Archive for September, 2008

Sometimes the best ideas come from our kids, even when they are grown. Hopefully we listen.

Tuesday, September 30th, 2008

Can the use of reverse auctions help the economic bailout package?

My daughter Meridith emailed me the other day. She is in sales and like her dad does a lot of reading to keep up with issues and trends. This of course makes me proud. Her email was related to how reverse auctions might help the economic bailout package and in fact the economy. Partial content from her email is below.

Hi Dad, I was reading an article in the New York Times and part of it caught my attention because it related to your business. The portion of the article is listed below:

The government would buy the troubled investments with the intention of eventually selling them back to the market when prices recover. The Treasury has suggested it might conduct reverse auctions to determine the price for securities that are not trading in the market. Unlike in a traditional auction in which would-be buyers submit bids to the seller, in a reverse auction the buyer solicits bids from would-be sellers. Often, the buyer agrees to pay the second-highest bid submitted to encourage sellers to compete by lowering their bids for all the assets submitted. The buyer often also sets a reserve price and refuses to pay any more than that price. This author believes this may actually be more of a forward auction, but the point is still good.

In fact reverse auctions have even become a diplomatic tool. The U.S. State Department found a tactful solution to purchasing commercial products and technology without alienating vendors or paying top dollar. “Reverse auctions in general have saved us millions of dollars,” a State Department spokesman said. “That doesn’t even touch the fact that we haven’t had to increase procurement staffing in a long time.”

As part of my regular reading, I enjoy Jason Busch’s Spend Matters blog. Shortly after receiving my daughters email Jason posted the following related blog. Treasurys-700-Billion-Sourcing-Challenge–Is-it-Reverse-Auction-Time? Jason’s lead sentence in this post is as follows. “Quick, what’s the best potential marketing plug for reverse auctions and related strategic sourcing approaches in the relatively young history of the strategic sourcing process?”

Let’s assume that the $700 billion were for retail products and historical savings using reverse auctions were greater than fifteen percent, which they are. Let’s assume that the government was only able to earn half of that amount or seven and a half percent. The earnings would equal $52.5B. That’s a pretty good ROIC or return on invested capital. It would certainly go a long way toward turning the bitter lemons of this situation into more palatable lemonade down the road.

Thanks for the email Meri.

We look forward to your comments.

Part II. How retailers can use a common sense process to support the building of a safe supply chain.

Monday, September 29th, 2008

In Fridays SafeSourcing blog post “Traceability also requires sensibility if you want a safe supply chain” I promised to discuss today what solution providers in the procurement space can do and the best practices that can be implemented to protect retailers during the procurement process and their consumers as a byproduct .

Building a traceable supply chain takes time as we discussed on Friday. In the meantime there are things that retailers can do to hold suppliers accountable to safety standards that are already in place. This would be even simpler if it were part and parcel of customer support service packages offered tangent to e-procurement programs. As this author has often indicated the first clear step is to have a robust base of suppliers available to create a sustainable e-procurement process in the first place. Once retailers have ascertained that this data is available from their vendor, the next logical step would be to discuss the Request For Information process that suppliers are held accountable to as part of this service and the supporting documentation they should be required to provide in order to insure compliance with the Request For Information. It would be nice if this were elemental to the data already included in the supplier database discussed previously.

Basic questions to the potential supplier candidates will differ based on the type of product or service being purchased. By example, construction questioning may include LEED certification discovery. Food products depending on source of origin questioning may include discovery relative to SQF compliance, GFSI compliance or ISO 22000 compliance. Questions obviously would seek detail as to the level of compliance and the number of individuals who may hold certification within the company as well as how many additional associates will be certified on a go forward basis. This type of questioning eliminates green washing relative to environmental or green certifications and safe washing relative to safety certifications. Follow on questioning should discuss the practical application of standards within an organization and the process followed to maintain compliance once certified. A final step in the RFI process would be to collect and store electronically copies of the certifications and standards suppliers profess to comply with as backup to the questioning process. A final step prior to providing a list of candidates for buyer review and signoff would be to provide scorecards of the supplier candidates ranking them relative to your safety and environmental procurement goals. This is not to suggest that you might not use a supplier without all certifications in place, but it will allow you to make an educated selection and mitigate risk going forward.

Ask your vendor if this type of data is stored in their database and what design plans they have for adding detailed source of origin information such as seed source for produce products in the near term that support even deeper levels of traceability. This author believes this to be a common sense approach.

We look forward to your comments.

Traceability also requires sensibility if you want a safe supply chain.

Friday, September 26th, 2008

When the FDA talks about traceability and refers to one back one forward, what are they referring to? Does it 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.

So 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 recent blog tiled It Could Happen Here, this author discussed the fact that what is happening in China where 13,000 babies are still hospitalized and over 53,000 babies affected could happen here. Just today we hear that in fact Chinese candy in the United States contains melamine. What other products contain this or other carcinogens that should not be consumed and how can retailers control the introduction of such ingredients in the products they buy for resale.

On Monday I will discuss what solution providers in the procurement space can do and the best practices that can be implemented to protect retailers during the procurement process and their consumers as a byproduct.

We look forward to your comments.

What’s on your procurement tool belt? Is it wizardry, can you slay your procurement dragon alone?

Thursday, September 25th, 2008

According to Wikipedia a tool is a device used to help accomplish tasks; it serves as a means to an end.

Wictioanry refers to a belt as a band worn around the waist to hold clothing to one’s body usually pants, hold weapons such as a gun or sword or serve as a decorative piece of clothing. This author believes there are too many tools that are acting as decorations for huge integrated Enterprise retail planning systems, supply chain management systems and the like. We all know about these types of tool belts. When shopping, we really know we have a 38 inch waist but try on that 36 inch belt with all the metal medallions and embellishments and then convince ourselves it fits by wearing it around our hips. Ultimately, it hangs in our closet never to be worn again and we go back to the same dull brown belt we have worn for years. Solutions are much the same. They have lots of flashy features that never get used or we ultimately forget how to use them and default to doing things the same old way but with the expensive new tools tucked away in some dark training manual.

This author prefers the belt that holds a sword and let’s me chop down to size tasks that always stood to tall to tackle. It is a simple tool. I don’t need to look too far and once it’s in my hand it does not require a lot of instruction to use. I just start swinging and chopping. Isn’t that what a tool should be?

The SafeSourcing procurement tool belt is simple and easy to use. An intern could build a reverse auction the first time they looked at the tool. If they don’t understand certain terminology they could enter the term into the SafeSourcing Wiki without ever leaving the website. If you would like to converse with other procurement professionals about a particular subject like the price of the resin market, just sign in to Sourcebook it’s as easy to use as MySpace or Facebook and has many of the same features. So, create a group or hold an open threaded conversation. Are you looking for new sources of supply? In less than a minute you can request information sorted by dozens of criteria including proximity to a particular area, category, sic code etc. While all this is going on alerts for over thirty locations such as the FDA, USDA and OU provide you with up to date industry alerts whether it is for salmonella, listeria or melamine related issues. Finally, are you looking for product specifications? Come on now, you know you don’t have them at your finger tips. Now you do with the SafeSourceIt template library. It sounds like you could slay any procurement dragon with this tool belt. This belt is available for use today.

What if the above were also available on your PDA or smart phone like a pocket knife version o the big sword? Mobile procurement which would be a tool even Merlin would be impressed with. But my CTO says I can’t talk about our January release yet.

We look forward to your comments.

It could happen here. Over 53,000 affected in China.

Wednesday, September 24th, 2008

The United States had the Saintpaul salmonella outbreak. Canada is having an ongoing listerosis outbreak. And now China is suffering potentially the worst scare of them all with a milk scandal that has sickened fifty three thousand infants and KILLED four.

All of the above outbreaks are associated in one way or another with food manufacturing, distribution and or processing of produce, meat and dairy products. If you don’t remember your basic food groups, these are three biggies.

In Canada as of September 4th 2008, 18 people ha died in connection with Listeria and seven other deaths are under review as a result of 38 total confirmed cases. That is a total potential death rate of sixty six percent (66%). Listeria is known to have a death rate of 25%. We all remember that over fourteen hundred people were infected during the U.S. salmonella outbreak. Salmonella is typically associated with less than a one percent mortality rate. That does not make it any less scary.

The most frightening of these outbreaks is the milk scare in China. You might ask why since it is not associated with North America we should consider it the most frightening. Because it is not caused by bacteria or an allergen, it is caused by a product that is not supposed to be used in food. It is the same product that was responsible for killing hundreds and sickening thousands of pets in the United Sates during 2007.

Melamine is an industrial product that can mimic protein content when it is added to food products. This practice is totally unethical. In the situation in China melamine was added to milk products to create a false protein reading on milk products that otherwise would have been rejected.

Why should we be concerned beyond just caring for our global family? Because the world is a very small place and we travel constantly for business and pleasure even with inflated fuel prices. The United States and Europe ban Chinese milk products. I have friends that live in Japan. What about our troops in other parts of the world or business travelers to China, Australia, Korea, Africa etc. We need to be vigilant.

The Sanlu Group a Chinese dairy giant is the guilty party in this case and apparently new for months that Melamine was contained in their products. This company appears in our SafeSourceIt North American Supplier Database. We will flag them for future reference. We continue to believe that supplier safety certification adherence and review is as important a requirement as is greater than one forward one back traceability.

We look forward to your comments.

Where technological focus can improve retail procurement part one of two.

Monday, September 22nd, 2008

Spend Management Companies need to focus there effort on automating and improving retail spend management tools by 2010.

We owe this to consumers, and the environment. Every company in the world today is dedicated to its own ideas, its own successes and its own profititablily. Don’t let anyone tell you differently. While oil companies are recording record profits the world economy is falling apart. Among other out of control costs, retailers are paying more to ship products which in turn drives up the cost of those products for consumers. Consumers as a result are spending less. As a result retailers are struggling and closing more stores than any time since 2001. This is a vicious cycle. Procurement life cycle automation can solve this problem.

The technology exists today to attack the problem of escalating costs of raw materials, shipping, retail price increases and other associated supply chain costs and it has for years. To some extent, too much thought leadership in these technologies is being invested in games, consumer gadgets and the like instead of less sexy tools focused on reducing the cost of goods which will instantly improve profitability and foster economic growth creating new jobs. This is the cycle we should be working towards.

Artificial intelligence (AI) has been around for years. John McCarthy, who coined the term in 1956, defines it as “the science and engineering of making intelligent machines.”
According to Wikipedia, Major AI textbooks define artificial intelligence as “the study and design of intelligent agents where an intelligent agent is a system that perceives its environment and takes actions which maximize its chances of success. Isn’t that exactly what we should be trying to do with the automation of spend management and the global supply chain.

Robotics is also not a new technology and has been used in manufacturing for years. I’m sure most everyone has heard of Asimo a humanoid robot created by Honda that can do many things normally attributed to human beings such as recognizing moving objects, recognizing postures and gestures, distinguishing sound, recognizing environmental situations such as terrain like steps and recognizing facial expressions. Beyond recognition, Asimo can also react to these conditions. Some say by 2015 Asimo will be available for purchase by consumers to conduct daily tasks in the home and at work.

So, what does all this mean to the procurement professional and why should it matter? Check in with tomorrows post to find out.

We look forward to your comments.

Here is some more on the value of reverse auctions.

Friday, September 19th, 2008

Is reverse auction utilization up or down, do they save money? There has been a lot written lately which shows there is interest, the answer again depends on who you ask and what industry you are speaking about.

I was reading Spend Matters today and the title of Jason Busch’s blog was Reverse –Auction-Quantifying-the-Savings-Delta. Jason also quoted a blog by David Bush on E-Sourcing Forum posted recently of a case study which according to Jason does as good a job as any at showing the incremental value an auction can bring on top of other negotiation techniques.

This author posted a blog on September 2nd titled E- Auctions success road blocks. What are your true savings opportunities? This blog discusses the roadblocks to successfully understanding and gaining savings in a reverse auction. As we all know there are a number of different types of auctions that are part of the overall RFX process. I discussed this in There are all types of reverse auctions on June 6th.

In complex retail procurement events that require very complex information review, it is normal to begin with a Request for Information or RFI in order to narrow the field of qualified suppliers or to try and understand whether or not your actual goals and requirements can in fact be adequately met by the marketplace. This might include projects such as a major point of sale software replacement. Once the RFI has been reviewed and supplier’s that meet your criteria are selected a Request for Proposal (RFP) which includes pricing is generally submitted. At this point a reverse auction need not be run in order to compress pricing because you are negotiating directly with a limited number of vendors, visiting headquarters to view product demonstrations as well as a variety of other detailed event activities. In this process where the reverse auction may be used is on some of the more commoditized components of an open platform such as terminals, scanners, check stands etc. However this is only one person’s opinion. Hopefully your provider will have a variety of well authored strategies to share with you by individual category.

We look forward to your comments.

How can procurement professionals help turn a natural disaster like Hurricane Ike into a positive?

Thursday, September 18th, 2008

Can procurement professionals help citizens and potentially the economy recover from a natural disaster like hurricane Ike at the same time?

The Condition!

While the United States is in the midst of one of the most important elections in U.S. history, the fact is that the election of the first black president or female vice president has not had front page attention this last week with most national news media. There are two reasons. The first is a natural disaster named hurricane Ike which left more than six million people from the gulf coast to the upper Midwest without power and significant property damage. The second is the U.S. economy this week alone with nearly a nine percent loss in the stock market and another failure of Lehman Brothers a major U.S. based investment bank and the bail out of American International Group (AIG) by the Federal Reserve with up to eighty five billion in loans.

A simple potential solution!

So, what can procurement professionals do? We already know that billions of dollars in new products and services such as building materials, automobiles, clothing and construction will be purchased by service organizations providing benefits to disaster victims as well as by consumers themselves once they receive insurance payments. To support these efforts, procurement professionals can take extra care to insure that the products they buy substantially support the local economy. By purchasing products from U.S. based companies we keep the Americans employed that build, ship, install, and train and otherwise support these products. Simple questioning can be asked of your suppliers. First, are all the products we procure from you made in the U.S.A.? Second, are all of the raw materials that are used to make the products we procure from you sourced within the U.S.A.? Third, are all of the products we buy from you picked, sorted and packaged within the U.S.A.

We look forward to your comments.

Are you a green enough retailer to work for? What do your prospective employees think?

Wednesday, September 17th, 2008

With all of the issues facing our planet, both future and present employees are weighing their decisions as to prospective work places on more than just money. Are your human resource procurement professionals savvy enough to your company green practices and policies to attract the best and brightest?

Procurement does not only relate to the products your company buys for resale or supplies that your company uses internally. If you ask a human resources (HR) professional they are in the procurement business as it relates to people. In fact many of the tools they use during the recruitment process can in fact be sourced to reduce their cost using reverse auctions such as background checks and drug screening kits. First however they need to get the best candidates to want to work for you. So, these are not the most important products for human resources professional to be concerned with. The job of human resources when conducting an interview is to sell your company, to make it the first place someone wants to interview and the last place they want to leave once hired. Increasingly, the social conscience of your company is becoming a deciding factor as to whether or not quality candidates want to select your company as a place to work. The first question this begs, is your human resources department in a position to clearly discuss your company’s corporate social responsibility programs and initiatives (CSR)?

In a recent survey listed in USA TODAY and conducted by experience.com of 2,774 college students, the following question was asked. If you had two job offers and one company was “green” would that have an impact on your decision? A full seventy nine percent (79%) answered yes. Let’s hope your CSR program leads to the need to use the other products required in this process because your human resource professionals are armed with a strong story.

We look forward to your comments.

We’ve met the enemy and it’s us. Food safety challenges.

Tuesday, September 16th, 2008

Tomato’s are grown in Arizona, shipped to Mexico and then sold in U.S. markets.

This author has written a lot about the Saint Paul salmonella health scare. I have also written about the benefits of NAFTA and the fact that rising fuel prices may bring production and manufacturing jobs back to North America. But what happens if these same forces conspire to mask problems from the FDA, USDA and other organizations as they try to research and solve these outbreaks.

An article in the Sunday edition of the Arizona Republic titled Fallout from Arizona’s employer sanctions laws discusses the issue of Arizona companies sending work to Mexico due to the high cost of labor in the United States. Specifically to our subject, is the example of Willcox based Eurofresh Farms picking their tomato crops at 5 a.m. and shipping them to the bordering Mexican state of Sonora to Collectron International Management Inc. for processing and reshipment back to the U.S. the same day.

Does anyone recall when during the tomato scare we were told not to eat Jalapeño’s processed in Mexico? My blog Holy Jalapeño discussed this issue. How much of our produce is processed in Mexico. Do Californian, Texan, New Mexican and other bordering states ship product to Mexico for processing? If so, what crops? Should we not have been eating any Jalapeño’s? Or, only those jalapeño’s grown in Mexico. This seems like another case of consumers not knowing what we don’t know. Are retailers aware that products they are buying for resale are being processed outside the U.S.? How do we know that these products are not mixed with products grown in Mexico?

This author believes that retailers and consumers should expect complete disclosure from our federal organizations. If indeed we all support traceable data within our supply chain, this is a perfect example of something that seems simple not being traceable by one forward one back methodology. In fact, one back from the retailer might be Eurofresh Farms in this case. What would not be readily apparent is the step to Mexico or any potential introduction of Mexican grown products into the cycle. That would require at least two back and maybe three or four back.

Let’s all support true traceability and full disclosure of where our products come from.

We look forward to your comments.