Archive for June, 2008

Should I buy on demand software (SaaS) for my e-procurement needs?

Monday, June 30th, 2008

On demand software or SaaS (Software as a Service) by its nature is an internet based application and as such is accessible from wherever you happen to be as long as you have a network connection. With today’s broad band offerings that literally means anywhere. So the first rule of thumb is that it provides easy access. In addition, since most of the newest versions of SaaS applications are native web based applications, they integrate very nicely with most office infrastructures. With Microsoft being the most deployed environment, data is easily exported or imported to formats that comply with their standards. In many cases these tools can also be made 100% available to you within days of contract signature

Most of us have horror stories about when our PC, Network, Application etc. went down and we were not able to complete tasks at work. When we call our internal service department, the response is normally less than what we would like or hurry up and wait. With a hosted software application, it is the responsibility of the SaaS provider to maintain the application. They know up front that if they don’t do a superior job of support and availability, that you the customer can go somewhere else to find a provider that will. This is not the case with internally installed corporate applications.

Your data at a SaaS provider is also often more secured than the data at your corporate office. Since this is the core business of a SaaS provider, the architecture of the application normally has multiple levels of redundancy, failover recovery and is backed up regularly.

Typically, SaaS applications are easier to change than traditionally installed corporate applications. There are not as many feature upgrade charges with every point release in a SaaS environment because the provider needs to provide these features to continue to attract new customers and to keep up with the pace of the industry.

Finally, the total cost of ownership is much quicker in a SaaS environment than traditional application software installations. Often as much as 100% faster. In fact there are many stories of breakeven ROI’s with your first series of e-procurement events. The biggest question you have to ask of your future provider is are you a true SaaS environment with the newest technologies available or are you a reengineered ASP provider. I’ll comment more on that later.

I look forward to your comments

Ron

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There are all types of Reverse Auctions. What is a Reserve Price Reverse Auction?

Friday, June 27th, 2008

In a reserve price reverse auction, the buyer establishes a “reserve price”, the maximum amount the buyer will pay for the goods or services being auctioned. This is also sometimes called the desired price, or a qualification price. Careful thought is required on the part of the retailer in determining their reserve price. I personally have seen retailers try to just use their existing price from their last contract. This type of practice may set unreasonable expectations, particularly if the market has changed dramatically in an upward direction since the last award of business. In today’s market, fuel would be a great example of something that you would not set a reserve price based on a previous contract if you wanted incumbent or new suppliers to take you seriously.

Traditionally, if the bidding does not reach the “reserve price”, the buyer is not obligated to award the business based on the results of the reverse auction. However once the reserve price is met, the buyer is obligated to award the business to a participating supplier or group suppliers based on previously published auction rules.

Additional pricing considerations can be given to adding other price points or qualifiers in a reserve price reverse auction such as entering a market price. In the case of fuel, this may be from a price index such as OPIS. This information can be visible or blind to the supplier, but let’s the retailer compare a suppliers mark up strategies. This also offers a nice opportunity to calculate cost avoidance during an up market.

I look forward to your comments

Ron

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Supplier selection! This may be the most important decision you make.

Thursday, June 26th, 2008

A question I often hear from retailers, is how many suppliers do you have in your North American supplier database? I sometimes want to blurt out a response that is number oriented because ours is the largest and most diverse. However I end up holding myself back in order to better understand the question that is really being asked. The discussion normally evolves along the line of quality and what data you have available in the database in order to make high quality supplier selections. Although reduction in cost may in fact be the ultimate goal, it in fact may not be the end point after the necessary due diligence required to pick the right supplier or suppliers.

Developing a plan that addresses the often conflicting objectives during your decision-making process and identifying the optimal list of suppliers requires significant amount of data in order to mitigate log term risk. Measuring your supply chain partners on cost only may cause you to miss many of the non-financial aspects that are so important such as:

1. Customer references
2. Product quality
3. Flexibility
4. Terms
5. Funds
6. Distribution
7. Responsiveness
8. Safety Focus
9. Eco Focus
10. Collaboration practices
11. Aggregated category opportunities
12. Experience

The risk of a new supplier performing poorly can negate any savings gained from direct product cost reductions. Driving sustainability in supplier improvement is one key to minimizing these potential risks within your company’s supplier base.

How your e-procurement partner addresses these questions is also key.

I look forward to your comments.

Ron

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Food Safety for Retailers! How the right e-procurement tools can help.

Wednesday, June 25th, 2008

On the front page of USA TODAY, under the USA TODAY Snapshots® section titled Food Safety Fears. The question posed was. Compared with five years ago, are you more concerned about the food you eat. Of one thousand one hundred ten (1,110) consumers surveyed by Deloitte on April 21st of this year, 76% answered yes and only 24% answered no.

Obviously this does not give those purchasing consumables for their customer base a lot of faith in their ability to procure safe products, suppliers to deliver safe products, or farms and manufacturers to produce safe products. I know almost two years later, I continue to look at the manufacturer’s information when I buy food for my dog.

So what can be done to improve the situation? To begin with, picking the correct sourcing partner for you re-procurement needs is essential. Understanding their commitment to food safety is a good first step. Asking questions like; how do you insure that the suppliers you provide me with for inclusion in e-procurement events will deliver safe products? The answer is not as simple as just saying we or they support GFSI, SQF or other safe food initiatives. The answer should be that as a vendor they have an enormous supplier database to choose from that is easily searchable by the retailer. Additionally, all suppliers, brokers, manufacturers and others should be held accountable to a variety of safe food standards. This is only the first step in supplier selection, but an important one. The next step should be ranking suppliers based on the safety standards they adhere to versus what the industry considers to be best practice implementation. Additionally an e-procurement partner should be able to provide easy access to industry safety updates and alerts on a daily basis and consistent growth to the database, based on new information as it becomes available such as suppliers that have failed inspections or had other types of violations.

The final step should be; Show me! If they can not, you might consider what the 76% of your customers that are concerned about food safety would think if asked to rate the importance of this data in sourcing food they consume.

I look forward to your comments.

Ron

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What is SQF and how do you implement it?

Tuesday, June 24th, 2008

The SQF (Safe Quality Food) Program is a leading, global food safety and quality certification program and management system designed to meet the needs of buyers and suppliers worldwide. There are two sections of SQF. SQF 1000 is targeted at primary producers and SQF 2000 is targeted at manufacturers and distributors. More detailed inforamtion can be found at www.sqf.com. Schools are held regularly around the country for both groups and detailed information about these schools can also be found at www.fmi.org under the calendar section.
There are ten basic steps to implementing an SQF Program. These steps are taken from the SQF manual.
1. The Buyer requests the desired level of certification to be achieved by the supplier.
2. The Supplier designates a staff member as its SQF Practitioner to lead development of its SQF System, or hires an external SQF Consultant licensed by The SQF Institute.
3. The SQF Practitioner is trained at a licensed SQF Training Center.
4. The SQF Practitioner conducts a gap analysis of the supplier’s current system.
5. The Supplier selects an SQF licensed Certification Body to perform a certification audit.
6. A Certification Audit is conducted consisting of a document review and on-site audit.
7. An Auditor recommends certification if no critical or major non-conformities are found and the audit result indicates an acceptable rating.
8. The Certification Body Review Council makes the final decision and the SQF Certificate and audit report are issued. The SQF Certificate is valid for 12 months.
9. If critical or major non-conformities are found, the supplier takes corrective action, which is verified before certification is granted.
10. Re-certification audits are conducted annually and within 30 days of the scheduled audit date. Audit frequency can be either annual, semi annual or more frequent depending on the type of certificate issued and the risk level.
I look forward to your comments.
Ron

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Why high quality e-procurement programs require officer level sponsorship and support!

Monday, June 23rd, 2008

According to a variety of sources, the role of e- procurement continues to become more and more strategic each year. Driving cost of goods and services control is one of the most important above the line initiatives a company can undertake. Given the dramatic financial impact driven by these types of tools and the potential positive impact on earnings these initiatives should have the visisibility and oversight of senior executives.

Experience indicates that in order to successfully implement an enterprise wide e-procurement initiative, executive management must provide sponsorship and visibly promote these projects within their organizations. Executive sponsorship is required by the Chief Executive Officer, Chief Financial Officer, Chief Procurement Officer or Chief Logistics Officer. The potential impact to earnings regardless of Industry vertical are so significant with a properly deployed e-procurement program that officer level executives require visibility based on the impact to stockholders and stakeholders alike. In fact Sarbanes-Oxley section 404 requires that companies 1. Demonstrate reasonable & consistent governance & compliance monitoring. 2. Assure proper use of tools that have been placed into practice. 3. Employ proper reporting & management oversight. Implementing e-procurement tools has the potential to offer significant earnings changes.

Once executive management has sponsored these initiatives, some form of accountability must be implemented to ensure maximum participation in order fully realize organization wide savings opportunities. A company’s successful transition to e-procurement requires a transition from a cumbersome paper RFX processes to one that focuses on using the speed and efficiency of an electronic forum. Successful change management professionals focused on sustainability realize that this shift must be a combination of the use of not only the latest software advances, but also reengineering of internal processes in order to drive sustainable results.

I look forward to your comments

Ron

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Supplier Open Communication. A key to high quality e-procurement events.

Friday, June 20th, 2008

Last night while flying to meet a customer the passenger in the seat next to me asked what I was reading. We’ve all known for a while that our seat partners look over our shoulders to see who we are and what we do. I told him I was reading an Aberdeen business brief and who and what they do. I went on to explain that I owned my own company and that it was focused on e-procurement tools for the retail supply chain. He introduced him self as a private business owner with his two brothers and that he had experience biding in reverse auctions with Ariba and Free Markets.

We initially discussed SafeSourcing offerings and ultimately came around to what made events successful for him in the past as a supplier and what would encourage them to participate again even if they did not happen to be the low bidder in a particular event. His take was that this was initially an educational process for their company and ultimately would become a way to do old things in a new way, but suggested the following. Openly communicate with the supplier and make sure they understand everything and are comfortable with it. Make sure they have no questions.

Here although not all inclusive is a list of sample questions one might consider when inviting a supplier as a new participant. Does the supplier understand that there is no cost to them to participate?

1. Does the supplier understand that there is no cost to them to participate?
2. Do they understand they will be trained at know charge?
3. Do they understand event timing and requirements?
4. Does the supplier understand the terms being used and how they apply to a reverse auction event such as?
5. Reserve Price
6. Proxy Volumes
7. Low Quote
8. Proxy quote
9. Funds
10.Terms
12.Notes
13.Extensions
14.Stand by
15.Matching quotes
16.Event rules
17.Product specifications
18.Samples

At the heart of it, it comes down to something we all know but don’t always practice and as such negatively impacts the sustainability of processes that just make good sense.

I look forward to your comments.

Ron

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Lou Dobbs Survey. Salmonella Outbreak Survey.

Thursday, June 19th, 2008

I was reading USA TODAY’s June 18th edition and the title of the cover story in the Money section is How modern science and old fashioned detective work cracked the Salmonella case. Page two’s continuation title is Fast Action, great teamwork nabbed the culprit.

As I went on to read the rest of the article I was dismayed that from the 10th of April when the first case was reported to June 16th when the CDC reported that 277 people were infected with the same strain called saintpaul was called fast and successful. As of today the count is now 319 people. That’s a 15% increase in two days.

The Lou Dobbs Tonight survey asked whether or not we believe that the FDA knows the source of the outbreak and is just not telling us. There was some conversation as to whether the outbreak may in fact be farms in Mexico. According to the FDA they don’t know where the farms are in Mexico. Mr. Dobbs suggested looking at tomato farms.

As you know, my company SafeSourcing Inc. developed the SafeSourceIt™ North American Retail Supplier Database with over 150,000 retail suppliers. I asked a simple query of the database while sitting in the airport; in less than 2 minutes I determined that there are eight retail produce companies in Mexico. Of those, one supplies fruits and nuts. The other seven have phone numbers and addresses. It might be some where to start. Knowing your source of supply and their source of supply is no longer a nice to know, it is a half to know. Consumers demand it.

The Lou Dobbs tonight survey just came in. Ninety Five Percent (95%) of respondents believe the FDA already knows the source of the outbreak and just won’t tell us.

Last night we grilled hamburgers and my wife sliced some fresh tomatoes that still had vines attached. I still won’t eat them and that was a very quick decision on my part.

I look forward to your comments.

Ron

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“Eat here and get gas” Let’s get creative with e-procurement tools.

Wednesday, June 18th, 2008

The above quote was on a sign at a small restaurant/gas station in New Hampshire in the 1960’s and the play on words and the imagery it evokes also caused it to appear in Readers Digest.

As a kid, my family used to pass it every time we went to Lake Winnipesaukee during summer vacation. Obviously my parents would ultimately tell us all to settle down once we began playing sick and other shenanigans.

Maybe the way that signage caused us to be creative can serve to inspire us as we all continue to be sickened by the price of oil and the resulting cost of a gallon of gas today. I can’t imagine what one of those trips would have cost back in the 1960’s at today’s gas prices. It was 360 miles round trip so being fair and assuming my dad’s station wagon got 15 miles per gallon that would be twenty four gallons at $4.20 per gallon or slightly over $100.00. We most likely would have been staying home. I’m sure my dads company would not have given him a raise to make things more affordable.

How can we use e-procurement tools today to make high gas prices more palatable to employees? Let’s assume that a company we’ll call Friendly to Employees Inc. were to conduct a survey of their one hundred employees as to how much gas they used each week to get to work. Resulting survey data indicted that the average commute was 60 miles round trip for a total of 30,000 miles per week for the one hundred associates. If we assume twenty miles per gallon as an average, that translate into 1,500 gallons per week or 78,000 gallons per year. This would represent $319,800.00 in total annual expense. At gas industry or fuel stop gross margins of 15% that would represent $47,970 in new margin if all of the business went to location. Not to mention sales opportunities on additional convenience items carried in most fuel stops today.

So, now the company owner selects 4 or 5 independent fuel stops in the area and indicates that the company will guarantee incremental fuel sales on 78,000 gallons per year and that there will be a reverse auction to lock in the price. They just have to agree to participate. If the company decided to eat this cost, it would represent about a 3% hit to payroll. This is less than the average salary increases budgeted for most companies. Can you image the associate satisfaction, improved moral, reduced turnover and probably even a tick up in productivity if this program were announced today at a company meeting.

Obviously, there are more details involved with an idea like this.

I look forward to your opinions.

Ron

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Collaboration. What appears to be common sense obviously is not.

Tuesday, June 17th, 2008

Did you ever hear the old saying if sense were common everyone would have it? Well obviously in the procurement space internal collaboration would only seem to make common sense, but according to an Aberdeen Research Brief from April of 2008 titled Print and the (Collaborative) Revolution, that’s not always the case.

Collaboration with other internal departments is very critical for successful procurement strategies as it puts more spend available to suppliers resulting in potentially greater savings. Additionally, continuous process improvement strategies or sustainment initiatives may add additional savings that are commonly neglected in procurement ROI’s. According to Aberdeen, companies that collaborate save an average of 42% more than companies that do not.

Although this brief refers to the print category specifically, the process offered can easily be applied to all categories and for those companies that are creative, to the same categories at non competing companies. A huge opportunity in the retail space is for smaller companies to combine their purchase volumes in order to drive higher savings. This same process has been used for years buy wholesalers and collective buyers that buy in volume from manufacturers, store the products, and ship on demand to the retailers they support. The question this begs is; do these volume based savings always make it to the independent retailer?

An example might be in the area of supplies. The category might be plastic or paper bags or both. All companies use them, and often they are of different quality. A potential scenario might be that Company “A” a 10 store independent, and company “B” a 5 store independent whose market areas do not overlap combine their purchases. This offers a larger volume to suppliers that may not have considered the geographic area of one or the other of these companies. Additional work may be done by your e-procurement provider to find suppliers that can source both paper and plastic bags. This may not have been considered in the past, and may offer another opportunity for increased savings based on the combined higher volumes.

Under certain market conditions it may not be possible for both companies to save significantly. In fact the benefit may end up being a better product for the same price, which can increase customer satisfaction and retention.

Make sure your e-procurement provider offers tools that allow for aggregating purchase and collaborating internally and externally. Also make sure they have an adequate source of supply and can search it by category to enable these types of events. You may find a few dollars in savings that were not available to you in the past.

I look forward to your comments.

Ron

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