Archive for April, 2010

Why some retail companies are not successful with e-negotiation programs or actually most programs they implement.

Friday, April 30th, 2010

Most companies understand that lowering their cost of goods and services provides the greatest potential benefit or impact to their bottom line. However they face significant roadblocks in doing. At this point, one might ask why some retail companies succeed while others continue to implement program after program with no ongoing measurable benefit. As mentioned in the excerpt above, the first among these is the recognition that effective e-negotiation initiatives like any other successful program requires strong support from executive management. This is important because Retail as an industry lags well behind other industries in utilization rates of e-negotiation tools. So at a minimum in order to get off on the right foot, this means the CEO, CFO, CLO or CPO sponsorship is critical and mostly the first two. Once this directive has been issued, the next step is to identify savings targets across all corporate spend categories. Once these targets are identified and ranked, a category specific attack plan can be developed that best maximizes savings opportunities.

It is important to note, that savings alone does not create a successful e-negotiation plan. What can not be sacrificed in the name of cost reduction are quality, safety improvement and environmental support programs that enforce your Corporate Social Responsibility (CSR) goals.
 
A key challenge for any procurement organization directed to implement e-negotiation tools across all of their unique spend categories, is to not over complicate the process into something that you can’t maintain. At a high level, the following steps will insure that you are headed down the right path.

1. Indentify business owners
2. Identify all spend opportunities by owner
3. Consolidate spends into a total corporate view
4. Aggregate like categories
5. Rank spend by category and owner
6. Develop a total company strategy
7. Research and Source additional qualified suppliers
8. Collect detailed specifications
9. Prioritize events based on spend and Importance
10. Let your solution provider do their job
11. Hold e-negotiation events
12. Negotiate final terms
13. Award of business
14. Contract completion
15. Results Analysis

Most quality e-procurement solution providers have well developed e-negotiation strategy and plan templates that will aid you in implementing your best implementation while maintaining quality and supporting your CSR initiatives.

We look forward to and appreciate your comments.

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Retailers; is your sourcing transparent enough?

Thursday, April 29th, 2010

If you are not sourcing at least 30% of your cost of goods and services with e-negotiation tools, you are lagging the leaders in your industry and well behind other industries. Resultantly you are not getting the best costs and not driving the best margins for your company.

The e- negotiation process and in particular reverse auctions since their inception over a decade ago haven driven healthy competition amongst competing suppliers. As such the results of an e-negotiation event can provide a great benchmark for both the buyer and suppliers. For buyers the results can be used as a tool to evaluate how to best source other products and services. For suppliers that don’t end up as the low  bid, have the opportunity to evaluate why that is and what they need to do in order to improve or to be more competitive in the market place. This of course is all happening without the need to collect, collate, compare or negotiate during the process. In other words it is happening transparently to the normal sourcing process.

E-negotiation events provide the opportunity for suppliers that are outside of your business area or knowledge base to bid for your business. That is if your solution provider has access to a large number of retail suppliers.

Possibly the single largest  benefit to  using e-negotiation tools outside of price compression  for  procurement professionals  is that it offers  a significant opportunity for process improvement since most solution providers offer a standard process for hosting e-negotiation events. Everything is done in one place using standard processes to build the event to the analysis of the bids collected. All information is then available for immediate evaluation and archived for easy access in the future. This reduces the overall procurement life cycle time, eliminates or reduces the opportunity for human error, and provides a standard way to award business.

We look forward to and appreciate your comments.

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Do you pay attention to the commodity markets?

Wednesday, April 28th, 2010

Let’s suppose you are planning your strategy to buy egg products such as whole eggs or liquid eggs or egg mixes. The first question you need to resolve is what makes up the largest cost in the egg farming process? To provide a short answer, it is feed. The follow up question to this should be what type of grain makes up the feed? Again a short answer is corn. Resultantly these two questions should lead to the conclusion that keeping track of grain market futures is probably the best bet for locking in your pricing strategy depending on the length of your contract. As an example, with this inforamtion you might insert escalator / deescalator language in your contract based on the market price of grain at the time you negotiated your pricing.

The same story is true for all products based on the raw materials that make up the majority of the particular finished good. It may be a paper pulp based product, a plastics based product a steel based product a petroleum based product or many other raw goods. All of these commodities can be monitored.

Now you need to determine where to find this type of information. At SafeSourcing, one source we use is the CME Group which includes the Chicago Board of Trade. For our egg market example there is also another tool available that can also be useful which looks at the average weekly price of egg products by region of the country. Using the two together is normally your best bet to build a solid strategy.

The previously mentioned CME Group serves the risk management needs of customers around the globe.  They  provide the widest range of benchmark futures and options products available on any exchange, covering all major asset classes, including interest rates, equities, FX, commodities, and alternative investments such as weather and real estate.

If you are not watching the markets that drive the pricing of the products you buy, you may make some significant mistakes that could negatively impact your financial plan down the road.

We look forward to and appreciate your comments.

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Hey retailers; how green are your suppliers? You can not manage something that you do not measure.

Tuesday, April 27th, 2010

When we think about safety and eco standards relative to our supplier partners, I honestly believe that retailers say quietly to themselves; how are we supposed to monitor this with everything else we have to deal with in procuring products?

This issue becomes more complex when you consider that data may be required from your organization relative to your existing suppliers, data from your supplier as to their own interpretation of their adherence and practice and finally other external data that neither organization may have.

Reflecting on safety, the question that retailers should ask all suppliers old or new is pretty simple. What certifications do you carry relative to food safety such as Safe Quality Foods (SQF), Global Food Safety Initiative (GFSI), American Humane Certified and others? Another area to question should be regarding USDA and FDA inspection history.

Although Green Initiatives fall into the social consciousness area of a company, there are a variety of questions that can be asked in this area as well such as Green Seal, Eco-logo and Green Star certifications and participation in other partnerships that are environmentally focused.

A source that may make it easier for retailers would be to rely on their e-procurement solutions providers for this data if the provider has it included in their portfolio such as a supplier database. E-procurement specification templates can act as a form of scorecard for existing suppliers and potential news sources of supply if they are used as a repository for database queries relative to the above subject matter. This can become a type of automated RFI process which can save retailers a lot effort when trying to find additional sources of supply or when trying to drive cost down with existing suppliers. These data may also help to protect retailers from harmful litigation when products end up not being as safe as promised.

Can your e-procurement solutions provider provide these types of data on demand as a normal byproduct of your standard e-procurement process?

We look forward to and appreciate your comments.

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What’s on your e- procurement tool belt? Tool belts should make your job simpler.

Monday, April 26th, 2010

There are all sorts of shiny new belts in every store. Don’t get caught up with flashy features that you will never use or forget how to use because you will end up defaulting to doing things the same way you have been for years

The SafeSourcing e-procurement tool belt is simple and easy to use.

A procurement intern can build an e-negotiation event the very first time they look at our tools. If they don’t understand certain procurement terminologies they can enter the term into the SafeSourcing Wiki without ever leaving the website. If you would like to converse with other procurement professionals about a variety of subjects such as index pricing, just log in to Sourcebook it’s easier to use than traditional social network sites and has many of the same features. You can create a group or hold an open threaded conversation with hundreds of other procurement professionals. If you are looking for new sources of supply, you can request information sorted by dozens of criteria including proximity to a particular zip code, category, sic code etc. While all this is going on alerts from more than thirty sources like the FDA, USDA and OU provide you with up to the minute industry alerts on safety and environmental related issues. Are you looking for product specifications?  Just click on the SafeSourceIt template library. Want to start a contract after you have awarded business from an e-negotiation event, simply click on SafeContract to view templates and setup tracking.

You can also read this blog daily and pass the useful inforamtion on to a friend very easily.

We constantly hear from our customers how simple our tools are to use. What are you waiting for; get your pants of the ground with the Safesourcing e-procurement tool belt.

We look forward to and appreciate your comments.

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Do suppliers benefit from participation in e-negotiation events such as reverse auctions?

Friday, April 23rd, 2010

A discussion followed relative to incumbent suppliers view and how long the retailer had been doing business with them vs. the opinion of new sources of supply. In general most vendors in the space would come up with many of the same points listed below. Please read on.

SafeSourcing Inc. places a great deal of value in our SafeSourceIt™ Retail Supplier Database of over 380,000 retail suppliers located throughout the world. Additionally we also place a great deal of value on each individual supplier regardless of their size. We believe that well thought out next generation e-procurement tools can provide significant benefits to buyers and suppliers whether they are hosting or participating in e-procurement events. 

Some but certainly not all benefits that suppliers can anticipate from SafeSourcing are:
 
1. An easy to use e-procurement tool limited to a single page view where a supplier can be completely comfortable that their company’s best foot is being put forward to the soliciting company.

2. An increase in new business opportunities through engagements they would otherwise not be exposed to.

3. Clean data about the soliciting company and an accurate listing of their event guidelines, specifications, terms, conditions and other information necessary to build an accurate and successful pricing strategy.

4. Best practice training in event participation and strategy development.

5. A clear focus on what’s important beyond price in next generation e-procurement tools such as supplier safety certifications and practices as well as their environmental programs that will differentiate them from other suppliers.

6. Closed loop same day reporting of results of the specific e-procurement event a supplier participates in as well as a detailed supplier feedback questionnaire report.

7. Significant time savings associated with new business development that becomes more and more costly based on fluctuating markets..

8. Industry pricing trends extrapolated from their view of low quote information during the event if allowed by the soliciting company.

9. Use of these tools for their own procurement needs.

It sure does not sound like a bad deal to this author as long as it is explained correctly and supported by the retailer as their way of automating their procurement process and record keeping.

We look forward to and appreciate your comments.

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Procurement life cycle and the procure to pay process. Aren’t they the same thing?

Thursday, April 22nd, 2010

 According to Wikipedia Spend Management is the way in which companies control and optimize the money they spend. It involves cutting operating and other costs associated with doing business. These costs typically show up as “operating costs” or SG&A (Selling, General and Administrative) costs, but can also be found in other areas and in other members of the supply chain.

If we understand that spend management is as defined by Wikipedia, then how does it differ from procurement lifecycle management? There are generally several steps to PLM that include information gathering, supplier communication, background review, negotiation, fulfillment, consumption and resupply. So it seems as though procure to pay represents the tools used to carry out spend management

The tools that support this process generally fall into the following categories. E-procurement or e-negotiation tools such as reverse auctions or RFI’s, spend management tools such as adhoc reporting tools , predictive modeling tools, contract management tools, invoice and payment tools and order and fulfillment tools.

Unfortunately many of the available tools come from a  diverse base of providers utilizing a variety of technologies. In mid tier market, many retailers some still cling to home grown tools that have evolved over years. The first tool of importantance should be tool sets that assist in easy integration of disparate technologies. There are major companies such as Oracle and SAP that provide sophisticated ERP suites that provide a centralized location for buyers to log on and handle all their payments, requisitions, exceptions and agreements at once. In general these solutions are too expensive for lower level tier one and mid tier retail companies and also lack adequate data to operate as an integrated sourcing system such as supplier databases and product template libraries or integrated purchase order and contract management systems . These typically show up as wrap around service bundles that require significant research of existing data points and often significantly raise the price of the system after initial purchase.

None of the tools or services listed above are very intuitive easy to use or low cost.

So now we’ve come full circle, how can technology solve these problems so that all retailers regardless of size can take advantage of these types of systems? That’s part II.

We look forward to and appreacite your comments.

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Supplier scoring may provide Key Performance Indicators to the future.

Wednesday, April 21st, 2010

Quality supplier selection is one of the most important areas of focus in order to insure quality and sustainability in the e-negotiation process.

Having a large database of available suppliers to drive sustainable results in e-procurement events such as reverse auctions is a critical success factor. Maybe even more critical is making sure that the suppliers once selected for participation in an event are of the highest quality, professional, responsive and have your best interests at heart. There are several areas in the early strategy stages of a reverse auction which if properly monitored can be leading key performance indicators as to future performance. These KPI’s are, the initial supplier response and supplier training schedule adherence. If suppliers are not interested enough during these early stages, that may be an indicator of future performance in other more critical areas such as on time delivery, back order management and documentation.

A simple process for measuring these KPI’s would be to measure the number of days between the project start date or initial supplier contact and the event start date, where the supplier has been sent an invitation but has not responded either positively or negatively. Maintaining an active status of response dates could be scored based on the number of days it takes invited suppliers to respond. Obviously the longer it takes to respond the lower KPI score the supplier would receive. Another possible KPI measurement or filter once the invitation has been accepted would be the number of days between the date accepted and the event start date, where the supplier has accepted an invitation but has not completed their training.

These are not intended to be punitive measures. In most cases suppliers will perform beyond your expectations. Sustainability and quality require measurements regardless of how simple.

As always we appreciate and look forward to your comments.

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Why some buyers think e-Procurement will never work.

Tuesday, April 20th, 2010

Sometimes I wonder what it takes to get through to people that as a procurement professional or knowledge worker, that their job is the most important job in retail. Or at least it could be.

This author has discussed on many occasions the various benefits to retailers of using e-Procurement tools. Not the least of which is that if a retailer were seriously to assign twenty percent of their above the gross margin line spend to these types of tools, they could increase their net earnings by up to 100%. In addition, much of the following would also happen.

1. They would continue to source high quality products.
2. They would continue to have great supplier relationships.
3. They would free up time to do other tasks.
4. They would improve their company’s net earnings by up to 100%.
5. They would support our fragile environment.
6. They would support global food and product safety initiatives.
7. They would have a larger audience of piers to converse with daily.
8. They would have a single source of information about their profession.
9. They would be instantly alerted to product recalls.
10. They would support a traceable supply chain.
11. They would have an endless source of new suppliers to review easily.
12. They would have product specifications at their finger tips.

Now you might wonder why many companies are not enjoying these benefits already. The following are the objections I hear all of the time after we have presented to a prospect that has not been exposed to e-procurement tools in the past.

1. I already get the best cost.
2. We’ve done business with this supplier for years.
3. I don’t have product specifications.
4. I don’t have time for this.
5. Switching costs will be too high.
6. I can’t insure the same quality.
7. We need to adhere to certain standards.

If you have an objection that is not listed above, or they pretty much fit your thinking, please review the dozen benefits above and weigh it against them.

As always, we look forward to and appreciate your comments

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How should companies decide what products and services can go through the e- negotiation process?

Monday, April 19th, 2010

There really is no reason to shy away from taking any product or service to reverse auction as part of your overall e-negotiation strategy to compress pricing.

There are however some simple questions companies can ask themselves when considering any product, service, or category for consideration in the e-negotiation process. Several but not all of those questions would certainly include the following three.

1. How many suppliers are available and willing to bid on your business?

It’s obvious your company is already aware of your incumbent suppliers. The more important question is what other suppliers are available and how can you find them.
Several will exist within you own geographical area that you are not even aware of. Many others may be located across the country that are also very interested in earning your business.

2. Does your company have the complete detailed product specifications for this product or service readily available or are you familiar with a source from which you can get them easily?

Are your products specifications kept in some form of central repository or are they in the mind of your buyer? This is the single largest obstacle to successful e-negotiation events.

3. How much of the product or service are you willing to commit to buy over what period of time?

What period of time are you buying for? Is there an opportunity to contract for a longer period of time in order to raise volumes? Is there an opportunity to aggregate dissimilar products in order to increase the e-auction size?

If you are well prepared, there are suppliers willing to bid for your business that offer quality equal to or better than what you are presently receiving for your products and services at a better price and with better service. That’s win-win-win.

We always look forward to and appreciate your comments

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