Archive for March, 2010

Retail spend management basics for e-procurement professionals and knowledge workers.

Wednesday, March 31st, 2010

I meet with buyers or other e-procurement knowledge workers on a regular basis that want to know what categories are the best to select in the short term to prove the benefit of e-procurement or e-negotiation tools. This quite honestly is not a bad approach for pilot selection as it creates an almost sure thing that results in a lot of excitement and the energy to move the process forward within a company.

Quite often before meeting with a new client, I will analyze their annual report and their summary P&L to get a good idea of where the opportunities are hiding that can have quick hit impact. However in order to have long term viability as a way to conduct the business of buying, a more detailed analysis is required. Quite frankly before you can even begin to discuss vendor or supplier selection, management or evaluation this process is critical to long term success.

Key data required to prepare you for this analysis can consist of but is certainly not limited to the following. All of this data is readily available from a variety of industry sources. Quite often the data is a year old but you can bet it is better than anything else your customer may be using today.

1. Research and accumulate your specific Industry data
2. Analyze last years P&L
3. Compare your cost of goods with your Industries averages
4. Compare your gross margins with you Industry averages
5. Compare your net earnings with your industry averages
6. Conduct the same comparisons with selected retailers with whom you compete
7. Compare your departmental sales and contribution margin results to those of your specific industry.
8. Look for department level anomalies
9. Look for specific product anomalies within major and sub departments.
10. Select top categories that are below plan and outside industry average for cost of goods and margin.
11. Select top products that are underperforming to industry averages and plan

An example of the above might be to look at the major department of grocery and the major category of pet care then drill down to the sub category of cat and dog products and a list of all accessories. Now look at what products are underperforming to the industry and plan.  Continue your analysis with other underperforming categories.

Ask you e-procurement provider how they can assist you in accomplishing this with their tools.

We look forward to and appreciate your comments.

Here are twenty-one reasons why all retailers should use E-Procurement tools.

Tuesday, March 30th, 2010

Since this is not Late Night with David Letterman, our list is not ranked in order of importance although many might argue that not much is more important than improved earnings.

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. Cost 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
21. Provides a detailed audit trail.

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

We appreciate and look for ward to your comments.

Here are Ten Steps that procurement professionals can use to insure safer and more eco-friendly procurement.

Monday, March 29th, 2010

1. Be pro-active in driving product safety within your company and also supporting eco-standards in the procurement process that support your companies CSR initiatives.
2. Pay it forward with all of your trading partners by sharing what you are doing, how you are doing it and asking them what they are doing to support yours or similar initiatives.
3. Educate your employees and trading partners about common safety standards and guidelines such as the SQF Certificate www.sqfi.com  or ISO 22000.
4. Educate your employees and trading partners about common eco-standards such as Green- Energy National Standard www.green-e.org or EcoLogo www.ecologo.org
5. Point associates and trading partners to free educational websites such as www.safesourcing.com to use their free SafeSourcing Wiki or the Sourcebook professional social network for procurement professionals.
6. Only use trading partners that follow your lead.
7. Train your team to understand and use all available tools that insure supply chain safety such the free daily safety in sourcing blog at www.safesourcing.com  or the low cost SafeSourceIt Supplier Database and Reverse Auction Tools.
8. Impose a system of measures and controls to monitor performance against clearly defined goals.
9. Start at the top and engage all levels of your company.
10. Measure your company’s progress with Triple Bottom Line Accounting or TBL.

We look forward to and appreciate you comments.

What does SafeSourcing do in the E-Procurement Space?

Friday, March 26th, 2010

Our SafeSourcing vision is to be the leader in knowledge driven retail e-procurement solutions that drive down costs and improve quality with an additional focus on safety.    Beyond safety, we also focus on support of the environment which is a top of mind CSR issue within the retail executive suite.

By assigning as little as 10% of their cost of goods or expense related items to these tools a retailer can improve net earnings by up to 100% while also providing their consumers with safer products that support a reduction in the industries carbon footprint.

With SafeSourcing’s innovative e-procurement tools, a buyer can initiate reverse auctions or requests for information using the SafeSourceIt™ e-procurement tools for new contract purchases, spot buys, replenishment, aggregation and collaboration with other buying organizations, saving as much as 30% to 40% in the process and then simply drop that data into our SafeContract™ contract management solution to eliminate issues such as ever greening which costs the retail industry millions annually. Alerts can then be set that will remind procurement knowledge workers of required actions in the future as they arise. 

To support the above initiatives our SafeSourceIt™  global retail supplier database consisting of more than 380,000 suppliers contains thirty-five unique certification standards that are supported by our best practice initiatives such as GFSI, ISO 22000, Green Seal, ECO-LOGO, Fair Trade, SQF and Certified Humane Raised & Hand-Led to name a few. As our database continues to grow all SafeSourcing participating suppliers are regularly vetted for their support of ours and our retail partner’s socially responsible initiatives including their eco-friendly practices to insure continuity.

We look forward to and appreciate your comments.

OK so YOU have finally decided to stick your toe in the e-procurement water! NOW WHAT?

Thursday, March 25th, 2010

First and foremost to getting this process right is to select a solution provider or partner that knows what they are doing and is willing to hold your hand during the early part of the process. The plan for each company will be somewhat different as we have discussed in a number of previous posts. There is however a general order to things that will offer the best opportunity for success.

1. You need a strategy
2. You must complete a detailed discovery
3. You must understand how to set up events even if done by your provider.
4. You must have a quality process and extensive database for sourcing suppliers
5. You must clearly communicate how events will be run or executed to all involved parties
6. You must review the process for sustainability and adjust as necessary

As mentioned above it is incumbent upon your e-procurement solutions provider to be able to assist you in completing these tasks in a reasonable period of time. You should be checking the background of the team and their leadership that will be assisting you to insure their understanding of the retail industry such as operations, technology, procurement, warehouse management, logistics, transportation, loss prevention, store management and other functional areas of your business that will be sourcing products and services.  Retail is about detail and detail will improve quality, reduce costs and insure success of your new e-procurement process.

We look forward to and appreciate your comments.

Part II of here is some Lasik for retail e-procurement professionals in order to create better focus.

Tuesday, March 23rd, 2010

In yesterdays post; here is some Lasik for retail e-procurement professionals in order to create better focus we promised review what underperforming the above measure means and how careful evaluation will point you in the direction as to where to begin your e-procurement focus.

Here you go.

If your EBITDA is low, and your top line sales are in line with your plan, it is pretty clear that you have either an expense problem or a cost of goods problem. If the problem is expense related the first indicator is that your gross margin is most likely in line and your costs of goods are ok relative to your plan. In this case since the issue looks like it is below the gross margin line you have an expense problem. This does not always mean that the issue is your largest expense category like health benefits. Often times the problem can be caused by mid level expense related categories particularly categories that are hard to monitor and as such hard to control like hired services. A few examples are items like landscaping, snow removal, pest control, window washing and other similar types of expenses. These expenses have multiple invoices from multiple suppliers multiple times each month and are approved at store level. As a result, e-procurement results for these categories return impressive results while also streamlining suppliers as well as the process. With out going into to much detail the exact same process works if you turn this issue around and sales are near plan and gross margin is out of line, you most likely have a cost of goods issue.

A caution that procurement professionals should be aware of is that of measuring yourself solely against your own plan. You may be achieving your plan, but underperforming the industry you serve. This author believes that this is the 2nd level of analysis required once you have addressed the items indicated above and want to take the next step in creating a sustainable e-procurement process.

I hope this helps and allows you to use the lyrics from the 1972 song by Johnny Nash titled “I can see clearly now” as your sourcing mantra.

We look forward to and appreciate you comments.

Here is some Lasik for retail e-procurement professionals in order to create better focus.

Monday, March 22nd, 2010

Very often this author gets the question as to where to start in the e-procurement process. Too often I read that one needs to do a detailed discovery. The question is of what and how to get to the right place the quickest. So here is some Lasik for you that will help you see a little more clearly.

Using another idiom, and with renewed focus we hope to make it possible to see the forest for the trees by not focusing on excessive detail that is not needed yet.

There are four areas where you should begin your search for an e-procurement starting point and they are pretty simple.

1. Gross Sales
2. Cost of Goods Sold
3. Gross Margin
4. EBITDA.

This is really to say that if you take a look at your top line or Gross Sales and your bottom line or EBITDA and they are out of whack relative to your plan or industry averages you need to look at the above the gross margin line or Cost of Goods Sold or below the gross margin line which is expense related items for as an e-procurement focal point..

As such a couple of terms whose definitions you should be aware of are as follows.

According to Wikipedia Cost of Goods Sold or COGS is a financial accounting  term which includes the direct costs attributable to the production or procurement of the goods sold by a company. This amount  can include the materials cost used in creating the goods along with the direct labor costs used to produce the m. It excludes indirect expenses such as distribution costs and sales force costs. COGS appear on the income statement and can be deducted from revenue to calculate a company’s gross margin.

Earnings Before Interest, Taxes, Depreciation and Amortization or EBITDA which is an approximate measure of a company’s operating cash flow based on data from the company’s income statement. EBITDA is calculated by looking at earnings before the deduction of interest expenses, taxes, depreciation, and amortization.

Based on the above a lot is determined by who built you annual plan and how realistic it was to begin with.

Tomorrow we will review what underperforming these measure means and how it should point you in the direction as to where to begin your e-procurement focus.

We look forward to and appreciate you comments.

Why do we hear that reverse auctions are not as successful the 2nd time around?

Friday, March 19th, 2010

As we discuss this further, one area of commonality they frequently discuss is a lack of new suppliers. Another is the price being too high for the same event that has already been built and will result in lower savings the 2nd and 3rd time around.

A simple focal point to begin a discussion of this issue is the lack of availability or the related benefit of a large retail specific supplier database. However unless we discuss how  retail companies should use this type of data when available is just as important if there is a true desire in growing their percent of spend with e-negotiation tools?

There is a proper way to insure the sustainability of your e-negotiation events going forward. Following these guidelines will also encourage senior management to consider placing more spend under the control of e-negotiation tools and specifically reverse auction tools. Armed with a robust retail supplier database and related tools:

1. Conduct a detailed category discovery
     a. Learn all there is to learn about the way a company conducts their   business.
     b. Walk distribution centers and warehouses
     c. Walk an array of stores and understand all formats of the enterprise.
     d. Compile a list of all corporate categories
2. Rank categories by
     a. Total spend
     b. Importance
     c. Sourcing frequency
     d. Quality objectives
     e. Look for aggregation opportunities.
3. Conduct supplier discovery
     a. Rank suppliers
        i. Size
        ii. Experience
        iii. References
        iv. Environmental certifications
        v. Safety Certifications
4. With  the above in hand; develop a three year game plan
     a. Identify suppliers for each event over the three years
     b. Develop savings targets by category
     c. Develop a three year time line for all categories
5. Role Play internally  the first year for a test category
     a. Ask the following questions
         i. How will you award the business
         ii. Review alternate scenarios
         iii. Review savings by scenario
         iv. Determine which suppliers will be invited back
         v. Determine what new suppliers from your database search will be invited to participate next year

Now ask your e-procurement solutions provider to demonstrate their capability in this area

We look forward to and appreciate your comments.

How does a price index play into e-procurement practices?

Thursday, March 18th, 2010

From a simplistic perspective an index is a system used to make finding information easier. There are any numbers of indexes or indices available to help procurement knowledge workers insure they are sourcing products at the best possible pricing. The key word here is price as what we will be discussing are specifically price indices.

According to Wikipedia a price index (plural: “price indices” or “price indexes”) is a normalized average (typically a weighted average) of prices for a given class of goods or services in a given region, during a given interval of time. It is a statistic designed to help to compare how these prices, taken as a whole, differ between time periods or geographical locations.

Price indices have several potential uses. For particularly broad indices, the index can be said to measure the economy’s price level or a cost of living. More narrow price indices can help producers with business plans and pricing. Sometimes, they can be useful in helping to guide investment.

Normally an index reflects the current and historical price of a variety of commodities ranging from metals to grain. A common index used in sourcing petroleum products is OPIS or the Oil Price Information Service which you can learn more about by visiting www.opisnet.com.  However in order to drive the best possible fuel pricing there are other dependencies such as whether you are doing spot buys or bulk purchases and these strategies will determine what specific index you would want to review as well as it’s relation to other product information sources such as Platts or the Gulf Coast spot assessments.  This will put you in a better position to determine how to bid the product and also earn a discount relative to the lowest common denominator.

All other commodities have similar sourcing issues dependant on what the highest cost item is in their product makeup. An example here might be the cost of grain in the feeding of cattle or poultry.

Ask you solution provider to explain these tools to you and to recommend how you might use them toward the best outcome.

We look forward to and appreciate your comments

Retailers, how many of your e-procurement contracts contain evergreen language?

Tuesday, March 16th, 2010

In this case your supplier wins because your contract contains evergreen language. Some retailer’s think this is a good thing and it could be. Paired with other language that might identify escalator or de-escalator language that protects both the supplier and the buyer against abnormal commodity increases this could be win-win. The bigger issue is who is responsible for monitoring the dates and how will you be alerted if the adjustments don’t take place?

This begs the question; just what are are evergreen clauses within a contract and what do you need to do to be careful with them.

According to Black’s Law Dictionary an Evergreen contract is a contract that renews itself from one term to the next in the absence of contrary notice by one of the parties.

The potential problem with an “evergreen” clause in your contract is that this type of contract automatically renews at the end of the contract term, unless one of the parties notifies the other party that it does not want to renew the contract.  This notice normally must be given within a specified time period such as 60 to 90 days prior to the end of the current contract term. This takes us back to who is going to monitor this time frame and alert you to the fact that something is required?

A significant step in conducting quality e-negotiation events is to understand the contracts you are wishing to negotiate.

We look forward to and appreciate your comments.