Archive for June, 2008

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

What’s your risk associated with the sale of tainted food? Who’s Culpable?

Monday, June 16th, 2008

Beyond the obvious social costs associated with responsibility and culpability in the sale and consumption of tainted foods, the potential for huge litigation costs can put your company at risk for years after an incident actually happened.

I was reading the Sunday June 15th 2008 issue of The Arizona Republic and found a short article in the week in review section titled Girl’s tainted-food death brings $13 mil settlement. This unfortunate incident actually occurred eight years ago at a Sizzler restaurant. The settlement was with the company’s meat supplier and others according to court records. Evidently, Brianna Kriefall did not even eat meat. She actually ate watermelon that had touched the tainted meat and passed away a week later. Additionally, one hundred and forty other people became ill from the outbreak in two sizzlers.

Today there is still a lawsuit ongoing where the national Sizzler chain and an insurance company are suing Excel Corporation a meat producer that is a subsidiary of Cargill Inc.

Beyond the settlement listed the actual legal and other expenses associated with this case may never be known, but with retail industry net profit averaging about 3.4% you can bet the impact on earnings to be significant for some CEO.

It is important to know where your products come from with a clear trail to the original source of supply, and what your suppliers are doing in the way of certifications such as GFSI and SQF to insure the quality of the food chain for retailers and their consumers.

I look forward to your comments.

Ron

What?s your risk associated with the sale of tainted food? Who?s Culpable?

Monday, June 16th, 2008

Beyond the obvious social costs associated with responsibility and culpability in the sale and consumption of tainted foods, the potential for huge litigation costs can put your company at risk for years after an incident actually happened.

I was reading the Sunday June 15th 2008 issue of The Arizona Republic and found a short article in the week in review section titled Girl?s tainted-food death brings $13 mil settlement. This unfortunate incident actually occurred eight years ago at a Sizzler restaurant. The settlement was with the company?s meat supplier and others according to court records. Evidently, Brianna Kriefall did not even eat meat. She actually ate watermelon that had touched the tainted meat and passed away a week later. Additionally, one hundred and forty other people became ill from the outbreak in two sizzlers.

Today there is still a lawsuit ongoing where the national Sizzler chain and an insurance company are suing Excel Corporation a meat producer that is a subsidiary of Cargill Inc.

Beyond the settlement listed the actual legal and other expenses associated with this case may never be known, but with retail industry net profit averaging about 3.4% you can bet the impact on earnings to be significant for some CEO.

It is important to know where your products come from with a clear trail to the original source of supply, and what your suppliers are doing in the way of certifications such as GFSI and SQF to insure the quality of the food chain for retailers and their consumers.

I look forward to your comments.

Ron

When the people Speak. Koreans seek safety.

Friday, June 13th, 2008

Sometimes when I speak about safety in the supply chain, or environmental controls that suppliers and retailers adhere to, that far away look enters peoples eyes as if to say I don?t have time for this. We?ve had scares in the United States this year with beef, chicken, lead in toys, mercury in frog legs, heparin, baby seats, Honduran melons, tomatoes, frozen pot pies, play seats, mini NASCAR helmets, and more.

What concerns me most is there seems to be no outrage. At least no where near the outrage there seems to be relative to the increase in fuel costs?

This does not seem to be the same when other countries look at our export programs. As an example, over eighty thousand South Koreans held a vigil on the street leading to the U.S. Embassy protesting their governments program with the U.S. relative to the safety of U.S. beef imports and U.S. standards for combating mad cow disease.

In a world where so much is beyond our control, one thing we can control is what we eat. Is it to much to ask that it be safe? I?m not sure either one of our presidential candidates would even have a platform issue related to food safety. I?m sure they have an opinion. If a similar percentage of Americans were to assemble in Washington to protest the same issue, we would be viewing a half million people on the nightly news.

Relative to food safety, we need more tools that make it easy for retailers and suppliers to view safety standards for the products they buy and less process and politics to complicate the issue of food safety.

I look forward to your comments.

Ron

It was the best of times, it was the worst of times.

Thursday, June 12th, 2008

This is the opening sentence of A Tale of Two Cities by Charles Dickens. As regards our subject matter, it is the best of times for retailers to run Reverse Auction e-procurement events.

Prices continue to rise across the board. Groceries climb each week, if not each day. Gas prices are ridiculous and causing companies to take unique approaches to retaining their employees. One employer recently measured the cost of hiring and training replacements versus reimbursing existing employees for their gas purchases above $2.57 per gallon, and decided on the later. But, that?s off the subject.

All companies in good times and in bad do what they can to contain or lower their costs. This happens on the expense line and on the cost of sales or cost of goods line. Which can have the most impact is a constant debate. I personally have always supported attacking the cost of goods line as it represents pre gross margin spending against the largest expense category. During challenging economic times like today, it may even be a better time to use reverse auction tools to procure your goods and supplies. Smaller companies that may not have willingly competed for your business in the past based solely on their size may in fact be very aggressive and willing to accept lower margins, zero margins, or negative margins just to help their cash flow. This is generally not the case in a good economy. Obviously your incumbent supplier?s don?t want to lose your business and will be aggressive in order to keep it. This is the formula for a successful reverse auction.

Supporting this philosophy has to be the fact that you have a robust source of suppliers in order to drive participant count. Tools that provide this data are available on a short term subscription basis and easy to use.

Unfortunately many retailers do not use these tools or are unaware of them, or only use them for a limited portion of their total spend. This is not the case outside of retail where up to 80% of spend is targeted using these type of tools.

It?s a great time for retailers to use reverse auctions.

I look forward to your comments.

Ron

What are best practices? And, why should we care?

Wednesday, June 11th, 2008

According to Wikpedia a best practice asserts that there is a technique, method, process, activity, incentive or reward that is more effective at delivering a particular outcome than any other technique, method, process, etc.
So when a company indicates to you that they use best practices, does this mean they are supporting what is the best practice for the entire industry they serve such as e- procurement. Or does it mean they are the best practices for just their product family?
I don?t believe that best practice is just following a standard way of doing things that can be carried out by multiple organizations. A best practice is a life long process that must evolve over time as tools, businesses, and existing processes change.
If one uses best practices, should not the result be an ideal state that a person or an organization set out to achieve in the first place. In fact if the process used is actually a best practice shouldn?t all of a companies customers use the same process. I?m not sure that this is ever a question one asks when looking for a referral about a companies service offerings. Please tell me about these companies? best practices. Are they consistent and carried out each and every time to the desired result.
One way to ensure good quality results is to provide templates that can be used over and over again and are evaluated at the completion of each practice and changed when need be. This then requires passage to other customers in order to insure the integrity of the process. This elevates the actual process beyond just a buzzword and moves a particular process in the direction of becoming a best practice that drives similar results on a consistent basis.
I will continue to call our services offerings high quality process techniques focused on continuous improvement that deliver anticipated results. Our customers, supplier participants and business partners will determine if they are best practices for them.
I look forward to your comments.
Ron

I say Tomato, you say Tomahto. I ate some last night!

Tuesday, June 10th, 2008

I guess I just have to sit and wait and hope nothing happens. I did not keep up with the spread of the tomato outbreak. The list I read was for the states that you could eat tomatoes from. I thought it was for the sates you could not eat them from and not seeing Arizona I went ahead and had a nice garden fresh salad with tomatoes.

I?m sure this problem won?t hurt the economy the way that rising oil prices do. It probably won?t have a huge blip on a retailer?s bottom line although whatever sales there were are gone for good and normal sales will probably take a while to recover.

The FDA has said it is safe to eat cherry tomatoes, grape tomatoes, and tomatoes sold with a vine still attached. I bet you?ll think twice though before you buy any tomatoes.

Albertsons, McDonald?s, Wal-Mart, Burger King, Outback Steakhouse, and Taco Bell among others have halted sales of raw tomatoes

As of this morning there were up to 145 reported cases and 23 hospitalizations associated with this recall. The culprit is Salmonellosis which in healthy people can cause fever, diarrhea, nausea, vomiting and stomach pain.

According to and FDA spokesman you?ll have 2-3 days of discomfort if you are a healthy individual. Children, elderly and people with weakened immune systems may suffer more.

Taking the precaution of boiling your tomatoes for 15 seconds prior to eating them may make them safe. That?s if you can find any for sale and like stewed tomatoes in your salad.

Most retailers believe that they are buying safe products for their consumers. The question is when the FDA determines where the problem products came from and what caused it in the first place will the inforamtion be made available to retailers and what will the accountability be. After all 145 people sick only represents 3,480 work hours lost for now.

Tonight I think I?ll have some fresh fruit.

I look forward to your comments.

Ron

Category Savings. What’s the question?

Monday, June 9th, 2008

I have had many retailers ask me the question, what are some examples of category savings we might expect when running e-procurement events? The answer is that it depends on who you are asking and what you actually are measuring. There are probably at least a dozen websites that speak to category savings. Each discusses different numbers. The reason the answer depends on who you ask is that to begin with every company defines categories differently. An example might be bottled water. Is bottled water really a category or is it a sub category of beverages which is a sub category of grocery. So, the first question that needs to be answered is…are you looking for true category savings or are you looking for specific product savings The next question one might ask is, are you asking for actual realized savings or are you asking for savings that are hi-lited at the end of an e-procurement even?. If you are asking for true realized savings, there are a multitude issues that need to be discussed. If the successful supplier is your incumbent, then the savings may actually be closer to those viewed during the e-procurement event; however, reality indicates that a large number of incumbents do not end up as the low quote. If the supplier is not the incumbent, there are actually quite a few elements that result in true savings that have to be considered. By in large, they can be included in a category called switching costs. To begin with the supplier that you may have just awarded business to may not be an authorized vendor in your data base. As such, the IT department and or the finance department are needed to add them to your database. A new contract may also be required with a company that you have not done business with before. This requires the involvement of your legal department and may, in fact, add delays to the process that require you to order additional product from your existing supplier at potentially higher prices than awarded during the e-procurement event. If products are being delivered to a distribution center, slotting requirements are needed and pick lists require updating in order for the product to be available when ordered by individual store locations.

Now, let’s go back to the actual e-procurement event for a minute. At the end of the e-procurement event when business was awarded were the savings the same as displayed during the event? Did the e-procurement event just provide you with high level savings made up of all low quotes; or, if business was awarded to multiple suppliers ,were savings calculated in that manner? Were funds, if included in the winning bid, included in the savings and treated the same way that your company treats them from an accounting perspective? Are pre-event historical savings a result of how companies awarded business; or are you being quoted a historical average of all low quotes run through a system even though business was not actually awarded that way and savings may not have been realized?

So, what can you expect for category savings in an e-procurement event? The answer is it depends.

I look forward to your comments.

Ron

Category Savings. What?s the question?

Monday, June 9th, 2008

I have had many retailers ask me the question, what are some examples of category savings we might expect when running e-procurement events? The answer is that it depends on who you are asking and what you actually are measuring. There are probably at least a dozen websites that speak to category savings. Each discusses different numbers. The reason the answer depends on who you ask is that to begin with every company defines categories differently. An example might be bottled water. Is bottled water really a category or is it a sub category of beverages which is a sub category of grocery. So, the first question that needs to be answered is?are you looking for true category savings or are you looking for specific product savings The next question one might ask is, are you asking for actual realized savings or are you asking for savings that are hi-lited at the end of an e-procurement even?. If you are asking for true realized savings, there are a multitude issues that need to be discussed. If the successful supplier is your incumbent, then the savings may actually be closer to those viewed during the e-procurement event; however, reality indicates that a large number of incumbents do not end up as the low quote. If the supplier is not the incumbent, there are actually quite a few elements that result in true savings that have to be considered. By in large, they can be included in a category called switching costs. To begin with the supplier that you may have just awarded business to may not be an authorized vendor in your data base. As such, the IT department and or the finance department are needed to add them to your database. A new contract may also be required with a company that you have not done business with before. This requires the involvement of your legal department and may, in fact, add delays to the process that require you to order additional product from your existing supplier at potentially higher prices than awarded during the e-procurement event. If products are being delivered to a distribution center, slotting requirements are needed and pick lists require updating in order for the product to be available when ordered by individual store locations.

Now, let?s go back to the actual e-procurement event for a minute. At the end of the e-procurement event when business was awarded were the savings the same as displayed during the event? Did the e-procurement event just provide you with high level savings made up of all low quotes; or, if business was awarded to multiple suppliers ,were savings calculated in that manner? Were funds, if included in the winning bid, included in the savings and treated the same way that your company treats them from an accounting perspective? Are pre-event historical savings a result of how companies awarded business; or are you being quoted a historical average of all low quotes run through a system even though business was not actually awarded that way and savings may not have been realized?

So, what can you expect for category savings in an e-procurement event? The answer is it depends.

I look forward to your comments.

Ron

The Greening of the Supply Chain: Mind your Three P’s.

Friday, June 6th, 2008

The Greening of the Supply Chain: Mind your Three P’s.

What does it mean to go Green? I was reading the Aberdeen white paper Building a Green Supply Chain from March of this year and believe they may in a concise format have the best glossary of definitions as to the meaning of and impact on what it means to be Green. Their short but effective green glossary defines the following terms.

1. Corporate Social Responsibility (CSR) posits that companies have a responsibility to be social and environmental stewards and that having a positive impact on society and the planet is as important as profit.
2. Green refers to practices, processes and products that have a minimal impact on the health of the ecosystem. The emphasis is on non hazardous recyclable, reusable, and energy efficient products and processes.
3. Sustainability ensures the ability to meet present needs and profits, today, without compromising the ability to meet them tomorrow.
4. Triple Bottom Line (TBL) determines that business has positive impacts on the three P’s: people, profit and planet and is a standard framework for CSR agendas.

It might be interesting to ask CEO’s around the country if they agree with these definitions. Many probably do. The answer would however be a good indicator of a company’s commitment to being Green and not just caught up in green wash.

Yesterday Wal-Mart and Costco announced better than expected results for their past quarter and the stock market was delighted. What if their results had not been as good and same store sales were flat? But concurrently the companies offered guidance of the significant and positive impact they are having on the evolution of a green supply chain. Would Wall Street have reacted in the same way? Personally I think it highly unlikely.

The great news is that every day more and more emphasis is being placed on this subject by companies of all sizes.

I look forward to your comments.

Ron