Archive for July, 2009

I’m tired of hearing the same old thing out of CEO’s aren’t you?

Friday, July 31st, 2009

Does this sound like something you have heard before or in fact heard year after year? “XYZ Company announces the following personnel cuts due to the soft economy, increased competitive pressure or a decline in sales.”

This author has spoken to this subject a number of times. Earlier today I was speaking to a friend that sits one level away from his CEO. During the discussion he said, “I am so tired of hearing companies announce headcount reduction as their strategy for improving company results. What ever happened to creativity? A lot of times, the best ideas work their way up through an organization and result in a high level executive getting credit for a lower level individuals creative thinking. In fact, it happens all of the time. Headcount reduction creates a long term negative impact on companies as they lose these creative thinkers to a headcount reduction strategy. I sometimes think there must be an MBA course titled; “How to announce head count reduction as your strategy for tough economic times or poor results 101”.

The reality is if we want to put a creative procurement spin on this COGS or Cost of Goods Sold has not dropped dramatically if at all in any retail segment during the last ten years. It is the largest line item on any Retailers P&L including payroll and benefits which are expense items. There are also a number of expense items that are not included in COGS that could be addressed and have a resulting impact on results almost immediately beyond payroll reduction.

In three recent posts Bankruptcy Sucks Part I, Part II and Part III, I discussed the financial impact of just assigning a reasonably small percentage of cost of goods to e-negotiation tools in order to compress pricing. And yes the fact is there may be switching related costs associated with this. What is more difficult, laying off 10% of your work force or switching suppliers?

Business is not same old same old. Successful enterprises require creative thinkers that evolve the business on an almost daily basis. If the first place you review during these economic times is your payroll or benefits costs as an opportunity to turn things around, there are better alternatives.

We look forward to and appreciate your comments.

What type of information should solution providers require of their suppliers for every reverse auction they run for you?

Thursday, July 30th, 2009

This is pretty much a repost from my favorite daily blog a Sourcing Innovation where Michael Lamoureux is known as “the doctor” of Sourcing Innovation.

The following five questions are part of a 15 Question Sustainability Product Index public made availed by Wal-Mart. These questions or similar ones are part of the SafeSourcing discovery process and why we have more than 25 safety and environmental certifications in our Global Supplier Database of over 300,000 retail suppliers to support retailer’s social responsibility initiatives.

1. Do you know the location of 100% of the facilities that produce your product(s)?
2. Before beginning a business relationship with a manufacturing facility, do you evaluate the quality of, and capacity for, production?
3. Do you have a process for managing social compliance at the manufacturing level?
4. Do you work with your supply base to resolve issues found during social compliance evaluations and also document specific corrections and improvements?
5. Do you invest in community development activities in the markets you source from and/or operate within?

We look forward to and appreciate your comments

Is there really any such thing as Best Practices?

Tuesday, July 28th, 2009

Someone asked me recently if SafeSourcing was the best at what we do in retail. The normal reaction is to blurt out; “Of course we are!” But let’s step back for a minute and figure out what a best practice really is or is not.

According to Wikipedia 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. This authors addition to this definition is that this depends entirely on a customers opinion as to whether this works for them at being the most advantageous process. For one customer it may, for another it may not, and a lot of times that comes down to the size of the problem and the cost associated with implementing a best practice.

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 the procurement space? Or does it mean they are the best practices for just their product family when it is deployed in the manor they suggest?

This author does not believe that a 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 or career long process that must evolve over time as tools, businesses, and existing processes change based on market dynamics.

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 an organizations customers use the same process. I’m not sure that this is ever a question one asks when looking for a reference as to an organizations services or tools offerings. The question this begs is; Are these supposed best practices consistent and carried out each and every time to the promised 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 inclusion at all previous customer implementations 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 so called best practice that drives similar results on a consistent basis regardless of customer.

This author will continue to refer to our services offerings as extremely high quality processes and techniques focused on continuous improvement that delivers the promised or anticipated results. Our customers, supplier participants and business partners will determine if they are best practices for them based on their results.

The simple answer to the question is SafeSourcing the best at what you do in retail is YES!

We appreciate and look forward to your comments.

An earnings season re-post. Here are twenty reasons why all retailers should use e-negotiation tools beginning immediately.

Friday, July 24th, 2009

Sometimes the detail gets lost in translation, so for those of you that are following on a daily basis here is a simple list. These are certainly not all of the benefits that a retailer can drive from the use of e-negotiation tools, but it is certainly a good starting point. If you call or email us we will give you another 20 the same day.

Since this is not Late Night with David Letterman, our list is not ranked in order of importance although many might argue that during the present earnings reporting period that not much is more important than improved earnings. Ask your shareholders and other stakeholders what they think?

1. Guaranteed to improve net earnings
2. Guaranteed to improve safety
3. Guaranteed to improve Corporate Social Responsibility.
4. Guaranteed new sources of supply
5. Retail has less spend assigned than any other industry
6. Streamlines the procurement process
7. Holds suppliers accountable to your standards.
8. Improves quality
9. Coast avoidance in a volatile market
10. Creates a competitive environment
11. Drives reliable market pricing
12. Maintains a reliable history for future comparison
13. Educates suppliers as to how retailers wish to procure products
14. Supplier training eliminates questions
15. Improved and consistent product specifications
16. Improved negotiation.
17. Improve carbon footprint
18. Simple award of business process
19. Frees up time for other tasks
20. Works for procurement of all product categories

This author is not sure why a derivative of this list could not become the mission statement for any procurement department.

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

Figures Lie and Liars Figure is more about data manipulation than it is lying.

Thursday, July 23rd, 2009

This famous old saying applies all of the time to industry and other surveys relative to how the data is reported or sometimes manipulated.

The above happens all of the time relative to environmental reports. Let’s look at an example I noticed in USA TODAY the July 22nd addition.

The following was reported by Anne R. Carey and Gwen Saunders of USA TODAY in Snapshots®. The title was “What we’d give up to save the environment”. The source of the survey is the Shelton Group for ECO Pulse online survey of 1,006 adults taken April 17th – May 1st of 2009.

What Items people would give up if they thought they were hurting the environment?

1. iPod 42%
2. Dishwasher 38%
3. Microwave 28%
4. Cell phone 23%
5. Air conditioning 16%
6. TV 14%
7. Computer 8%

Now, here is the rub, and we see it all of the time in the procurement process when speaking with suppliers and other companies relative to their green practices. When asking questions if you do not probe properly, the answers you receive are apt to be very misleading. By way of example, if one asks a supplier if they are SQF certified? The simple answer might be yes. What this does not uncovers who at the company holds this certification, if they are still in a job where the certification matters, if they are still with the company, if the certification is current or what level of certification they have on file. Without probing properly, the answer may just be greenwashing in order to put a check in that box. As we discussed in yesterdays post, the proof is actually in the pudding and the pudding is created by having all of the proper ingredients in place. Think detail, detail, and detail.

So, just for fun let’s look at the above survey stated in a different way or turned upside down.

What items would you not be willing to give up even if you knew they were hurting the environment? By the way we will be passing this environment on to our children and our children’s children.

1. iPod 58%
2. Dishwasher 62%
3. Microwave 72%
4. Cell phone 77%
5. Air conditioning 84%
6. TV 86%
7. Computer 92%

We appreciate and look forward to your comments.

My dog’s bigger (better) than your dog!

Wednesday, July 22nd, 2009

Ok, so this is a small play on words. I think this actually was part of an old Ken-L Ration dog food commercial which does in a related way bring us back to retail product focused procurement.

One might actually substitute any subject other than dog in the title of this post. The proof as they say is actually in the pudding. So what the heck does this have to do with e-negotiation tools and companies?

Actually, this author thinks quite a lot. If one claims that their tool or company is better, it is up to them to defend it and provide proof. If one were to claim that they are the best in retail procurement, what is the basis of the claim? At Safesourcing we absolutely believe we are the best at retail procurement. Below are only 10 of the many reasons why.

1. Our completely web based application and tools are the industries most recent entry and use the most current technological tools.
2. Our teams retail specific experience across multiple retail disciplines such as Operations, Loss Prevention, Information Systems, Supply Chain, Procurement, Finance etc. is documented and 2nd to none in the industry.
3. Our application is multi lingual and installed in multiple countries.
4. Our discovery process is more detail oriented and well documented.
5. Our supplier database consists of over 300,000 unique sources of retail supply.
6. We offer one flat price for RFI’s, RFP’s and RFQ’s. We do not price for each.
7. Our application supports cloud computing.
8. We have hosted RFX’s with dozens of products and suppliers.
9. Our database designed analytics are adhoc in nature.
10. Our average savings are greater than 30%.

The Ken-L Ration advertisement actually went like this.

My dog’s faster than your dog,
My dog’s bigger than yours.
My dog’s better ’cause he gets Ken-L Ration,
My dog’s better than yours.

A great person once said, “It is not bragging if you can back it up”.

We look forward to and appreciate your comments.

When should Retailers use a Request for Information or RFI?

Tuesday, July 21st, 2009

The answer is that it depends on who you talk to. This author believes that an RFI should be used almost as often as an RFQ particularly if you have been using the same supplier for a number of years.

As we have discussed in a prior posts, a Request for Information or “RFI” is in its most simple form a document distributed to new sources of supply prior to inviting them to participate in a Request for Quote or RFQ. The process assists you in your decision as to whether or not you wish to invite new suppliers to participate.

The document lets potential suppliers know the information you require in order for them to be considered for participation. This is also a great way to update the inforamtion for your incumbent suppliers. This is particularly important in light of our recent economic woes.
Some of the inforamtion contained in an RFI can include but certainly is not limited to the following.

1. General education relative to your procurement process.
2. Certification requirements such as safety or environmental.
3. Rules of engagement.
4. Supplier general information.
5. Sourcing tree information.
6. Country of Origin Information.
7. Near Shore or Off Shore Practices.
8. Financial Information.

This Request for Information is a great tool that when used properly enables retailers to evaluate potential new sources of supply while also holding their incumbent suppliers accountable to the same standards they would of new suppliers. Although most often used in complex sourcing events, RFI’s are very helpful in almost all e-negotiation events.

As always we look forward to and appreaciate your comments.

What’s in a Request for Information or RFI?

Monday, July 20th, 2009

According to Wikipedia and others a Request for Information (RFI) is a standard business process whose purpose is to collect written information about the capabilities of various suppliers. Normally it follows a format that can be used for comparative purposes.

So a Request for Information (RFI) is primarily used to gather information to help companies make a decision on what steps to take next. RFI’s are therefore most often the first stage in the procurement process particularly with new sources of supply. They are used in combination with: Requests for Quote (RFQ), Requests for Tender (RFT), and Requests for Proposal (RFP). In addition to gathering basic information, an RFI is often used as a solicitation sent to a broad base of potential suppliers for the purpose of preparing a supplier’s thought process in preparing for a Request for Proposal (RFP), Request for Tender (RFT) in the government sector, or a Request for Proposal (RFP).

Much of the data required for an RFI is generally available and can be found on company websites, U.S. Security and Exchange Commission (SEC) filings for publicly traded companies in their Edgar system, industry guides from companies like Trade Dimensions, or from sources like Dun and Bradstreet.

The challenge for most companies is that they do not have the necessary resources to complete this research. Therefore providers of supplier data should be able to make this data available in templates that companies can begin with. Simple data should always be available in any database as to Company Name, Annual Sales, Product category expertise, contact information, e-procurement experience and product specifications. This data should be easily exportable to a variety of formats such as MSFT Excel.

A simple request of your e-procurement solutions provider should get you well on your way to completed RFI’s that lead to quality RFP’s and RFQ’s without spending a lot of your valuable time on basic research. If they do not, we’d be glad to hear from you.

As always, we look forward to and appreciate your comments

Bankruptcy Sucks Part III. Here are some final thoughts.

Friday, July 17th, 2009

So, how can we drive better returns and possibly avoid these results without wasting time by evaluating everything to death?

The fact is that retailers particularly the largest ones have been using enegotiation tools. The rest of us however and that includes some pretty large companies are not and if we are, we are not doing it across a broad enough range of categories. The adoption rate within retail is low for a number of reasons such as poor supplier participation and buyers and category managers that continue to resist change.

The 1st area of poor supplier participation can be solved by working with the right solution provider that can continually invite new sources of supply to your reverse auctions and sustain that process for years through the size of their supplier database. The 2nd area can be addresses by CEO’, CFO’S and CPO’s telling their organizations that this is the way we are going to be doing things. Yes it does require senior level executive involvement to drive this.

To begin with senior executives should review their overall sourcing strategy and ask why their company is not using hosted eneogtioan tools for RFI”s, RFP’s and RFQ’s. If you are, you should ask what percent of total spend is going through these tools. Any thing under 30% is unacceptable. So the directive is to grow usage.

You should ask if the tools you are using are offered in the form of software-as-a-service or SaaS. If not, your tools are probably not the most current. This model allows you to find a new provider and it literally takes all of about one day to launch…

One reason that local suppliers don’t care to provide pricing to you ( and there is a good chance they may not have even been asked to) in a historical purchasing formula is because you might not even know they exist or because they do not believe you will do business with them because of your incumbent relationships.

Reverse auctions and other enegotiation tools are a completely non confrontational way of doing business which allows all suppliers to put their best price and services on the table at minimal cost to them. A job that can take category managers and buyers weeks and sometimes months to do when looking for new sources of supply can be accomplished in days. Multi product auctions or multi line item auctions are much easier for buyers to sort through in order to come up with an optimum bid that than when using traditional methodologies.

It’s a shame when a company has to declare bankruptcy. Consumers suffer, employees suffer, suppliers suffer, and in fact all stake holders suffer. There are tools and company’s out there to help you possibly avoid this result.

We appreciate and look forward to your comments.

Bankruptcy Sucks Part II. But, it does happen to good companies with well intentioned leaders.

Thursday, July 16th, 2009

It’s a shame when a company has to declare bankruptcy. Consumers suffer, employees suffer, suppliers suffer, and in fact all stake holders suffer.

Now, let’s look at our alternative e-procurement scenario. As a retailer we already know that the house is on fire, so we have to do what ever it takes to put the fire out quickly. I assume we all agree here. Remember we are already planning for bankruptcy. This is no time for “we have our supplier relationships to worry about” or similar objections. What relationships are more important to us in the first place, our consumer, associates, the community or our suppliers? In this model, best price and best quality for product and services wins.

Let’s look at the finances behind this new scenario. Let’s assume that average savings across all categories in retail is nearly 20% when using reverse auctions properly. This would include the proper use of RFI’s and RFP’s. Let’s assume the same retailer from our bankruptcy example were to assign 30% of their total cost of goods and services to this process. That would be $600M in spend if we assume 70% COGS. Let’s assume we achieve targeted savings of 20% after switching and other related costs are applied. Total savings in this scenario would equal $120M or $10M per month. This would we the same as the store closing model without loss of sales or associate lay offs.

This author is not naive enough to believe that some of both scenarios will not have to be deployed. Sometimes we have to close stores; sometimes we have to lay off associates. With that said if we are not using these types of advanced tools as the standard way we procure all products we are not putting our best foot forward. This does not mean that we have not used these tools on selected items or categories like plastic bags or technology or that our wholesalers and collective buyers don’t use these tools to source goods they sell to us. The fact is that we have and they are. In the first case we are not doing it across a broad enough range of categories, in the second scenario the savings they earn are not all being passed on to us.

We certainly look forward to your comments and would be glad to engage in a discussion on this subject.