Category Archives: Procurement Innovation

Nine Survival Tips for a Down Economy from PurchasingNet

Almost a year ago, Supply & Demand Chain Executive published PurchasingNet’s top 10 survival tips in a down economy. Even though the consensus is that the economy is starting to recover, the recovery is likely going to be a slow recovery and, if you’re not prepared, a painful one. That’s why it’s important to keep operating lean and mean, and nine of the tips put forward by PurchasingNet are still very relevant. In this post I will explain why they are still relevant, and also explain why one of the tips, while well-intentioned and seemingly a good idea, is actually not that great in practice.

Top 9 Survival Tips from Purchasing Net:

  • Make sure you have a “Descending Dollar” list of your supply-base for at least the last 12 months.
    I’d also do it for the last 2 years, 3 years, and 5 years. It’s the first step of a good spend analysis, which should also answer what are you spending your money on, and how it breakdowns by supplier. This helps you keep track of your low-hanging fruit opportunities, which helps you find savings fast and lets you know whether your spending has improved over the last year.
  • Rank your suppliers as A, B, or C according to spend.
    A suppliers are the first suppliers you should target for savings. Also make sure that any “strategic” suppliers that supply non-commodity, hard to replace, “strategic” parts or services are not ranked as a “C” supplier.
  • For each high dollar spend category, initiate negotiations or renegotiations.
    Renegotiations are ok if it is the difference between survival and bankruptcy. Just make sure to follow these tips and renegotiate with integrity.
  • Use “Demand Management Techniques” for indirect spend.
    Don’t let your employees spend willy-nilly or buy what you don’t need. Also consider adopting an e-Procurement platform that steers employees to preferred or low-cost alternatives for needed office supplies and equipment.
  • Determine which KPIs are important to your success.
    You should only have a few of these.
  • Measure actual performance vs. best practices KPI benchmarks.
    Measure and report progress monthly.
  • Match invoices to purchase orders automatically.
    Not only will this dramatically reduce errors, it will dramatically increase actual savings as you will immediately know when you are not being billed at contracted rates or when you are being shipped substitutions which are off contract (which is a favourite tactic of some office supply vendors).
  • Track and report the number of “after-the-fact” purchase orders.
    This helps you determine how well your processes are being followed as well executed processes should produce very few “after-the-fact” purchase orders.
  • Push all purchases and invoices through a central procurement system.
    This will help reduce maverick buying.

The last tip put forward by PurchasingNet was to consolidate as much spend as possible with one supplier. This is a bad idea in practice, especially in current economic conditions. While it seems to make sense from a savings perspective, as it would theoretically give you more leverage in negotiations with the high volume supplier, it is very dangerous from a risk perspective. Putting all of your eggs in one basket when earthquakes (bankruptcies) are at an all time high is just not a good idea.

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Celebrate Your Failures!

A recent article in Strategy + Business asks: Are You killing enough ideas? It asks this because, chances are, you’re not. You’re probably wondering how that can be when your number one chance to emerge victorious from a downturn is to innovate. Well, the answer is that you need to kill losing ideas, or at least those ideas that don’t have any support, and do so quickly to free up the supporting resources for those ideas that look like winners that you can get most of the organization behind. You also need to put them in their final resting place so that you can do a post mortem, identify lessons learned, and share that knowledge throughout your organization so that you don’t make the same mistakes when trying to implement those ideas that you expect to be winners.

However, you won’t be able to do this if you don’t celebrate your failures. If your organization treats failure as something that is to be swept under the rug and never discussed again, you’re not going to learn anything — ever — because no one else in your organization will ever know what won’t work, why, and how to avoid making the same mistake again … and someone else will eventually repeat the mistake. The perception that winners don’t fail is false. The difference between a market leader and a market follower is that a market leader doesn’t fail publicly. Internally, they fail multiple times because they are always taking risks and trying new things before their competition. Some of their efforts don’t pan out, but they don’t hide the fact from their employees … they analyze what went wrong, why, learn from it, and correct it in the next attempt. Then they succeed and grab market share from their competitors who aren’t willing to learn from their mistakes, and who are thus doomed to repeat them.

So celebrate your failures … because if you do so, you’ll probably find that, over time, you have fewer and fewer and that, in the market, you do better and better. After all, it’s not a failure if you learn something and use that knowledge to do something else that helps you conquer the market!

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e-Leaders Speak: Jason Hekl of Coupa on “The Future of Sourcing is Crowd-Sourcing”

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Today’s guest post is from Jason Hekl of Coupa.

Coupa has a unique point of view on expressive bidding, sourcing for best value, hiring and retaining deep category expertise, and multi-variate supplier bidding. It’s just not necessary for most of us.

The future of competitive sourcing won’t be centered on how to buy steel from China; it will be centered on how to buy the everyday goods and services we need to operate and thrive in a knowledge economy dominated by services business – items like IT equipment, office supplies, travel, temp labor and marketing consultants. And success there won’t be determined by supply chain experts with 20 years of category expertise. It will be up to you and me.

The future of sourcing is in CROWDS.

As information proliferates over the web, and more and more markets become increasingly transparent, pricing has become more scientific. Think airline seats. Don’t like the price of your aisle seat? Just wait ten minutes and check again, the price may very well be different this time around.

It’s naive to think a few individuals in the procurement department can single-handedly negotiate contracts that will always ensure the business gets the best price. With a few exceptions, business, and information, moves too fast for that to be realistic. The better strategy is to rely on the wisdom of the crowd to source the best deals and drive savings for the business.

Employees have always looked upon the purchasing department and preferred supplier agreements with suspicion. They know, especially now, that they can beat contract prices very easily doing a basic amount of research online. Let’s face it – the information is out there. And there’s no way to stop it. Spend management initiatives built around a ‘need to know’ mindset that controls the flow of information are doomed to fail. There’s just no way hold back that wave. So don’t.

Ride the wave instead! Don’t limit your people by restricting information flow or artificially controlling the options available to them. Empower your people to use what they know to save the company money. Think of the psychological impact and benefit of a grassroots effort inside the company – every employee has an opportunity to save the company money with every requisition they submit. Even if it’s just pennies at a time, it still adds up.

I’m talking about expanding the responsibility for finding the best deals and saving the company money beyond the procurement department. Afford every employee an opportunity to identify and capture greater savings for the business by making it easy for them to do exactly as they do with their own money – scour the web for deals. Don’t handcuff them to a handful of suppliers with negotiated discounts. Empower them to find deals anywhere on the web, and then pull them into the a purchasing platform that controls and automates the approval and ordering processes. We all buy stuff. Who doesn’t get excited by finding a great deal? Why not put that dynamic to use for the business’s benefit? Let your employees use their expertise, and the web, to find the best deals on the items they need to do their jobs.

A procurement organization, even with decades of collective experience, can’t possibly be expert in every category of spend, and quite frankly, even if it were, how much incentive is in place for the procurement manager to go out of his or her way to find the best price on every ad-hoc purchase? No, let the procurement organization focus on the big initiatives, and empower your employees to get what they need, quickly and easily (it’s got to be easier than the ‘expense it and forget it alternative’ that removes all control and visibility from the purchasing process). Trust the system you put in place to control the purchasing process and ensure the appropriate approvals, but otherwise let the crowd have at it. Don’t be afraid!

For manufacturers, who represent a smaller and smaller percentage of US GDP and the US economy, advanced sourcing techniques and tools are undeniably relevant and can produce competitive advantage.

But for everyone else, the crowds are coming. And they are empowered to save.

e-Leaders Speak: George Gordon of Enporion on “Are You Prepared to Grow”

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Today’s guest post is from George Gordon of Enporion.

As CEO of Enporion, a B2B e-commerce technology company, it has always been my role to push technology farther into business processes and apply it to doing business better. Most businesses have been using information technology to improve efficiency for decades. For the most part, “front end of the business” activities have been the first to benefit from information technology (IT) efficiency improvements.” Front end” applications are for those activities that are customer-facing and can be associated, for example, with receiving an order and delivering goods and services to the customer. The “back office” applications typically manage running the business, and have generally been late to attract the focus of management’s attention. The primary reason was that they were not perceived as having significant influence on driving increased revenue or lower cost. On a relative basis this may be true. However, in an ever increasing globally competitive high-technology world, the diligent manager must leave no stone unturned in looking for ways to improve business process.

Many of the IT systems used by businesses today came about through the automation of manual business processes, often on a departmental basis, creating silos of software for processes within the enterprise. Additionally, many businesses grew through acquisition resulting in a multi-enterprise collection of disparate software systems. My mission is to make information technology work for you, the business manager, without you having to throw out all of your legacy systems. Whether you are managing the buying, production, or finances, every business process you manage can benefit from improvements in IT. Trying to figure out what technology can provide the best improvement now and into the future can be a daunting challenge. How do you harness what is available today and plan to build on it in the future while keeping costs down?

Waves of information technology innovation shaped the foundation of business software today. Managers today must figure out how to work within their current IT boundaries such as investments in Enterprise Resource Planning (ERP) software applications, legacy systems, middleware and the Internet. The most recent software technology wave is in the provision of software applications offered as a service (SaaS); SaaS uses the Internet to connect businesses and systems to each other. To capitalize on past investments in technology, it is important to find solutions that will extend performance, scale for growth, and enable secure interaction over the Internet. It is important to keep your technology growing, and right now that is best achieved by using distributed computing, the Internet, and SaaS. SaaS is the most flexible and cost effective software available.

The current economic recession is destined to end. Now is the time to prepare for the inevitable boost in production and business consumption that will come with economic recovery. I have experienced six recessions in my career. The current recession is by far the worst of all and has had global impact. One important thing I have learned from these recessions is that the businesses who prepare for growth during the downturn are the ones who profit the most in the recovery. You can accomplish this by choosing technology solutions that provide the most capability, capacity, and, most of all, flexibility.

Far too often managers learn that a requested or essential software feature is not in a vendor’s product roadmap. By delivering software as a service, a company can successfully operate just one instance of production software for all of its customers. That’s why Enporion has adopted the SaaS model. When a customer requests a special feature, we not only have the capability to provide it indigenously, but we can effectively provide custom applications for every customer on one operating platform without any interruption of service or change for our other customers in our B2B e-commerce marketplace.

The analyst groups all agree that increasing efficiency in B2B transactions often significantly improves enterprise profitability. Procurement processes are critical business functions that are a great opportunity for operational improvement. Identifying inefficiencies in spend, driving costs out of sourcing and procurement processes, and establishing processes to better manage ongoing spend can all be accomplished with SaaS tools. Procurement processes can be enhanced by:

  • Providing better visibility into spending;
  • Aggregating spend;
  • Optimizing the number of vendors in B2B transacting;
  • Making manual processes more automated; and
  • Allowing automation through decision support technology.

These results can be delivered through a fully integrated suite of e-procurement software tools. The solution should include electronic sourcing, procurement, contract management and invoicing tools. A SaaS solution can easily integrate with any existing ERP or legacy application. It can also integrate with applications for smaller companies by providing a web-based user interfaces that requires only an Internet connection and PC. Also important to success in implementing e-sourcing and e-procurement are the substantially experienced people to provide professional services of change management, spend analytics, supplier onboarding, and project management. To make the best choice, find a company that can provide all of that to your business so you can prepare for growth and economic recovery.

Thanks, George.

The CPO Agenda’s Procurement Checklist for Staying Center Stage

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Now that Procurement has received board attention as the greatest potential for cost savings in the organization, CPOs need to start planning on how they are going to keep that attention once the recession ends and the spending monkeys try to steal the spotlight again. Thinking (way, way) ahead, the CPO Agenda recently put together a good checklist for “staying center stage” that summarizes some of the key strategies that CPOs will need to pursue to help the board see Procurement as a driver of growth, innovation, and long-term cost reduction and not just a one-trick cost-saving pony.

  1. A Vision for Growth
    • Value Chain
      As the central point of the organization, Procurement is in a prime position to define organizational needs, asses the capabilities of internal resources, and define organizational core competencies. What other business unit touches not only every other business unit, but all of your partners as well?
    • Solution Procurement
      Procurement can source solutions that leapfrog current best-in-class and create a paradigm shift in customer value.
    • Innovation
      As the glue that binds modern organizations together, Procurement can play a critical role in the innovation process by bringing partners and ideas together.
  2. Customer Relationship Management
    As the one business unit that has every other business unit as a customer, Procurement is in a prime position to help the company better meet its customer expectations.
  3. Supplier Relationship Management
    Procurement is already managing supplier relationships on a daily basis … it just has to help the organization understand that it needs to be the central point and the channel by which supplier capabilities are secured to support the company’s growth agenda.
  4. Supply Chain Optimization
    Without an efficient supply chain, companies cannot support the chosen customer needs. In order to achieve its plans, all aspects of a company’s supply chain MUST be optimized. Procurement is in the best position to do that.
  5. M&A Due Diligence
    The ultimate success of a merger or acquisition depends on whether or not the combined organization will be able to deliver more savings and more value … Procurement is in the best position to help make that call.