Archive for March, 2012

Getting Started!

Friday, March 30th, 2012

Today’s post is by David Wenig; Manager – Customer Services at SafeSourcing.

Whether the person in question is a young boy facing a daunting chore such as cleaning his room or a seasoned professional tasked with new project, the question is the same. So, where should you start?

For anyone tasked with the implementation of a new eProcurement process or project, I would offer that need not reinvent the wheel. Instead, use your partner as your guide during these early stages and throughout your entire partnership. You have selected them for various reasons including their experience, so work to leverage that experience for your own benefit to launch your process or project.

As with any daunting task, the best place to start is creating a plan. The boy in his room may decide to clean his toy cars before his blocks. (Of course, this depends on how much space is available under the bed.) Likewise, a procurement leader ought to set out a similar plan as well.

During this planning phase, look to your eProcurement partner for specific examples, templates and suggestions in this early planning phase. Their past experiences sourcing specific categories will undoubtedly give you guidance and insight that you will adopt for your own purposes. You will soon find yourself far beyond the feeling of “where do I start?” The next question you will ask is “why didn’t I start sooner?”

We look forward to and appreciate your comments.

Eight Percent decrease in Earnings due to contract lapse?

Thursday, March 29th, 2012

Today’s post is by Danielle Begley, Account Manager at SafeSourcing.

In a recent article in the New York Times, Walgreen’s has reported an eight percent decrease in earnings in the second quarter due predominantly to the discontinued relationship with Express Pharmacy network.  After failed attempts at contract negotiation, the two companies let the contract expire resulting in a 7 cent loss per share for Walgreen’s.  As the largest pharmacy, Walgreen’s blames a combination of the expired contract and a mild cold and flu season for the decrease in earnings.

Is your organization heavily reliant on a large supplier, or supplier that will greatly impact the overall financial health like Walgreen’s and Express Pharmacy?  If so, you could benefit with the use of a contract management tool, such as that of SafeSourcing.  Using such a system allows for planning through notifications of impending contract expirations.  In addition to expirations, contract management tools offer a much more efficient way to manage current and future contracts while allowing the ability to receive notifications on potential e-sourcing events that should be re-run based on contract expiration.

Mother Nature and the economy are two factors that cannot be easily managed or forecasted however don’t let your organization’s financial health be damaged by a contract lapse.

For more information on contract management please contact a SafeSourcing  Customer Service Representative for more information.

We look forward to and appreciate your comments.

I could not believe the question, but it was asked in a category manager meeting.

Wednesday, March 28th, 2012

Google or Bing certainly might help here, but in the old days we needed to know this stuff. So let me give you an old fashioned answer.

Typically this author thinks of this process in the six steps that follow

   1. When buying a product or a service a decision is required to do so.
   2. Once the decision has been made, analysis of what you are currently  buying in what volumes for use in what locations that will continue to satisfy your needs to be completed.
   3. Your purchase offer is submitted to a supplier or suppliers in order to collect pricing and other information such as the Terms and Conditions required in making your decision.
   4. A contract is signed for the product or service that outlines the responsibilities of the involved parties as well as remedies if contract terms and conditions or volumes are not met.
   5. A purchase order is issued with the appropriate approvals that match to the specifics as outlined in the contract in order to properly manage the contract.
   6. Payment is generated based on the purchase order submitted against the contract.

Sometimes there is a steep where an LOI or letter of intent is issued between step 3 and step 4 in order to take advantage of contract terms earlier in the cycle.

So now what happens if you don’t have a contract management system or a purchase order management system? Generally it’s referred to as leakage. In about 12 months you will be very familiar with it.

Contact SafeSourcing and let’s see if we can help you out with our procure to pay solutions.

We look forward to and appreciate your comments.

Do Supplier Penalties in contracts work?

Tuesday, March 27th, 2012

We have noticed an increase in discussions related to the effectiveness and benefits of including supplier penalties in contracts. From the recent opinions expressed, it appears that in the world of IT and Telecom, penalties included in Service Level Agreements (SLAs) are viewed as necessary and acceptable and are usually accompanied by financial incentive awards for exceeding SLA requirements. Other opinions note that penalties in product agreements can be counterproductive. The goal of penalties is usually to improve supplier performance and responsiveness.

Some large retailers such as Wal-Mart include penalties in the normal course of business as a standard operating practice. Wal-Mart made news in February of 2010 when they announced they would begin charging a 3% cost of goods penalty to suppliers and carriers that failed to deliver goods within a 4-day “must arrive by date” window.

Other companies, such as PEPBOYS, clearly list its vendor requirements on their website and include penalties such as 5% of the cost of items not shipped if the on-time fill rate falls below 95%.

What constitutes an effective penalty will vary from one contract to another. Penalties should be clearly defined for the supplier. When determining penalty amounts, ensure that the penalty has enough “bite” that it will cause elevated visibility within the supplier’s organization. Remember, if penalties are too numerous or frequent, they can become a burden to manage and consume your staff resources.

So, what’s the downside? Vendor penalties and fines can increase your cost of goods sold over time. Just the threat of penalties could be enough to cause a supplier to not want to do business with you. In the end, the use of penalties should always be legitimate and not a means of making money for your organization.

If you are looking to achieve the lowest cost of goods sold, contact SafeSourcing to see how we can help.

Vending machines are not going away and they aren’t just for candy and soda anymore!

Tuesday, March 27th, 2012

Today’s post is by Lauren Gentry; Account Manager at SafeSourcing. 

According to a recent Wall Street Journal article, “Restocking the Old Vending Machine with Live Bait and Prescription Pills,” the vending machine industry has taken a complete turn.  “Traditional vending machines disappeared from 134,000 locations between 2007 and 2010.” Not to mention that “sales from vending machines sank more than 11%, to $42.2 billion in the same period.”

The vending machine industry has to either find a change in product or customer in order to continue to be profitable at all.  A change in product is exactly what has happened.  Vending machines are now found with things such as live bait, over the counter medications, rental videos, and high tech gadgets. “Machines, like Coinstar Inc.’s Redboxes, are smart enough to rent DVDs.  At airports, vending machines with headphones and electronics are now common.”  The industry has made an obvious change in product sold in order to stay relevant.  There are several indicators as to why the industry has shifted; fuel and food costs increasing are the leading indicators.

So, how do these companies source the content for these more current versions of a historical format? Not much has really changed there. Or, maybe it has and you should take a look at SaaS based cloud offerings that also do similar things in very different ways.

With changes and innovation taking place in a commodity industry such as vending machines, how will your company adjust to a shift in your industry? And will there be a difference in how you control your costs?

For more information on SafeSourcing and how we can assist you while transitioning your company to new delivery models and its related cost centers, please contact a SafeSourcing Customer Service Representative for more information.

We look forward to and appreciate your comments.

Why do people from over 30 countries visit our site every day?

Friday, March 23rd, 2012

Our customers are saving millions and our web traffic supports it.

Give us a call if your indirect or direct spend is to high on any product or service.

If you want negotiating success; try turning the game around.

Thursday, March 22nd, 2012

I was reading the Sourcing Innovation post today titled “Procurement Game Plan: A Review Part II.3”. Part of the discussion was about negotiation preparation where the question asked was; So how does a skilled negotiator prepare? There were six responses, the 1st of which is as follows.

Try to find the win-win:
 
If the only way for the buyer to get better terms is for the seller to sacrifice margin, it’s going to be a tough fight. But if the buyer can offer something to the seller that can look like a win in the rep’s pocket — such as more volume than expected, better production batch sizes, co-marketing — which may not cost the buyer much, the pie can be expanded and both sides can win. While the negotiation will still be tough, it is much easier to get a bigger slice of a bigger pie than to try and take the few scarps the sales person has left on margin.

Although much of what is listed above is accurate, the first question in preparation is or should be; does the supplier have any margin to share with me? Answering this question is pretty simple if you are negotiating with publicly traded companies because you can look up their results, press releases and other information on line. You also already know how long you have been doing business with your incumbents, which is worth something.

Let’s assume you have been doing business with an incumbent supplier for more than two years. This is plenty of time for them to use the same tools you plan to use in order to reduce their costs and improve their margins. If so, the question is have they shared those savings with their best repeat customers (you). The answer, probably not. Unfortunately for publicly traded companies, Wall Street holds them accountable to continual growth in terms of total revenue, margin and earnings. If they release numbers that are off in any one of these areas, their stock takes a hit.

As an example of the above, last year, major waste management companies unnamed here released significant growth and earnings numbers. Did your waste management costs go down? How much is a fair amount for a company to earn without sharing it with their customers. Several of these points are why more companies today would rather be private than public.

Let’s sum up. You have an existing contract in place with your incumbent for more than two years; your costs have not gone down, you incumbent supplier has just announced significant revenue and earnings increases as have their competitors who also want your business. Do you need to give anything else away? Probably not! Can you expect savings on your new contract as a result of having this information? Absolutely!  Why will you get the savings? Because you were prepared and asked for it! And most importantly because most of your competitors don’t prepare properly and as such did not ask for it.

Now in order to maximize your savings, make sure you use the most advanced e-procurement tools like reverse auctions to get the savings you deserve.

We look forward to and appreciate your comments.

Gingrich says he can get gas to $2.50 a gallon! Do you believe him?

Wednesday, March 21st, 2012

One thing is for sure; if you don’t ask you will never know.

There are a lot of factors that drive prices, if that was not true, why can I drive 5 miles from my house and pay twenty cents less per gallon than right around the corner. Why is gas cheaper in Boston than it is in Scottsdale? Why do eggs cost less at the local inner city convenience store than they do at the local chain that won’t come in to the inner city and buys from the same wholesaler? There are a lot of answers to these questions; many of which consumers would not like.

Many companies think that because commodity indices are up that they should not even bother to try and compress pricing.

This is the precise reason why some companies are profitable and others are not. Just because the commodities that are the basis for products we buy are up, is no reason to not try and compress pricing through the use of e-negotiation tools or other more traditional methods. With that said e-negotiation tools will make the process much easier and insure compression in a much shorter period of time.

Whether or not a retailer is willing to share savings with consumers when using these programs is a whole other discussion and could be a reflection on some of their other  program offerings they have not been successful.

There is a lot that goes in to the products companies buy and maybe even more in the prices they pay. Two things are certain. There will always be suppliers that want to bid on your business. There will always be suppliers that are willing to invest to get your business. This dynamic is what will allow you to compress prices in an up market.

Understanding everything about what you re buying and what drives its pricing and using the proper tools to leverage the supply base can and will result in price savings even in an up market.

We look forward to and appreciate your comments.

Lessons to be learned from March Madness Upsets

Monday, March 19th, 2012

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

For millions of people the past 4 days represent sports Nirvana as college basketball teams fight to become Champions.  As always happens, underdogs upset higher ranked teams and this weekend had many of those games. 

Today we are going to look into a few aspects of how these teams prepare; how they should deal with adversity; and how those things tie into your sourcing projects.

The Game Plan – Every successful team has a game plan for how they win.  These factors and processes are a big part of why they are successful and how they leverage the resources and talent in the best possible way to win.  This is just as important in a sourcing project where the goal is to find the best source of product or service based on offering, value and cost.  To achieve this, a game plan must also be established in advance so the team knows the goal and how they are going to achieve it.  Teams with bad game plans run into issues they don’t know how to overcome and are usually not happy with their results.

Communication – How a team executes their game plan and communicates with each other during the game/project is crucial.  When upsets occur many times the source begins with a breakdown in communication between team members.  Assumptions and misunderstandings lead to mistakes and missed details all because the team is not communicating well.  Creating pre-defined touch points of communication to re-establish how the project has progressed and where it is going is key.  When necessary, just like in games, call a time-out and regroup to get the game plan back on track.

Don’t Panic – Every upset begins with a momentum shift and for the team about to be upset that is usually a bad thing.  The difference between teams that win and those that lose, is that the successful teams recognize that issues will occasionally arise in every project.  Knowing this, planning for this and dealing these issues right away without panicking will turn an upset around and produce the results you are looking for.  Stick to your well-prepared plan and the project will get back on track.  If you end up needing to slow things down to get control back then make the decision and notify everyone involved early so that the “game plan” can be adjusted.

For more information on preparing your sourcing projects and planning for the things that can derail these projects, please contact a SafeSourcing Customer Service Representative.  

We look forward to your comments.

For e-negotiation events, when is a specification not just a specification?

Thursday, March 15th, 2012

Often is services sourcing a good SOW may in fact be the specification.  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.  

Areas that are normally included in a Statement of work might include but are 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.

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.

We look forward to and appreciate your comments.