Archive for January, 2010

A customer asked me what a reserve price reverse auction was today.

Friday, January 29th, 2010

In a reserve price reverse auction, the buyer establishes a “reserve price”, the maximum amount the buyer will pay for the goods or services being auctioned. This is also sometimes called the desired price, or a “qualification price”. Careful thought is required on the part of the retailer in determining their reserve price. I personally have seen retailers try to just use their existing price from their last contract. This type of practice may set unreasonable expectations, particularly if the market has changed dramatically in an upward direction since the last award of business. In today’s market, fuel would be a great example of something that you would not set a reserve price based on a previous contract if you wanted incumbent or new suppliers to take you seriously.
Traditionally, if the bidding does not reach the “reserve price”, the buyer is not obligated to award the business based on the results of the reverse auction. However once the reserve price is met, the buyer is obligated to award the business to a participating supplier or group suppliers based on previously published auction rules.
Additional pricing considerations can be given to adding other price points or qualifiers in a reserve price reverse auction such as entering a market price. In the case of fuel, this may be from a price index such as OPIS.net spot fuel or rack rate updates.. This information can be visible or blind to the supplier, but let’s the retailer compare a suppliers mark up strategies. This also offers a nice opportunity to calculate cost avoidance during an up market.
We  look forward to and appreciate your comments

Try buying products and services that are safe and support the environment.

Wednesday, January 27th, 2010

Do consumers have the right to expect products, services and other finished goods they purchase from their retailers to be safe and eco friendly?

If so, what level of safety should they expect? Does safety extend beyond the personal safety of their families, pets and loved ones to the ecological impact the manufacturing of these products has on our planet? Who should bear the expense of this increased safety; suppliers, retailers, or consumers? Are there more effective ways in the form of better processes and more modern easy to use tools to reduce costs and increase safety and eco awareness?

A Consumer’s Perspective:

Many baby boomers remember listening to the nightly news as children and young adults and hearing the local anchor person ask the following question. “It’s 10 o’clock. Do you know where your children are?”

In those days, it was fair question. Prior to the development of pagers, cell phones, personal digital assistants smart phones, and Apples newest offering the question challenged parents to be accountable for their children and insure that they were safe. Today, a simple text message or phone call provides some level of security to parents, albeit not the level of safety one might like. But, do we know how the safe the products we consume and use are? Toy recalls, pet food recalls, tainted drugs, many food born illness outbreaks from salmonella to e.coli, melamine, BPA issues, children’s jewelry. The list grows daily.

The question consumers are asking retailers more often these days is how safe is your supply chain? That’s because every retailer has a similar but different supply chain.  Consumers are interested as to what level their retailer understands where their products come from?   The Public Health Security and Bioterrorism Preparedness Act of 2002 was fully enacted in 2004. It requires processors, distributors, importers and other reseller groups in the United States to maintain records that identify the immediate sources that they receive food from and the recipients they send it to. There are any number of other laws and standards we discuss in this post regularly covering virtually every product made.

Should consumers have anything to worry about and if so what risk does this pose for retailers? Visit us tomorrow for some answers.

We appreciate and look forward to your comments.

What type of category savings can you expect from the use of E-RFX tools?

Tuesday, January 26th, 2010

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. A simple example might be something like bottled water. Is bottled water really a category or is it a sub category of beverages which is a sub category of grocery. The first question that requires an answer is…Are you looking for true category savings or are you looking for specific product savings?  A follow on question might be; Are you asking for actual realized savings or are you asking for savings that are reflected at the end of an E-RFX event? 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-RFX event; however, reality indicates that a large number of incumbents do not end up with the low quote.  If the supplier is not the incumbent, there are actually quite a few elements that result in realized savings that have to be considered.  By in large, they can be included in a catchall phrase referred to as switching costs. To begin with the supplier that you plan to award your 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 which requires the involvement of your legal department and may, in fact, add delays to the process that requires you to order additional product from your existing supplier at potentially higher prices than awarded during the E-RFX 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-RFX event for a minute. At the end of the E-RFX event when business was awarded were the savings the same as displayed during the event? Did the E-RFX 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? Is shipping included in the final price and was it included in the price from your previous contract?  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-RFX event? The answer is it depends. It is however critical that you make sure you are working with a provider that knows what they are talking about.

We look forward to and appreciate your comments.

This author loves all kinds of Salami. Is it traceable?

Monday, January 25th, 2010

Rose said, “toughie (their nick name for me) get out of the Salami”. I had this bad habit of reaching in the refrigerator (possible contamination) and taking 5 or 6 slices that had been cut in half for pizza and stuffing them in my mouth all at once. The Salami was either Genoa or Volpi or some other top quality brand. I did not even know where it came from and I’m sure that neither Rose nor Margaret (both from Italy) the proprietors could trace it either.

Today I live in Arizona. We have a few good Italian eateries here but not a very large Italian community. I was reading the Arizona Republic today when an article jumped out at me titled R.I. Company recalls salami. This article was attributed to the Associated Press. Being as Rhode Island is very close to Boston and also has a great Italian section called Federal Hill and the subject was salami I read on. As you are aware, my most recent post was also on product safety and traceability, titled Procurement Professionals can aid in product safety adherence.

The article went on to say that a Rhode Island meat company had recalled 1.24 million pounds of pepper coated salami after month’s long investigation of a salmonella outbreak that sickened 184 people in 38 states by comparing shopping receipts of those who got sick. This certainly supports one forward and one back accountability from a retailer’s perspective but this author is not sure that the intention of the rule is to have to chase down receipts which is extremely time consuming, costly and a strategy that provides the possibility of an extremely limited sample.

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. Doing this systematically is where the retail industry needs to be.

This author has discussed this in numerous previous posts. One of my favorites is from September of 2008 titled Traceability-also-requires-sensibility-if-you-want-a-safe-supply-chain.  So what can you do as a retailer? Begin by asking your e-procurement solutions provider how they address traceability with their tools.

We look forward to and appreciate your comments.

Procurement Professionals can aid in product safety adherence.

Friday, January 22nd, 2010

An article in today’s Arizona Republic attributed to the associate press was titled 1.5 million strollers recalled. The reason for the recall was canopy hinges causing fingertip amputations.  The article went on to mention that this was the 2nd major recall of strollers in recent months. In November of 2009 about one million strollers were recalled for fingertip amputation by the hinge mechanism from another manufacturer.

This author is aware that we can control the substances that go into these products from raw materials perspective but how do we in fact make sure they are safe for the children riding in them or the people pushing them.

The first thing we can do is ensure that the products are tested by Consumer Product Safety Commission or other groups with authority for that product. Last year the CPSC  announced that they would be expanding and modernizing the agency’s testing facilities with a new facility, located off the “I-270 Technology Corridor” in Rockville, Md. One of the roles of the new facility is to provide additional space for CPSC’s Laboratory and Engineering Sciences Teams to test and evaluate consumer products.

You may be able to locate information about the products you procure at the Consumer Product Safety Commission’s website area for regulations and laws, but it will take some digging if you have never been there before. The product may have a FEDERAL HAZARDOUS SUBSTANCES ACT to support it as do a number of baby and children products.

What appears to be common sense to this author is in addition to holding companies accountable to regulations is also to simply ask what type of testing a product has gone through and where it was manufactured? Most companies have great intentions for the products they manufacture and sell. We may be able to keep our children safer by simply asking some logical questions.

We look forward to and appreciate your comments.

Where’s the Beef and how do we trace it?

Thursday, January 21st, 2010

A recent beef recall reported in the USA TODAY on January 20th indicated that 864,000 pounds of beef have been recalled by a Southern California based meat packing company because it might contain e.coli. The good news is that this occurrence was caught during a food safety inspection. This means that sometimes the systems we have in place work. So kudos’s to those that are doing their jobs on behalf of public interest.

What the above situation does not suggest is the problem associated with recalls and the role that traceability in the supply chain plays. Although there has been a lot of work done over the last couple of years, the accepted standard in traceability continues to be one forward one back. That means we require knowing where the meat packing company got their meat from and who they sold it to. In the USA TODAY article it suggested that  the meat was distributed to distribution centers, restaurants and hotels in California for a 3 month period in 2008 and a 10 day period during 2010. The question this begs is where did those organizations distribute the product to and can they recall it if the product even still exists. The act of a recall can be both good and bad. Hopefully it is good for the consumer. It is however never good for the distributor since they already paid for the product. It may however improve their reputation with their customers as a quality company.

What this short article suggests is that safety inspections need to be carried out on schedule and resulting recalls have to be executed quickly to all destination points in the supply chain. This clearly requires better than one forward one back accountability and is what all procurement solution providers should be striving for with their data sources.

We look forward to and appreciate your comments.

ISO 22000:2005

Wednesday, January 20th, 2010

The document was titled Guidance for Industry Questions and Answers Regarding the Reportable Food Registry as Established by the Food and Drug Administration Amendments Act of 2007 June 2009; Revised September 2009. After coming up with more questions than answers, I referred back to ISO 22000 from which is the standard for food safety.

ISO 22000:2005 specifies requirements for a food safety management system where an organization in the food chain needs to demonstrate its ability to control food safety hazards in order to ensure that food is safe at the time of human consumption. It is applicable to all organizations, regardless of size, which are involved in any aspect of the food chain and want to implement systems that consistently provide safe products. The means of meeting any requirements of ISO 22000:2005 can be accomplished through the use of internal and/or external resources. ISO 22000:2005 specifies requirements to enable an organization — to plan, implement, operate, maintain and update a food safety management system aimed at providing products that, according to their intended use, are safe for the consumer.

With the number of health scares that have taken place in the last couple of years including in our school systems it might make good sense to review how your suppliers comply with this standard.

We look forward to and appreciate your comments.

Twenty steps to running high quality retail e-procurement events.

Tuesday, January 19th, 2010

These sessions can from time to time also run as forward auctions  in order to reduce over stock conditions and reduce shrink or event to discard of old properties. Regardless of the naming convention used there are certain rules which if followed will create higher quality E-RFX’s for the retailer and their suppliers? This will result in creating better savings opportunities or cost avoidance in a tough market.

The importance of focusing on a clear process will increase E-RFX participation. This focus on quality will be recognized by your existing trading partners and potential new sources of supply, and will keep them coming back in the future to compete fairly for your business.

Here are twenty to begin with. I’m sure you can add others or refine these for your use.

1. Executive sponsorship is mandatory
a. This is required at the CEO, CFO, CPO, CLO or head of the supply chain.
2. Get the entire buying organization together for a kickoff session.
3. Provide an over view of what you are going to do and the impact it can have on the company. Use company financial models.
4. Discuss and agree on success criteria.
5. Every event is not a homerun. Singles and doubles score runs.
6. Create a fun environment.
7. Consider prizes for the most creative use of an auction.
8. Use scorecards by department with percent of savings.
9. Discuss the meaning and importance of corporate aggregation.
10. Hand out E-RFX templates to gather existing product specifications.
11. Put a time requirement on data collection.
12. Gather an accurate list of your present suppliers.
13. Work with your sourcing company to identify a top 100 list of events.
14. Calendar the events.
15. Prioritize by dollar value, date and strategic value.
16. Conduct department level discovery meetings of 30 minutes to an hour.
17. Investigate existing contract language.
18. Look for auto renewal (evergreen) language roadblocks.
19. Determine alternate sources of supply with your sourcing company.
20. Develop an E-RFX rules and instruction template and post with each event.

Although this list is not all encompassing, it provides a format for getting started that offers the best opportunity for reduction in cost of goods, expenses and improvement in corporate earnings. Be sure to combine this with a business partner that understands your business.
 
We appreciate and look forward to you comments.

Good sourcing practices are good whether they are green or not.

Monday, January 18th, 2010

A Practical Guide to Green Sourcing was written by  John Christensen, Christopher Park, Earl Sun, Max Goralnick, and Jayanth Iyengar  of  Supply Chain Management Review and published on  November 1st 2008. It is absolutely loaded with great information a lot of which should be just common sense..

A quote from the article really says it all and is a theme you should already be familiar with if you read my posts regularly. It is as follows. “Green sourcing can help in two important ways. It can help companies improve their financial results, allowing them meet their cost reduction goals while also boosting revenues. It can also contribute to a better public image and reputation with the company’s stakeholders.” In essence this one quote supports triple bottom line accountability or TBL. However if you replaced the word green at the beginning of the quote with the following it still works

1. Efficient
2. Well thought out
3. Strategic
4. A refocus on your
5. Reviewing your

I’m sure you can add another dozen to this list easily. I hope you will read the entire article. It may be your company’s first step towards a more successful 2010.

We look forward to and appreciate your comments.

Bad sourcing practices can cause more than just “the cadmium blues.”

Friday, January 15th, 2010

According to Wikipedia cadmium has no constructive purpose in the human body. Cadmium and its compounds are extremely toxic even in low concentrations, and will bioaccumulate in organisms (that’s us) and ecosystems (that’s where we live).

This author posts frequently on safety issues and realities in sourcing practices. Particularly when you are buying from and unknown source, offshore or products for which you have no specific product specification. Consumers would be surprised how many products are bought offshore during buying trips that don’t have a specific specification. An example might be something as simple as a tiki lamp that comes under the category of seasonal, pool supplies or miscellaneous. Another that has been in the news recently is children’s costume jewelry. The issue that bothers this author is that for some of the largest names in retail that generally have great procurement practices there is really no excuse for these products making their way on to the shelves of our stores. There should be a check list of standards and certifications that suppliers have to adhere to in order for their products to come onshore in the first place. I can’t believe that a simple question like “Do these products contain any harmful chemicals in their makeup such as cadmium etc.” If the answer is we don’t know then don’t buy them or make the manufacturer provide a chemical breakdown of the product.

Inez Tenenbaum the head of the Consumer Product Safety Commission advises, “Do not allow young children to be given or to play with cheap metal jewelry, especially when they are unsupervised. This author whishes to paraphrase, DON’T ALLOW IT WHETHER SUPERVISED OR NOT. And further. Retailers don’t buy these products regardless of profit margins unless you know they are safe period.

We look forward to and appreciate your comments