretation and full of valuable, actionable, insights that any organization can use to advance their SRM practices. This year’s study, which will likely have over 500 global participants, should be equally insightful and all those organizations that participate get full access to the results and underlying research ahead of the market. You can measure up against your peers, and improve, well before the average, laggard, organization (which will only have restricted data access if not a State of Flux customer), has a chance to register, download, and review the final report.

Considering that this study will only take about 45 minutes of your time, the reward is infinitely more valuable than the cost! But you’re running out of time. The deadline for participation in this year’s study is July 10th. (Next Friday.) Don’t miss out on this great opportunity — take the 2015 SRM Survey today!

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.