Archive for February, 2012

What is the retail procurement lifecycle?

Friday, February 10th, 2012

If your retail procurement team understands the procurement lifecycle of a product or service it will make its sourcing much more efficient. Ask one of your teammates to explain their understanding of the retail procurement lifecycle to you. You’ll be surprised as to how many different answers you get.

A good place to begin discussing this subject is in the discovery phase of a procurement engagement. It helps to get everyone on the same page. Surprisingly the process which is quite simple as a definition is not any different from when this author first learned it over 40 years ago in the U.S. Air Force.

Typically procurement consists of seven (7) steps. Where the confusion generally enters is that each step can have a process of its own or be interrelated with another step in the process. An example would be the contract lifecycle that easily fits within the negotiation cycle and the renewal cycle. Another might be that information gathering which is the generally accepted first step in the process can apply to multiple issues such as information gathering for the related product or services such as specifications as well as the information gathering of prospective supplier data.

As such, the simple steps to the procurement lifecycle that most individuals generally agree upon are as follows.

1. Information gathering
2. Supplier contact
3. Background review
4. Negotiation
5. Fulfillment
6. Consumption
7. Renewal

Most times keeping this simple model in mind will allow retail procurement professionals to answer the question; where are we in the process when a project gets stalled or off track?

Contact the Safesourcing team if you’d like to learn more.

We look forward to and appreciate your comments.

Ron Southard – CEO SafeSourcing

You know what they say about excuses.

Thursday, February 9th, 2012

The reason is because middle market retailers are still not using low cost e-procurement tools such as reverse auctions.

There are two primary sources of objections that continue to halt the use of these profit enhancing tools in the middle markets.

The first source is your own buyers or category managers. For some, it is the false belief that these tools will eliminate their jobs. For others, it is the thought that in rising markets, buyers tend to be conservative in the hopes that their suppliers will continue to honor old contracts and delay price increases. Neither assumption is true. E-procurement tools make a buyer’s job easier, as they can do more in less time such as working with dozens of suppliers versus only the same few they have always worked with.  Honoring old contracts almost never happens. Ever-greening of contracts is a huge problem in retail where the lack of sophisticated contract management systems that can provide automatic alerts results in literally thousands of contracts auto renewing annually at predetermined price increases. This results in huge cost increases to retailers that were not planned for. This is all the more reason to be thinking about your spend months before contracts expire even if it only results in cost avoidance.

The second area where you can expect pushback is from your incumbent suppliers or wholesale distributors. If you have never participated in the setup of an RFP or an RFQ (reverse auction) and most middle market retailers have not, that initial call to your suppliers to ask them to participate in a reverse auction event is always an interesting journey. Be prepared for all of the reasons in the world why you should not waste your time on this type of process. The more forceful the pushback the more likely you are to see savings that you should have seen earlier. As such, although suppliers may be well aware of or even using these technologies to reduce their own costs, middle tier retailers have not been able to share in these savings to the extent they deserve to.

If middle market senior executives were to lead the charge and  e-procurement costs as ell as the availability of new sources of supply were no longer an issue, there is absolutely no reason middle market retailers should not benefit greatly from running  e-procurement events such as reverse auctions.

Contact SafeSourcing if you’d like to impact this quarters earnings.

We look forward to and appreciate your comments.

Ron Southard – CEO SafeSourcing

What the heck is Retail Spend Management? Is it the same thing as Retail e-Procurement?

Wednesday, February 8th, 2012

This generally is dependant on their own offerings which can cover the entire procure to pay process? However at it’s most basic, we are talking about e-RFX offerings such as RFI’s, RFP’s and RFQ’s  and other tools and  services that support them. So, the answer to the above is really yes and no.

My typical response to retailers is that spend management  is the management of your company’s spending across all of your operating expenses and SG&A through sophisticated tools that support RFI’s, RFP’s and RFQ’s at a minimum. Organizationally this process should report to a Chief Procurement Officer or the head of your supply chain with strong ties to the finance area. Success is typically measured by a reduction in cost of goods and services or COGS, improvement in quality or both. In retail, spend is represented in for resale products such as general merchandise, gift cards, frozen seafood, meat etc. Spend is also measured in the expense category or not for resale products and services such as supplies, services, technology, real estate etc.

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.

There are dozens of vendors that have a variety of tools and services that are available to assist companies in the analysis and management of their spend for the purpose of present and future decision making. These range from small boutique software houses to giant corporations. Spend management of which e-procurement tools are a part run the gamut from sophisticated contract management applications, reverse auction tools, purchase order management tools and supplier databases etc. In the most sophisticated implementations, these tools may be tightly integrated with retailers enterprise based support systems or data warehouses.

It is not a surprise that many retail companies are not really aware of what their total spend is, or how many suppliers they spend it with. In addition, many retail companies still do not use these tools today. Often times, product specifications are hard to find if documented at all and in some cases the same category might be purchased by different departments across the enterprise without aggregating the spend.

Today’s tools that supports spend management are largely available as internet based or hosted applications that re much lower cost than older in house legacy applications. As such they can be activated almost immediately. This means savings within your present accounting period is possible.

If you’d like to learn more about this process or these types of tools, please contact SafeSourcing. 

We look forward to and appreciate your comments.

Who writes your Statements of Work or SOW’s? And what are they anyway?

Tuesday, February 7th, 2012

A statement of work or SOW is another document that is typically added to e-negotiation events in order to bring clarity to what is included in a bid. In essence the document lists the work activities to be agreed upon, the deliverables and a timeframe in which a supplier will be expected to perform against. The SOW requires agreement as do other documents prior to a supplier being allowed to place bids.  

Some of the areas that are normally included in a Statement of work might include but are certainly not limited to the following.

1. The actual scope of work to be completed
2. The time period in which it is to be performed
3. The location of work.
4. A list of the detailed deliverables
5. A Schedule of all deliverables
6. A standards adherence document.
7. Acceptance criteria
8. Other requirements.
9. Change of control documents
10. Price change requests

Make sure that when you are running e-negotiation events that you make sure that all of the above information is considered and captured before you approve of an event being passed on for suppliers to review. Make sure that you consult your internal subject matter expert and don’t just head off on your own. If you don’t have one, ask your e-procurement solutions provider if they can help.

We look forward to and appreciate your comments.

The Private Label Strategy

Monday, February 6th, 2012

Today’s post is by Mark Davis; Vice President of Operations and CTO at SafeSourcing. 

Virtually every retailer, especially those in food, fuel and pharmacy, has some plan in place for private label products in their sourcing strategy.  The commitment, creativity, and relevance with which companies apply this strategy vary, but some of the new trends are remaining constant as the private label movement continues to expand and change.

today’s blog we will look at some of these trends and how they are affecting the private label sourcing strategies in retail today.

More than just cost – Historically, the biggest reason for private label strategies comes down to reducing costs.  Without the overhead of huge National Brand advertising companies found that offering a comparable private label product at a greatly reduced price drove increased margins and sales.  As time has gone by, the perceived gap of quality between private label products and National Brands as continued to close.  By controlling the source of the private label product, companies are able to enforce higher quality standards as part of the new contracts and agreements they make.

Variety – A significant advantage companies are beginning to realize in the process of evaluating their future private label programs is that they are finding that private label suppliers are beginning to offer as many, and in some cases more, variety of products than the National Brands can offer.  Being able to mix and match products from different suppliers can provide an overall private label offering that equals or surpasses National Brand lines.

Packaging flexibility – The newest trend in private label sourcing is the incredible flexibility offered in packaging and branding.  With the control over all aspects of how a product is marketed and branded, retailers can develop campaigns that fit tightly with the culture of the company and can be critical parts of corporate rebranding efforts.  Packaging that is unique and personal is able to develop the loyalty with customers that go far beyond being a location to buy thousands of products manufactured by other companies.  With good quality, lower priced, strongly branded products that can’t be purchased at the nearest Super Store retailers can create that brand loyalty that connects to their overall company loyalty.

For more information on helping to find private label suppliers and packaging experts that can help further enhance your company’s private label objectives, please contact a SafeSourcing Customer Service Representative.  

We look forward to your comments.

FACT: If you won’t listen, no one can help you!

Friday, February 3rd, 2012

This is not a general complaint although the majority of folks believe they are overworked today. This complaint is in regards to using today’s e-procurement tools to reduce their costs across the board. How about, my team is to busy with other initiatives to take a look at this now.  Or our buyers and category managers work eighty hours a week and already get the best prices.

I work a lot. I always have. More than most if you were to ask my customers, employees and other individuals I am associated with. When someone tells me their people work 80 hour weeks, I flat don’t believe them.

Here’s a simple fact: IT”S ABOUT THE MONEY! From a corporate perspective if you are not profitable, you will die. This holds true for both public and private companies.

Let’s talk about retail for a bit. I don’t care what retail vertical you work in, for the most part your cost of goods are going to be between a low of 50% (you better hope not) and a high of 70%. Most of these companies have net profit of a couple percent at best.

Fact: E-procurement tools and specifically reverse auctions will reduce your costs.
Fact: You do not know where all the available sources of supply are.
Fact: Neither you nor your team has time to look for them or vet them.
Fact: Once vetted neither you nor your team have time to collect and analyze bids from all available be sources of supply.
Fact: Because of the facts listed above, you can not guarantee that you are receiving the best price.

Let’s do some simple math. If you are a $100M retail company. If your net profit is 2%. If your cost of goods are 70%. If you were to assign 10% of that to a full service company that offers e-procurement tools in the form of a service. If they were to achieve 20% in savings for you.
Fact: Your Company would more than double their net profit.

If you still do not believe me, please contact me and test me.

I look forward to and appreciate your comments

Ron Southard
CEO SafeSourcing

Strategic Sourcing Techniques Using Reverse Auctions

Thursday, February 2nd, 2012

Today’s post is by Ryan Melowic Director of Customer Services at SafeSourcing.

Strategic sourcing is critical to any business owner or buyer in today’s market.  Strategic sourcing techniques that focus on getting the best deal possible when purchasing products or services should be a part of any organizations procurement strategy.  By having suppliers competing for your business it allows an organization to discover the best terms that their particular market has to offer.  Most small to mid-sized businesses don’t have the resources or connections available to discover vendors outside of their local market place. By utilizing strategic sourcing tools like reverse auctions, your organization can more effectively control costs, achieve better terms, increase value from existing purchases all while maximizing efficiencies of your purchasing process.

Reverse auctions as a sourcing strategy can have an incredible influence on an organization’s cost of operating their business which speaks directly to the bottom line.  Taking into consideration even a small cost savings on products or services can have a value increase that can significantly impact the bottom line.  Studies show that just saving 7% – 10% on procurement costs can have a direct increase on an organizations profit margin and in some cases seeing a 30% – 50% increase.  Strategic sourcing techniques using reverse auctions can be a great strategy for increasing profit margins.

The strategic sourcing technique of using reverse auctions is just one sourcing strategy that allows organizations to feel confident that they are getting the best deal possible when purchasing products and services.  Historically reserved for large corporations and multimillion dollar purchases, today’s newer reverse auction solutions, such as the one offered by SafeSourcing, allows this technique to be available to small and mid-sized businesses and for purchases of all sizes.  Representing capitalism at its best,  reverse auctions a re a strategic sourcing tool that brings competition together to have an opportunity to bid for business they may not have otherwise gotten while at the same time putting the purchasing power of an organization in a platform where these vendors compete aggressively in a real-time environment for their business.

For more information on Strategic Sourcing Techniques Using Reverse Auctions, please contact a SafeSourcing Customer Service Representative. 

We look forward to your comments.

Part II of II. Sustainable Packaging is an Attractive Option for More Companies.

Wednesday, February 1st, 2012

Today’s post is by Ryan Melowic Director of Customer Services at SafeSourcing.

One potential concern that companies may have when deciding to go the sustainable route with packaging is whether or not it’s an economically viable decision for their company. Companies who choose to focus on the monetary rewards of packaging may find themselves sorely disappointed. Companies don’t want to sacrifice the quality of their products. They also want to ensure their packaging is modern and in step with growing environmental concerns.
It isn’t just the packaging itself that causes concern in some companies. The way the packaging is made also makes a difference in its ability to be labeled sustainable. Companies interested in eco-friendly packaging will aim for packaging that is not only designed responsibly but is also made using an environmentally friendly approach. For example, the best packaging would be created using renewable energy. Recycling is also important, and biodegradable packages or packages made from recyclable materials provide the greatest benefit to the environment and world.

Fortunately not every sustainable packaging material is expensive or difficult to procure. There are still many packaging materials that do an excellent job, but are not as costly to the environment. The right materials are also not too costly to businesses and their customers.

Contact a representative at SafeSourcing and we can provide more information on a solution and an approach to a cost effective process for sustainable packaging.