Archive for October, 2008

The traceable supply chain.When does ten plus two (10+2) not equal twelve (12)?

Friday, October 31st, 2008

Do we really have adequate collaboration between rules based organizations such as the FDA, EPA, USDA, Consumers Union and the like?

This author spends many hours weekly if not daily researching supply chain issues that impact consumer safety, corporate earnings, the environment, productivity and other emerging conditions. One tool I use regularly is Google. In a recent search, I entered 10 + 2. The response I received was Search for documents containing the terms 10+2. Answer, 10 + 2 = 12, more about calculator. Obviously from a supply chain perspective this is not what I was looking for.

I only mention this to point out that in order to get to the answers one is looking for within a reasonable amount of time; one must have some idea where to look and what questions to ask. When we talk about product traceability within the supply chain, we have a similar issue. We do not ask the right questions or know where to go for the best answers in the shortest amount of time even if we have the right questions.

When addressing food born illness issues, the FDA advocates one forward one back traceability. Under current rules adopted under the Bioterrorism act of 2002 it is required that produce processors and distributors keep track of where food goes and comes from, but only one step forward and one step back in the supply chain. This means we know who bought it and we know who sold it. Obviously this is not adequate.

Let’s take a look at another agency and the controls they have in place. U.S. Customs and Border Protection are requiring additional data from U.S. importers and carriers to support 10 + 2. The Importer is required to submit 10 additional pieces of information which are: Manufacturer, Seller, Consolidator, Buyer and Ship to names and addresses, Container stuffing location, Importer and Consignee record numbers, Country of origin of goods and the Commodity Harmonized Tariff Schedule number. The Carrier will need to submit 2 additional data sets which are: Vessel Stowage Plan (or BAPLIE), and Container Status Messages.

The CPB or U.S. Customs and Border Protection needs to be congratulated on this level of traceability. It is however time for this type of data to be part of one data stream. When a food born illness such as the St. Paul salmonella outbreak occurs, ten plus two data linked to one forward one back data might just result in much quicker resolution to the outbreak and save our investigators days and months of expensive investigation time.

We appreciate and look forward to your comments.

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Retailers, is it time to start thinking about your fuel contracts?

Thursday, October 30th, 2008

With a barrel of oil selling for less than it was during mid 2007, it may be time for retailers to take a look at their fuel contracts to see if they can save some money.

As another earnings season comes to a close, we continue to hear of the negative impact that high fuel prices have had on operating results for all types of companies. Traditionally the best time of the year to buy diesel fuel is during February and March. If we look back over the past two years, the average price of diesel during that time period in 2007 was $2.40 per gallon and the following year in 2008 a gallon of diesel during the same timeframe was $3.30 and increase of 37.5% which is about where the market is today.

According to the Energy Information Organization or EIO, the price of diesel fuel has dropped a little over 10% during the last three weeks from $3.659 to $3.288 per gallon while the price of a barrel of crude has dropped over 55% since the middle of the summer. The problem is that diesel fuel is still 13% higher than it was at this time last year and a barrel of oil is cheaper. But more on Oil Company profits while retailers struggle at another time.

What the above points out is that fuel is a volatile & complex market and generally one of the top spend categories for many retailers. The question is; what is the best way to keep costs down in the fuel category? Some companies advocate annual contracts. This author is aware of several companies that in fact practice purchasing their fuel this way, yet were also citing rising fuel costs as a reason for their results. Other companies advocate treating fuel like the commodity that it is and applying the internal discipline of watching the fuel costs in the markets they serve on a daily basis and buying during the fluctuations we see in daily prices. In order for this process to work, companies must have a number of suppliers providing them with pricing. This allows companies to monitor against daily rack rates from sources such as OPIS or the Oil Price Information Service which further allows companies to determine what suppliers are making what types of margin. This provides a good source of data for negotiations.

Most e-procurement companies provide this type of technology which is really no more than an extended reverse auction with multiple award points and the capability to monitor an industry price through web feeds such as OPIS which are known as rss or really simple syndication. These services which are offered in the form of software as a service can generally be turned on in a matter of hours. The key to driving results is having a good source of new fuel suppliers that want to compete for your business.

Whether you contract annually for a portion or all of your fuel or decide to blend your purchases through commodity tracking, now may be a good time to take a look at tools that will help you with next years purchases.

We appreciate and look forward to your comments.

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Is the Retail industry downsizing or right sizing? If so, how can e-procurement tools help reduce this huge loss of jobs?

Wednesday, October 29th, 2008

In a retail business, downsizing is reducing the number of employees on the operating payroll. Rightsizing however is downsizing with the belief that a retail business really should operate with fewer people.

Unfortunately the answer is that even with holiday hiring programs; the number of store closings, delayed new store openings, store remodels and lower holiday spending will result in fewer retail jobs as well as fewer jobs for those providing the goods and services targeted at these locations. We may not call it downsizing or rightsizing, but that is exactly what it is.

So how can the use of e-procurement tools help? Let’s look at the information from one of my previous blog posts.

If a super market company’s total cost of goods were 72% of revenue which is near industry average, and supermarket net profitability averaged the same 1% it has for the last decade. What type of net profit improvement might we anticipate if a $500M supermarket retailer were to assign just 10% of their total spend to these types of tools? The math is pretty simple. Existing net profit at 1% would equal $5M. Present cost of goods at 72% would equal $360M. If 10% of total spend were assigned which is $36M to these tools and savings averaged only 10%, this retailer would reduce cost of goods by $3.6M or an astonishing improvement in net profit of 72%. Theoretically these savings should drop straight to the bottom line minus certain switching costs associated with new suppliers and savings timing based on actual delivery timeframes. These savings might also cause an increase in jobs or at minimum limit job losses.

These are real numbers. For those retailers that are not seeing these types of results and have implemented internal e-procurement programs the answer is pretty simple. Some of your old habits have been introduced to the utilization of new tools. If you would like to see these types of results, contact a vendor that that deliver these results in less than 30 days.

The cost of these types of tools, are so minimal in a hosted environment that they almost do not impact the financial example listed above. Remember in best practices companies 56% of available spend are assigned to these tools. Their financial models may differ somewhat based on the industries they serve. What are we waiting for in retail?

Let’s not downsize or right size. Let’s not offer more financial incentives and other costs to reduce jobs that will just be added back to your payroll once the economy recovers. That will continue to impact your results negatively for years. Let’s improve retail profitability now. Together we can do it quickly regardless as to whether or not you have e-procurement tools already in place. Immediate action driving these types of results will save jobs and invigorate the economy now.

We appreciate and look forward to your comments.

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Let’s cut thorough the hype and improve retail results now. Retailers should use e-procurement reverse auctions now to improve earnings. We guarantee the results.

Tuesday, October 28th, 2008

Why are spend management solutions not getting the play in retail that they deserve and when they do, where are the results?

Just the like the polls in this years presidential elections, often times the news we get relative to spend management solutions results are skewed by what spend management companies wanted to sell you. In this political year, there have been over 170 polls conducted that range from one candidate leading by double digits to polls that show the election being a virtual dead heat. So, who’s right? That depends on who you ask and what they are trying to accomplish.

Much the same is true of spend management solutions. What is the ultimate goal of using e-procurement solutions? Specifically reverse auctions. This author believes the question has a simple answer. To reduce costs period. Many argue that to reduce costs without maintaining quality makes no sense. Is there anyone out there that really thinks a retailer is going to buy lower quality merchandise knowingly and try to pass it on to their consumers? If so, I have a bridge in Brooklyn I can sell you. Poor quality equals poor sales and a resulting lower wallet share or lost customers. The same can be said for holding suppliers accountable to safety and environmental standards as we do at SafeSourcing. The trick is that companies need to maintain focus on the primary goal of spend management solutions which is to reduce costs while also ensuring that additional elements of the e-procurement process such as maintaining and enhancing quality and supporting safety and environmental standards are included in the process as a service or byproduct of the tools being used without any additional costs or time delays injected into the procurement of the product from new sources of supply at a lower price.

Here is the simple process. Let’s not over complicate it. 1. Select a category 2.Collect product or services specifications. 3. Identify suppliers. 4. Train Suppliers. 5. Hold the event. 6. Do it all in less than two weeks from the date of category selection. 7. Do it over again with another category. Make sure that everything else is included in the pricing with no extras.

Spend Management companies goal should be to be concise and complete with their offers while not being intrusive of the normal daily activities of procurement professionals.

Addressing just ten percent of companies total spend or cost of goods can have an impact on net profitability of nearly 100%. And, it can be done quickly. So let’s go CEO’s, it’s about the money.

We appreciate and look forward to your comments.

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Safety certifications are not just about food and food born illness protection.

Monday, October 27th, 2008

What other types of issues should procurement professionals be thinking about relative to product safety when they talk to their suppliers?

Many times the ideas for my blog posts come from conversations with retailers. Often times those thoughts make it into our product development plans. In fact listening to our customers is one of our most important jobs.

During a visit with a retailer a couple of months back, the head of procurement complimented me on our companies efforts related to food safety and in particular commented on the 27 safety certifications we hold our 240,000 north American suppliers accountable to in our SafeSourceIt Supplier Database. He followed that with the statement that since they did not sell fresh foods, that area of our business did not apply to them.

This particular retailer does sell food products, cosmetics, private label bottled water and also bags the products they sell for their customers in plastic bags. I think most of you can see where I’m going with this. Plastic bags are a concern for many areas of the country and in fact outlawed in some areas due to their negative environmental impact. Food packaging can contain BPA. Dog food has contained products such as melamine. Toys have been found to contain lead. Recently the U.S. government issued a warning on baby garments sold by one of the most popular children’s labels, Carter’s Inc. Evidently, the fall 2007 line of Carter’s clothing which includes over 110 million garments has caused rashes in over 400 babies. The garments were made in a variety of foreign countries and sold in Carters stores as well as other retail chains.

So, let’s see that’s clothing, packaged foods, pet food, toys and bottled water. I guess we have to be careful with all of the products we buy. Suppliers need to be held accountable to a variety of standards and certifications while also providing traceability beyond the one forward and one back standard supported in the industry today.

Spend Management and other procurement providers need to be prepared to discuss how they intend to accomplish this for their retail partners in order to limit end user consumer risk, but also limit risk associated with litigation and other recall related costs that have a direct impact on company profit.

At SafeSourcing, all of our associates will be glad to have a detailed discussion relative to product safety and how our tools proactively address the problem.

We look forward to your comments

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Part II of II. Are retail companies planning for their annual e-procurement health checkup?

Friday, October 24th, 2008

We discussed yesterday whether applying the same strategy that we should for our personal health was also an intelligent plan when looking at our annual e-procurement results?

The list of 15 questions I promised yesterday that companies can ask themselves with the resulting answer going into either an assets or liabilities column are listed below for your review.

1. How many new suppliers were reviewed to provide new or existing products and services during the past year?
2. How many of those suppliers were actually selected to provide new products or services during the past year?
3. How much of your total spend was assigned to e-procurement tools such as RFI’s and Reverse Auctions.
4. How much of your private label spend was assigned to e-procurement tools such as RFI’s and Reverse Auctions.
5. How much of your services spend was assigned to e-procurement tools such as RFI’s and Reverse Auctions.
6. How much of your supplies spend was assigned to e-procurement tools such as RFI’s and Reverse Auctions.
7. How many of your category managers and or buyers have on line accessible product and services specifications for each product or service they buy.
8. How much time is invested in gathering product specifications?
9. How much were your total cost of goods reduced during the past 12 months through the use of e-procurement tools.
10. How much was your gross margin improved by reduction in cost of goods during the last 12 months as a result of using e-procurement tools.
11. How much time do category managers and suppliers spend doing supplier research weekly.
12. How many suppliers have been contributing greater than 75% of specific category volume for a period of greater than 5 years?
13. Of those suppliers, how many provide multiple products and or services to your company?
14. Are you satisfied with the product safety of all products from all sources?
15. How much was total company net profit improved by the use of e-procurement tools last year?

Please feel free to join the conversation and add additional questions so that retail procurement professionals can use them during their end of year planning process. It’s also important to remember that if a company assigns just ten percent (10%) of their cost of goods to e-procurement tools, net earnings can improve by up to 82% or more.

We appreciate and look forward to your comments.

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Are retail companies planning for their annual e-procurement health checkup? Part I of II

Thursday, October 23rd, 2008

Is applying the same strategy that we should for our personal health an intelligent plan when looking at our annual e-procurement results?

Generally doctors would provide guidance that individuals should have a detailed physical every two years to check their entire internal and external operating systems so to speak. They would also suggest that an interim year less detailed annual check up also take place. Now, I know many of you are going to say this is exactly what we are talking about during this political season and that many can not afford to do this. Unfortunately when our health deteriorates at some point down the road and our performance suffers as a result, these costs may in hindsight seem less expensive. We all know that our hindsight and our foresight should be in line with our insight.

Unfortunately, e-procurement is not generally a detailed line item of most annual plans. It is however a tool that can be used to control cost, raise margins and improve quality which are categories that normally make it into annual plans as significant talking points albeit without much how to detail. A fairly simple approach to accomplishing this task is to use tools that have generally been used for personal performance improvement for years. Number one is to make a list of assets, or things that you do well and reinforce those. Number two is to make a list of liabilities or things that require some improvement and focus on improving those.

This author will leave it to readers to determine what goes in each column, but will provide a list of 15 questions companies can ask themselves with the result going into either column based on the answer.

Please visit us for Part II this blog post to review the 15 questions.

We appreciate and look forward to your comments.

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At what cost profit? Procurement professionals need to exercise great care when sourcing food products from China.

Wednesday, October 22nd, 2008

Over Fifty Thousand Babies were sickened and four died. Now we find out that Fifteen Hundred Dogs have died as a result of melamine tainted food products over the last two months.

If it were up to this author, I would shut down the sourcing of food products for human and pet consumption from China regardless of cost savings until an adequate safety system is in place that protects of families and pets.

The following information is taken from a Monday October 20th Yahoo news article By Gillian Wong a writer for the associated press.

Beijing – Some 1,500 dogs bred for their raccoon-like fur have died after eating feed tainted with melamine, a veterinarian said Monday, raising questions about how widespread the industrial chemical is in China’s food chain.

The revelation comes amid a crisis over dairy products tainted with melamine that has caused kidney stones in tens of thousands of Chinese children and has been linked to the deaths of four infants.

The raccoon dogs — a breed native to east Asia whose fur is used to trim coats and other clothing died of kidney failure after eating the tainted feed, said Zhang Wenkui, a veterinary professor at Shenyang Agriculture University.” First, we found melamine in the dogs’ feed, and second, I found that 25 percent of the stones in the dogs’ kidneys were made up of melamine,” said Zhang, who performed a necropsy — an animal autopsy — on about a dozen dogs. Zhang declined to say when the animals died, but a report Monday in the Southern Metropolis Daily said the deaths occurred over the past two months.

“This is a problem throughout China where you have incentives that exist to produce things in a cheaper way to make greater profits, and people circumvent the regulations,” she said. “The (central government) is trying to eliminate this, but the problem is that for the few factories you close down, there’s another factory that pops up.”

Until we have a global food safety system with complete traceability and compliance standards that the entire supply chain is held accountable to, this type of problem will persist and leakage to other nations food supply will continue to be a risk.

We look forward to your comments.

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There is new information that retail procurement professionals should be aware of as LEED gains greater acceptance in retail construction projects.

Tuesday, October 21st, 2008

(LEED) or The Leadership in Energy and Environmental Design Green Building Rating System will be administered by the Green Building Certification Institute part of the U.S. Green Building Council (USGBC) beginning in January of 2009.

LEED encompasses a group of standards for sustainable environmentally focused construction which we should all be concerned with as we consider the environmental foot print we plan on leaving our children and our children’s children. Within the retail market, there is currently a LEED retail pilot program that addresses the variety of unique spaces that are operated by retailers based on their differing product lines. This pilot will result in two new rating systems for retail. 1. LEED for Retail; New Construction and 2. LEED for Retail: Commercial Interiors. Both certification programs should be ready for launch during January of 2009. Contingently a comprehensive LEED for Retail Reference Guide will be printed and available to support these certifications during the first quarter of 2009. These projects are presently closed for participation. Draft material relative to both certifications can be viewed on the U.S. Green Building Council (USGBC) website http://www.usgbc.org.

As procurement knowledge workers consider their procurement needs for new construction projects and remodels it is important they are aware of these certifications and make sure that their supplier partners are also aware and moving in the direction of adhering to these new retail standards. From a corporate social responsibility perspective, it’s the right thing to do for retailers and suppliers alike.

We appreciate and look forward to your comments

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What is the status of bisphenol A in the United States? Should procurement professionals be cautious?

Monday, October 20th, 2008

Canada declares this chemical toxic, bans bottles with it.

According to Canada Gazette, Canada declared a chemical widely used in food packaging a toxic substance this past Saturday and will now move to ban plastic baby bottles containing bisphenol A. According to Canadian Environmental Minister John Baird many Canadians have expressed their concerns to me about the risks of bisphenol A in baby bottles.

According to Wikipedia Bisphenol A, commonly abbreviated as BPA, is an organic compound with two phenol functional groups. It is a difunctional building block of several important polymers and polymer additives. With an annual production of 2–3 million tonnes, it is an important monomer in the production of polycarbonate.

Suspected of being hazardous to humans since the 1930s, concerns about the use of bisphenol A in consumer products grabbed headlines in 2008 when several governments issued reports questioning its safety, and some retailers pulled products made from it off their shelves.

So what you might ask is the United States doing about this compound? During the week of April 14, 2008, upon the request of the Commissioner of Food and Drugs, FDA formed an agency-wide BPA (Bisphenol A) task force to facilitate cross-agency review of current research and new information on BPA for all FDA regulated products. As a result of this review, the task force will make recommendations to the Commissioner regarding next steps.

This author believes that the Canadian government has it right on this product, and that the United States government should follow with the same action. It is also my recommendation that procurement professionals include detailed questioning of their suppliers to determine whether or not products they supply contain this compound and do not purchase them or stock them.
Products that can contain bisphenol include but are not be limited to the following.

1. Common metal coatings liners of food cans.
2. Baby bottles the hard plastic ones.
3. Water coolers and bottles
4. Tableware and food storage containers
5. Medical devices
6. Consumer items such as sunglasses CDs and DVDs
7. Automobile parts
8. Sports equipment

We look forward to and welcome your comments

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