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Just what is Strategic Sourcing?

March 11th, 2010

A strategy according to Wikipedia refers to a plan of action designed to achieve a particular goal. The word is of military origin.

Let’s look first at strategy in general.

As a former military procurement guy if we think of strategy from a military perspective, how an actual battle is fought is a matter of tactics: the terms and conditions that it is fought under or whether it should be fought at all is a matter of strategy.

The next logical step would be to understand that a strategic plan is a way to define a company’s strategy. When this author goes about developing a strategic plan I tend to lean in the direction of aligning my thoughts so that they are in concert with my three basic necessities or tenants of running a business which obviously includes sound fiscal guidelines. The tenants are.
 
1. A long-range strategic plan
2. A tactical plan
3. A talent management plan

The ultimate goal is not to do something just to do it, but to do it as a way of beating or avoiding competition and growing at the same time. Think of Dollar Stores in terms of how they avoid competing with Wal-Mart although they are in a very similar space.

If we believe the above, how do we relate that back to Strategic Sourcing?

Strategic Sourcing should be a discipline used to identify, examine, select and implement a variety of sourcing alternatives for  specific groups or categories by evaluating, selecting and collaborating with your sources of  supply in order to achieve improvements in quality, cost, operational efficiency and other benefits that support a companies overall strategic plan. To that end just lowering the purchase price is not necessarily strategic in and of itself.

Some say that based on that definition and an understanding of strategy that Reverse Auctions therefore are not strategic. This author says that depends. If Reverse auctions’ are the result of significant discovery and analysis that focuses on identifying the best opportunities to support a strategic objective and it is the result of using the entire RFX sequence, it may in fact be strategic but it could also just be tactical. This author believes we are splitting hairs.

After all one mans pill is another mans poison.

We look forward to and appreciate you comments.
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Posted in B2b Reverse Auction, Business Sourcing, Eprocurement Auction, Online Procurement, Online Reverse Auction, Sourcing Strategy, Strategic Sourcing | No Comments »

Hey Retailers, what is your 2010 business strategy and how does e-procurement enter into it?

March 10th, 2010

I have read too much lately about how reverse auctions are not strategic and how they can not be used over and over again on the same items and categories year in and year out. This is absolutely incorrect.

The business of e-negotiation and in particular reverse auctions has many benefits for retailers that support their business strategies.

According to Wikipedia, a business model is a framework for creating economic, social, and/or other forms of value. The term business model is thus used for a broad range of informal and formal descriptions to represent core aspects of a business, including purpose, offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies.

Often times during this author’s discussion with retailers the question comes up as to the benefits of the reverse auction business model or that of other e-procurement events such as Requests for Information or RFI’S.

I have never spoken to a retail executive that does not have as a significant pillar of their business strategy to increase profitability even if it takes reducing losses in the early stages of a turn around. Reverse auctions if run properly can reduce the cost of goods category, the expense category and hired services that impact both areas. They can also continue to reduce the same year after year and the savings are predictable.

This author will make the assumption that there is common  agreement that price compression in today’s world is critical and that the reduction in cost of goods and services is the largest area of opportunity on a retail P&L. As such, there are a number of reasons that the reverse auction business model works well within organizations that should drive the strategic growth in utilization of this business model within retail.

A few and certainly not all are listed below in no particular order…

1. A larger number of suppliers: Because of an increased number of suppliers bidding for a retailers business, getting a relatively low price is a given. The suppliers benefit because of the potential reduction is selling costs and easy access to new sources of business which encourages them to lower their pricing.
2. Location, Location, Location: In this case, location no longer matters. A supplier can participate from wherever they happen to be located. This opens up new potential markets for the supplier and new sources of supply for retailers.
3. It’s like a game: Participating suppliers wait to see if their price is the lowest much the same way a gambler would wait to see the turn of the next card when playing blackjack or poker. This is a social interaction and dynamic that builds on itself and can drive a larger number of bids and extensions while ultimately leading to lower pricing.
4. Early success drives a virtual circle for retailers and suppliers: The more a retailer uses the tool and the more success suppliers have with securing new business resulting from this process, the more the process will drive retailers to host new events and suppliers to participate in them again and again. Independent departmental successes can spread quickly within a retail company such that other departments not using the process do not want to be left out of potential savings opportunities and notoriety.

As always, we look forward to and appreciate  your comments.

Posted in B2b Reverse Auction, E-procurement, Global E-procurement, Online Procurement, Online Reverse Auction, Reverse Auction, Reverse Auction Procurement, Strategic Sourcing | No Comments »

Here’s some more on Food Safety, Salmonella and Traceability for e-procurement professionals.

March 9th, 2010

In light of the most recent FDA recall of products containing HVP and the risk of a major Salmonella outbreak, this post focuses on Traceability as the best tool to reinforce a safe supply chain.

When the FDA refers to traceability today they are talking about one back one forward reporting. Does this make our supply chain safer?
The definition of traceability according to Wikipedia refers to the completeness of the information about every step in a process chain. Traceability is the ability to verify the history, location, or application of an item by means of documented recorded identification.

When the FDA uses this term what they are referring to is the capability of bidirectional traceability or tracing products one step back one step forward. This means identifying the immediate supplier of the product and identifying the immediate recipient of the product, which is not the final retailer.
 
However the process also requires some level of common sense. I’m a man of faith, but blind faith really gets us no where when we are talking about food product traceability. GS1 has created a certification for traceability in cooperation with a number of organizations such as FMI, CIES and BASF.

From a common sense perspective one would believe that all products we consume are safe, that all produce and grain products are traced back to the seed level. Unfortunately this is not the case.

Let’s just examine milk products or byproducts. In a post from last year this author discussed a situation in China at the time where 13,000 babies were hospitalized and over 53,000 babies affected and that similar events could happen here. Well, yesterday we heard of HVP for the first time and the associated recall by the FDA. Traceability is really the only way that manufacturers and retailers and other members of the supply chain can maintain control of the ingredients in the products they produce or buy for resale.

As always we appreciate and look forward to your comments.

Posted in Sourcing Safe Foods, Sourcing Safe Products | No Comments »

For Resale procurement professionals, there is a huge recall that you need to be aware of.

March 8th, 2010

If you are a category manager or buyer that procures for resale food products you need to be aware of a potentially massive recall announced by the Food and Drug Administration or FDA.

The Food and Drug Administration  has issued a recall for products containing  the additive  called HVP which stands for hydrolyzed vegetable protein. HVP is an ingredient that is made of soy, corn and wheat and is used in thousands of food products and may be contaminated with Salmonella. Food producers usually buy the ingredient from companies that make the additive. The additive has been found in a variety of products such as soup mixes and salad dressings since the contamination was found but the FDA expects the product list to grow

You can keep track of the products being recalled by going to the following website www.foodsafety.gov  which is designed for easy consumer’s searches.

Please pass this on or share it with anyone you know that buys for resale food products and do all that you can to support databases that offer traceability beyond one forward and one back searches.

We look forward to and appreciate your comments.

Posted in Sourcing Safe Foods, Sourcing Safe Products | No Comments »

Procurement Safety. When is $2,000,000.00 not enough?

March 4th, 2010

The United States Government fined U.S. subsidiaries of the Japanese company Daiso $2M following accusations that they imported led-tainted toys.

This author believes that $2,000,000.00 is not enough when any of our citizens in particular children are put at risk. If you were to ask any parent what the loss or severe illness of a child would be worth, there really is no satisfactory answer.

This author also does not believe the fine is severe enough when there were five separate recalls of (hold your breath) 698 toys and other children’s products. These toys were not expensive which means more people will buy them. The products were sold in California and Washington based Daiso stores and consisted of toys, purses, stuffed animals and other products. I can see a product or a couple of products having a problem, but 698. It appears as though none of the right questions were being asked during the manufacturing process.

Senior management of the company has indicated that they want to make sure that their products are safe. They will have to because they will not be allowed to import any more children’s products until they are proven to be safe. How they plan to do this is unclear at this point. Evidently the Consumer Product Safety Commission will be monitoring the issue.

Clearly $2M is a significant number to most of us. In addition the lost sales on non imported products that were part of the sales plan are a much higher number.

We appreciate and look forward to your comments.

Posted in Sourcing Safe Foods, Sourcing Safe Products | No Comments »

I was browsing the internet the other day and came across a list of product recalls.

March 3rd, 2010

When you first look at this list you might think it covers all recalls for last year. That would after all be a good guess. What if I told you that it included only those products recalled for the month of February this year?

I did not include the names of the retailers, suppliers or other specific data which is formidable. The call to action is that these products impact our children, friends, family, pets, and environment as well as just about everyone we come in contact with. So who is dropping the ball, manufacturers, buyers or maybe even consumers? This author will leave that for each of you to decide but one thing is sure we need to do a better job.

Ask your solution provider how they can help you and if they could trace the origin of any of these products issues.

1. Children’s toys sold at gift and specialty stores nationwide.
2. Wind chime toys
3. Toy guns.
4. Children’s toy jewelry
5. Children’s necklaces
6. Knight Hawk toy helicopters
7. Greeting cards with bracelets sold at card stores and other retailers
8. Discovery Kids lamps
9. Umbrella strollers
10. Drop-side cribs
11. CYBEX strollers
12. Maxi-Cosi Mico infant child restraint systems
13. Dorel  child restraint systems
14. Evenflo First Choice infant child restraint systems
15. Mia Moda infant child restraints and bases
16. Glass water bottles
17. Rechargeable batteries
18. Candle lighters
19. Children’s clothing
20. Hooded nylon jackets
21. Hooded sweatshirts
22. Granola bars
23. Frozen chicken pot pie
24. 24 oz. Party Platter Cookies
25. Red Darla cheese
26. 16 oz. Spinach Vinaigrette
27. Whole Schmaltz Herring
28. Jumbo Shells with Cheese
29. Instant noodle products
30. Dry Apricot food treats
31. Chicken Formula Raw Frozen Diet for dogs and cats
32. Beef and veal products
33. Frozen turkey patty products
34. Ready-to-eat sausage products
35. Frozen cured pork patty mix
36. Pork barbecue products
37. Fresh boneless beef products
38. Ready-to-eat (RTE) varieties of Italian
39. Various tire manufactures have issued recalls on certain tire types.
40. Automobile Recalls

We look forward to and appreciate your comments.

Posted in Sourcing Safe Foods, Sourcing Safe Products | No Comments »

Creative green oriented education for procurement professionals to support your CSR goals.

March 1st, 2010

Most companies today have a variety of Corporate Social Responsibility Initiatives or CSR initiatives in place including educational programs for their associates and trading partners or suppliers as to creative or better ways that they can support these initiatives in their work lives and at home.

Using creativity to support your educational programs can be as easy as visiting good websites that provide thought leadership as to creative courseware that can be used for schools and other organizations. At first some may seem a little basic for corporate America but as you drill into the detail the ideas and themes can be easily applied to general education overviews for your teams. Two interesting websites are.

1. www.edutopia.org
2. www.gogreeninitiative.org

Both of the above websites offer class oriented or field trip oriented initiatives that can be easily modified for adult audiences in order to provide interesting learning segments that support your companies CSR initiatives and programs.

At www.edutopia.org   they have a really neat database that can be searched by going to the following site extension www.eduatopia.org/go-green .  You can filter a variety of searches by grade level such as classes for grades 9-12th. Don’t worry to much about the content level, because most kids at this age know more about living a green life than we do. As such, these curriculums can be easily modified to provide interesting learning segments for all associates.

At www.gogreeninitiative.org  there are lots of interesting factoids that can  be explored and expanded upon such as; “For every ton of paper that is recycled, the following is saved: 7,000 gallons of water; 380 gallons of oil; and enough electricity to power an average house for six months.”  How many off you new that? How many of your store managers know that? When you do a trash hauling e-procurement event is recycling taken into account?

Being creative just takes a little time and research and helps to foster a learning organization and a learning organization is a growing organization.

We look forward to and appreciate your comments.

Posted in Green eProcurement Practices, Procurement Solutions, Retail Supply Chain, Reverse Auction | No Comments »

Retail e-procurement. What about your existing relationships.

February 26th, 2010

A senior retailer recently said to me, “Please allow me to be skeptical” because our supplier relationships are valuable to us.

I could not agree more with the above comment. So beyond just reducing their prices which should not happen if you are being treated fairly, how else do suppliers benefit from participation in e-procurement events such as reverse auctions so that it is win-win?

Customers quite often ask us why suppliers would want to participate in an e-procurement event. A discussion usually follows relative to incumbent suppliers vs. new sources of supply. In general most vendors in the space would come up with many of the same points listed below. Please read on.

SafeSourcing  places a great deal of value in our SafeSourceIt™   Global Retail Supplier Database  which contains over 350,000  retail suppliers located in Mexico, Canada the United States, China, Korea, The United Kingdom, Japan and other countries. We place a great deal of value on each individual supplier regardless of their size. We believe that well thought out next generation e-procurement tools can provide significant benefits to buyers and suppliers whether they are hosting or participating in e-procurement events. 

Some but certainly not all benefits that suppliers can anticipate from SafeSourcing are:
 
1. An easy to use e-procurement tool limited to a single page view where a supplier can be completely comfortable that their company’s best foot is being put forward to the soliciting company.

2. An increase in new business opportunities through engagements they would otherwise not be exposed to.

3. Clean data relative to the soliciting or host company and an accurate listing of their event guidelines, specifications, terms, conditions and other information necessary to build an accurate and successful pricing strategy.

4. High quality training in event participation and strategy development.

5. A clear focus on what’s important beyond price in next generation e-procurement tools such as supplier safety certifications and practices as well as their environmental programs that will differentiate them from other suppliers.

6. Closed loop reporting of results of the specific e-procurement event a supplier participates in as well as a detailed supplier feedback questionnaire..

7. Significant time savings associated with new business development that becomes more and more costly as fuel and other prices continue to rise.

8. Industry pricing trends extrapolated from their view of low quote information during the event if allowed by the soliciting company.

9. Use of these tools for their own procurement needs.

I’m sure many of you can come up with other reasons. E-procurement events have to be win-win if they are going to become part of a retail companies on going business processes.

We look forward to and appreciate your comments.

Posted in E-procurement, E-procurement Tools, E-supply Chain, Global E-procurement, Procurement Outsourcing, Retail Supply Chain, Sourcing Strategy, Strategic Sourcing, Supply Chain Procurement | 1 Comment »

Just what is a collaborative supply chain or for that matter collaboration in general as it applies to procurement.

February 25th, 2010

The fact is that internal collaboration is not happening in many companies and neither is collaborative aggregation.

We often hear the term collaboration or collaborative partners, collaborative supply chains, collaborative commerce or  collaborative networks when we are discussing the supply chain. It rolls of everyone’s tongue like we all know what we are talking about. So this author took a look at Wikipedia hoping to gain some insight and clarity.

 According to Wikipedia, Collaboration is a recursive process where two or more people or organizations work together toward an intersection of common goals, and
An aggregate is a collection of items that are gathered together to form a total quantity.

Since collaboration only means different groups or organizations working together towards the same goal, that term can apply to just about any business function. However when we combine it with the word aggregate to form the collective e- procurement term Collaborative Aggregation which was coined by this author in 2006; we arrive at something potentially meaningful.

Collective buying organizations and sometimes share groups often combine purchasing volumes of like products to drive better discounts. Large companies often aggregate their purchases among departments and are more often today doing the same thing across different operating group’s or companies within a larger organizations to drive economy of scale in purchasing.

The unfortunate truth, is that not much out of the box thinking is going on in this process. We are so involved in the process that we can not see the forest for the trees.

Let’s take a look at a small regional retail chain as an example. They buy their products mostly from wholesalers who are able to aggregate the volumes of many in order to earn enough discounts to pass on reasonable pricing to the retailer that is slightly better than the retailer might earn on their own, and reserve a little for themselves in order to support their business. These products are normally for resale products. In the not for resale area or expenses category such as supplies and services, the regional retailer usually does business with a number of local suppliers. The supplies can include everything from cleaning fluids to paper bags. The supplier normally does good job of managing these products against a number different cost structures to maintain a customer margin that is good for them. As an example if the price of oil is up and the resin market high, the supplier might be making less on plastic products such as plastic shopping bags or t-sacks, soup containers, trash can liners etc. The supplier may however also carry paper products and other supplies that can be mixed together to drive a total customer margin. Retailers can do the same thing. Here’s a partial list of how collaborative aggregation can work.

1. Take a good look at the total list of supplies offered from your primary supplier.
2. Compare that to what you are buying from them.
3. Ask your e-procurement provider for a list of suppliers within a 50 mile radius that can provide the same products or some of the same products.
4. Look at local businesses within a five mile radius of your area that are not in your industry but buy some of the same products such as trash can liners, cleaning fluids, paper products etc.
5. Call them and explain how collaborating might save you both money.
6. Ask for the name of their supplier as they might be different from yours.
7. Determine a test group of products to request bids on.

Safesourcing has a best practices program for this type of collaborative aggregation that is included in our event fees. For a complete list or more information please contact us at www.safesourcing.com.

We appreciate and look forward to your comments

Posted in B2b Supply Chain, Procurement Company, Retail Supply Chain, Sourcing Strategy, Strategic Sourcing, Supply Chain Procurement | No Comments »

Here are some e-procurement produce and perishable replenishment thoughts and principles for retail buyers.

February 24th, 2010

You already have a lot to think about. You’ve been buying from the same people for years, so you know your product is clean and safe. Ok, that’s your first mistake.

Retail procurement professionals need to be aware of more than just pricing when buying produce and other perishable products with electronic tools. Sometimes we spend to much time watching indices and being concerned about price when there are other issues that can quite frankly be overlooked and impact the quality and safety of what our consumers expect in their produce and other perishable purchases.

There are literally dozens of pesticides sprayed on produce and also many fertilizing techniques used that this blogger is sure none of your consumers are aware of. So who is the watchdog for the products that your buy. The answer is you. There are organizations out there that watch globally like the Environmental Working Group (EWG). But we already know you don’t have time for that.

If you have never been to a farm that grows the products you are buying or visited a packaging facility you need to. So when you set up your e-procurement event for produce and other perishables here are some things to be thinking about daily in your specifications. Don’t make the mistake of just running your events daily without constantly reviewing and adjusting more than quantity and price.

Here are some top of mind items you should be thinking about.

1. Who grew it
2. Who picked it
3. Who packed it
4. When and where was it picked
5. When and where was it packed
6. Was it fertilized with petroleum based products
7. Was it fertilized with semi solid leftovers
8. What  synthetic pest controls were used
9. Local versus not local
10. Organics versus non organics
11. What price index should I use
12. How is it being shipped
13. Certifications
14. Grass –fed
15. Pastured

We look forward to and appreciate your comments.

Posted in E-procurement Tools, Green eProcurement Practices, Retail Supply Chain, Sourcing Safe Foods, Sourcing Safe Products | No Comments »

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