Archive for December, 2011

“Staying the Course – Resolutions Part V of V”

Friday, December 30th, 2011

In the past four days, we have explored our New Year’s resolutions. We are now ready to reduce spend, prepare for new projects, engage in that green initiative and prevent contract evergreening. The most difficult step in any resolution is to see it through for the year to come. Today, I will provide additional tips that can keep your procurement strategies fresh and beneficial.

Event Selection:

The selection and timing of your procurement events is an important factor in overall procurement success. Take the time to categorize your events based on level of complexity as well as spend dollars and you will find that you are able to maintain a mix of simple and complex events that keep your organization balanced and prevent overload.

Index pricing and renegotiation:

You will likely find that your contracts contain index pricing language. This might include Min/Max clauses and might even include caps to prevent your pricing from varying too much in a given timeframe. Monitoring your price changes as they occur will protect you against unjustified price increases and increases that are above the maximum levels allowed. You might also find benefit from monitoring the indices involved to ensure that you receive any applicable price decreases that you deserve.

By working with your strategic sourcing partner to follow the resolution enhancing tips from this series, you will enjoy a 2012 filled with procurement advances and greatly reduced spend.

Have a Safe and Happy New Year!

We look forward to and appreciate your comments.

“Eliminate Evergreen Contracts – Resolutions Part IV of V”

Thursday, December 29th, 2011

One of the biggest causes of excessive cost we find is evergreen contracts. I find this to be a fitting topic for a New Year discussion as, just like the New Year, these contracts also follow on the tails of a year. Evergreening is the practice in which a contract automatically renews if no actions are taken. Often this renewal is at a premium. For more on evergreening, click here to go to the SafeSourcing Wiki.

Evergreening can be prevented using a two part approach. First, you may implement a contract management system that will monitor your existing contracts and notify you of upcoming dates, such as contract expirations. These notifications will allow you to take the appropriate actions to prevent evergreening.

Once you have received your notification, you can take the existing documentation from the contract management system and work with your strategic sourcing partner to develop this into an RFI, RFP or RFQ based on the specific needs of that project. This chain reaction caused by your contract management system will have allowed you to prevent your evergreen contract from automatically renewing, led to further procurement savings and did so with enough time to benefit from this process without interrupting your current source of supply.

In tomorrow’s post, we will consider tips that will help you stay the course with your resolutions.

We look forward to and appreciate your comments.

“Green Practices – Resolutions Part III of V”

Wednesday, December 28th, 2011

By now this is a classic company resolution. But now is the time to act on your good intentions. This is a great resolution and this author sincerely hopes that you can make this work, even if only in a small way.

If we really consider going green, it is easy to see the benefits of and get caught up in the big areas. We might want to reduce our carbon footprint by limiting corporate travel or replacing our equipment and office supplies with the green versions of the same. These are certainly great aspirations. While you determine which of the major green projects you can implement, I would suggest you step back and make a smaller change as well.

One way to implement an environmentally friendly purchasing process is to enlist help from your strategic sourcing partner. Ask your provider to limit your vendor selections to only include vendors that hold at least one environmental certification. This would ensure that as you go about your business of purchasing the items and services that you already need, you will also be supporting a green initiative.

This may seem like a small step, but every small step we take is a step in the right direction.

In tomorrow’s New Year post, we will take a look at another annual procurement issue; evergreen contracts.

We look forward to and appreciate your comments.

“Be Prepared – Resolutions Part II of V”

Tuesday, December 27th, 2011

In yesterday’s post, we took a look at a fairly basic concept that will pay out enormous dividends. In a nutshell, every procurement activity, regardless of value, should be approached using the same techniques that would be used for the highest priority purchasing initiatives. This includes RFIs, RFPs and RFQs. Now, the question becomes, how do you prepare your team for the challenges that lay ahead?

The answer is to develop a thorough plan. Working with your strategic sourcing partner, develop a strategy based on a proper category discovery session. Your partner will lead the effort to determine your plan based on the spend information that you provide and conversations with key personnel in your departments. Once this plan is in place, understand that this will become a living document that will continue to grow and evolve throughout the year.

In addition to your plan, you also need to enable your team and your strategic sourcing partner. Your partner has already assisted with the discovery process, so it is a natural extension to continue to keep them informed of changes to your plan. Now that you will be considering more of your company’s spend in your day-to-day efforts, your solution provider will also have to follow suit and provide additional support. At this point, you must develop and maintain an open line of communication between key players on each team.

Finally, you will want to prepare to share the good news. In order to keep your team motivated through the year, you might consider how best to share the news of your successes. You may choose monthly or quarterly reporting that will highlight cumulative savings dollars that departments or team members have ushered in using your procurement plan. Creating excitement will only lead to more success.

Tomorrow, we will touch on another resolution that is becoming more and more common and from which we can all benefit.

We look forward to and appreciate your comments.

“Welcoming the New Year – Resolutions Part I of V”

Monday, December 26th, 2011

As we welcome in a new year, we often speak of our resolutions. Personally, the resolutions that we make are likely to include exercise more, become more environmentally conscious or lose weight. The same concept of resolutions should take hold in your procurement department. Take the New Year as a challenge to drive new initiatives that will reduce spend in a sustainable manner.

If our first resolution was to exercise more, we could also apply that to procurement. That is to say that we could take more steps toward efficient and effective procurement. You may focus your RFI, RFP and RFQ efforts on initiatives that have been deemed the most significant based on spend or some other factor, but what about all of the other initiatives that go unnoticed? How many of these smaller spends are allowed to continue year after year while your focus is on these larger spends? Make a plan to include more of your contracts and share that plan with your strategic sourcing partner.

If you were to say “I want to lose some weight this year”, couldn’t you also say “I want to reduce my spend this year?” Just like it is for a body, exercise will lead to weight loss. Stay on track with your procurement plan and you will see the spend dollars drop. Increasing your company’s strategic sourcing initiatives to involve all projects will have a significant impact on reducing your overall spend.

In the remaining segments of this series, we will continue to explore ways to take advantage of that New Year energy. Tomorrow, we will take a look at how to get your department prepared for the new (or renewed) procurement initiative.

We look forward to and appreciate your comments.

Reverse auctions will drive consistent results over time.

Thursday, December 22nd, 2011

To use a baseball analogy, you may not get the grand slams and homeruns typically seen during first year implementations of reverse auctions but with proper planning and execution you will at a minimum continue to beat market pricing. Think of it as singles, doubles and triples for the at bats after you have hit a home run.

In order for this to happen we have to understand how to conduct successful auctions in today’s business world and it is not the same old same old where the low bid always wins. The number one job of any business is to drive bottom line profitability. Because of this, companies that win your business during an E-RFX process need to make the business they have just won as profitable as possible. They may take your business during an auction as a loss leader in the hopes of selling you more volume at a lower margin or selling other products to you. They may take your business at a loss in a down economy to drive cash flow in order to just keep going. They also will take actions during the next year or two to drive their internal costs down. All of these circumstances and more mean that there is potentially more compression on the table the next time around. The why is actually pretty simple? Your new supplier wants to keep the business and the relationship, your old supplier wants their business back and other suppliers want new accounts.

There are many other benefits to running these auctions again and again. New products offerings with better features, new suppliers that you are not aware of, suppliers you strategically did not invite the 1st time, existing products with new technologies and quality improvements to name a few. To support this, don’t sign contracts for periods of longer than two years or you will be paying too much by contracts end.

If your e-procurement solutions provider knows what they are doing, reverse auctions can and should become a long term tool in your procurement tool box.

We all know that the consistent hitting of singles and doubles wins more games. In fact a grand slam can’t happen unless there are already runners on base.  If you want to hear more about how to succeed year in and year out with this process, please contact SafeSourcing.

We always appreciate your comments.

A Christmas related spend cube analogy. “Little Jack Horner sat in corner eating his Christmas Pie.”

Wednesday, December 21st, 2011

The rest of the Little Jack Horner (learn more) spend cube analogy might be changed to read like this. He stuck in his thumb and pulled out a peach and said what the heck is a peach doing in a plumb pie?

If you look to Wikipedia, there is subject definition of a spend cube. You can find information relative to spend cubes in a discussion about spend analysis. However  to the original discussion we are talking about data in this case multi-dimensional data (data cube) about spend information. Consultants love to talk about it because it allows them to charge you a lot of money without necessarily delivering any results other than, well a spend cube.

Quite frankly you are going to hear terms like data model, data warehouse, data scrubbing, data cleansing, data access, data sources and incomplete data. All of which allow consultants to charge you more money in order to develop yours from what is likely incomplete data kept in many places like GL’s, ERP systems and the like.

Once you get your model or cube, I promise you additional discovery is going to be required in order to determine what categories or products should go to market. One category manager’s category is another category mangers product. So now what?

Don’t get confused by consultants touting their spend cube analysis software because if you do, you will be in for a dime and ultimately in for a dollar and continue to get peaches when you are looking for plumbs. Ultimately the rhyme we used above is about hiding something.

If you’re totally confused, SafeSourcing can help, and we deliver results quickly. Contact a SafeSourcing representative.

We look forward to and appreciate your comments.

Here’s a Light bulb Christmas Gift from congress. Or not.

Tuesday, December 20th, 2011

If you were to base your business decisions on what congress told you to do, you could make some big mistakes. Mistakes like carrying to much of one inventory item versus not enough of another. Mistakes like moving your CSR focused green initiatives up based on legislation even though they will cost you more money this year as opposed to spreading your transition out over a couple of years.

Well congress as usual is at it again with another hide and seek item within a huge spending bill.

According to a Washington Post article by Stephen Dinan titled Congress overturns incandescent light bulb ban, Congressional negotiators struck a deal Thursday that overturns the new rules that were to have banned sales of traditional incandescent light bulbs beginning next year.

That agreement is tucked inside the massive 1,200-page spending bill that funds the government through the rest of this fiscal year, and which both houses of Congress will vote on Friday. Mr. Obama is expected to sign the bill, which heads off a looming government shutdown.

Congressional Republicans dropped almost all of the policy restrictions they tried to attach to the bill, but won inclusion of the light bulb provision, which prevents the Obama administration from carrying through a 2007 law that would have set energy efficiency standards that effectively made the traditional light bulb obsolete.

Any thoughts as to what lobby caused this action to happen? Will it protect jobs? Will it slow growth? Do what you do because it’s good for you.

All of your opinions are welcome and appreciated

Social Media and a New Year

Monday, December 19th, 2011

Todays post is by Mark Davis Vice President of Operations and CTO at SafeSourcing.

With the influence of social media like Twitter, Facebook and LinkeIn  continuing to grow, how do you plan on using them for your business in 2012?

This past year has seen many new and sometimes alarming trends worldwide at every level and in every industry.  Few of those trends saw the impact and influence that social media channels had in 2011.

As with any new technology or tool, misuse can cause harm as we saw with some Twitter and Facebook mishaps, however those same tools, when used as designed, can create a benefit that can far outweigh the potential downside.  For many businesses the use of these tools would be embraced if they just understood more about them and the potential benefits. 

Today’s blog will take a look at a few of the aspects of social media and how they can be leveraged to help your business.

What’s Happening NOW? – It used to be that there were very traditional methods that worked for decades to communicate what is happening with your company.  Press releases were the strongest methods because they told the story in a way that made it news, and so the story respected.  With time the process for making this happen, making it “news” and getting it picked up by a newspaper or magazine began to transition into easier regular updates to a company website or possibly a blast email. 

With today’s social media tools such as Facebook or more fittingly Twitter, quick, snapshot, text-message updates can be sent at any time, about anything the company does in a way that can be instantly “followed” by thousands of people immediately.  The challenge is having a staff or partner that is current enough with the new channels to make the messages short enough to be digested but relevant enough to valuable.  The more frequently the messages are produced, the greater following you will develop. 

Who’s Talking About Us – Instant feedback is another valuable characteristic of the social media channels.  Whether by Blog, by Tweet or by Status Update the whole social network world has the capability to instantly let you know what it thinks of your message, product, service or company.  Having this feedback is terrific when it validates you are heading in the right direction, but even more importantly, it lets you know when you are NOT, quickly enough in most cases to change your course.  Knowing what people have to say about your company can be some of the most valuable information these channels can provide.

“Like” Us  – “Like” and “unlike” are words that in the past few years have hit the mainstream spotlight in ways they never have before.  These seemingly simple concepts made popular by Facebook for people to connect to businesses, people or concepts that they like is the one of the most important features of virtually all social media channels; FOCUS.  No longer are you blasting your messages out to groups of people you “think” will find your message valuable.  Now you have the peace of mind to know that your messages are going to people that are interested in what you have to say.  Those people are connected to other people who are also likely to have interest in your company, product or service and as a result will also hear what you have to say.  This connectivity; these links; this network is why the technology has become so powerful.

This just barely scratches the surface of what can be achieved with these new channels of communicating to your current and potential customers but hopefully is still a useful beginning of seeing where the value lies.

For more information finding companies that can help you with developing your strategy for social media, please contact a SafeSourcing Customer Service Representative.  

We look forward to your comments.

Part III of III. There are all types of reverse auctions.

Friday, December 16th, 2011

I like these types of words. Vickrey has a certain ring to it doesn’t it? In fact there are so many types of reverse auctions that we can’t deal with them all in a single blog. Some of the other types beyond the reserve price auction we have already discussed in this series and the Vickrey we will discuss today are English Auctions Yankee Auctions, Dutch Auctions and many more. Each type of auction evolved to be used for different type of purchasing.

I like the premise behind the Vickrey auction because of the gaming discipline that psychologically encourages bidders to keep fishing or playing. To this author what is important in today’s e-procurement platforms is that all features of all auction types ought to be available for use within a single event. By this, I mean we should be able to use all features of any auction type within a single event. An example might be using deciles, market baskets and units as a framework for a single event and have the flexibility to apply any feature such as reserves, ranking, indices, extensions and any other feature to each as well as each line item within an area. This flexibility drives the best possible savings for the host within one event.

Now back to the Vickrey.

According to Wiktionary the Vickrey reverse auction is named after a Canadian professor of economics named William Vickrey (1914-1996) who was also a Nobel laureate.  Vickrey’s paper, Counterspeculation, auctions and competitive sealed tenders, was the first of its kind using the tools of game theory to explain the dynamics of auctions. Any one that truly understand the magic of a reverse auction understands that the same type of psychology that drives gaming in a Casino drives the dynamics of a reverse auction.

Because there are so many types of reverse auctions it is important to develop an individual strategy for each category that you decide to take to market. Specifically to the opening question, a Vickrey auction allows for selling single items where the lowest bidder sells the item at the price offered by the second lowest bidder.

Now try and figure out how you would implement this strategy. Would you use ranking? If so, what impact might it have?

We look forward to and appreciate your comments.