Archive for August, 2018

Contract Types

Tuesday, August 21st, 2018

 

Today’s post is from our SafeSourcing Archives.

If you don’t like the pricing model of the contract you’re working within but didn’t know you had other options, here is a high-level overview of a few of the standard contract types being used today:

Cost Plus: An agreement wherein the seller agrees to charge based on cost of goods sold, plus whatever profit margin is required to make the project viable. One example is where a highly commoditized good is subject to price regulation or index pricing, and therefore will have their pricing fluctuate based on the market constraints. The only pricing the vendor has control over in this scenario, is their profit margin, which will be the only pricing variable the vendor can agree to discount during negotiations.

Guaranteed Maximum Price: Similar to a Cost Plus contract, a GMP agreement is where the contractor is reimbursed for their actual cost, but also is paid an agreed upon fee. This fee is not to be exceeded unless the scope of the project changes, for which a formal “change order” can be enacted.

Incentive Contracts: This agreement begins as a cost reimbursement model, but varies based on whether or not previously determined goals were met. The incentives can be positive or negative, such that a vendor can be rewarded for underrunning the estimated cost of the project, or penalized for being over-budget. Both scenarios still require timely delivery of finished project. One potential drawback though, is that it can be difficult to monitor quality of work/product meets standards, as this model can also incentivize vendors to cut corners.

Time and Material: This contract type is fairly self-explanatory, in that the basis for pricing is on the number of man-hours used, and any necessary materials to complete the work contracted. Profit is either baked into the hourly rate, or invoiced as an add-on. This contract type is most typically used in situations where it is difficult to forecast the number of hours needed to complete, and must be billed as needed.

Unit Price: In this contract type, the activity or good is grouped into a pre-defined unit. The vendor is then paid a fixed amount for each unit completed. Profit and overhead is typically included in the unit rate, and rate is determined in part by estimated total units contracted.

Lump Sum: A Lump Sum contract is typically enacted when a full scope of work is well defined, enabling the vendor to quote the exact amount required to complete the project. This contract type can be financially risky to a vendor who could later discover hidden costs to perform the project, and can be risky to the timeline of the principle, as the contract would not penalize or reward timeliness as would an Incentive Contract.

For more information on how SafeSourcing can assist your team with this process or on our “Risk Free” trial program, please contact a SafeSourcing Customer Service Representative. We have an entire customer services team waiting to assist you today.

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Vehicle Subscription

Friday, August 17th, 2018

 

 

Today’s post is by Troy Lowe; Vice President of Development at SafeSourcing.

Did you know that there is a fairly new option when it comes to procuring a vehicle?  We all know that buying and leasing are available options, but now there are also vehicle subscription services.  With these services you basically pay a monthly fee that gives you access to different models of vehicles.  The fee includes all the major expenses such as insurance, maintenance and roadside assistance.  During the subscription period you can switch out vehicles so you’re not always driving the same type of vehicle.  Maybe you want a sedan as primary car for your day-to-day driving and decide you want to swap it out for an SUV for a family vacation.  The subscription services are utilized via an app on your smartphone. When you want to swap a vehicle connect using the app, choose the vehicle and a concierge service will deliver the vehicle to you.  Unlike buying and leasing a subscription may be cancelled or reinstated at any time with no additional fees.  As of now, there are only a handful of manufacturers offering the new option and it will cost you more than leasing and buying.  However, there are other manufactures that will be making subscriptions an option later this year and in 2019.  Below are some of the benefits of using the new subscription services.

  • Flexible payment plans
  • Use of different vehicles
  • Vehicles are delivered via concierge service
  • Roadside service included
  • Insurance is included
  • Maintenance included
  • Easy cancellation

If you would like some help finding the right solution, we can gather all the necessary information for you and help you decide which device will meet your needs.  If you would like more information on how SafeSourcing can help you, please contact a SafeSourcing Customer Service representative.  We have an entire team ready to assist you today.

We look forward to your comments.

 

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Truly Appreciating Referrals ​

Thursday, August 16th, 2018

 

 

Today’s post is by Dave Wenig, Vice President of Sales and Services at SafeSourcing.

Telling your friends, family, colleagues about some product or service is as common as anything. Online reviews and ratings are everywhere. It’s just human nature. If you need proof, just go to Facebook or Instagram and see how many pictures you see of your friends’ meals. Still, for something so common, we tend to be careful about giving actual referrals. It’s all too easy to share negative experiences as warnings to your network. There is very little personal risk in sharing a negative review. As a consumer, it can even feel somewhat satisfying to vent about a bad experience in this way.

Positive reviews are much harder to earn. Even more difficult to earn are actual referrals. There are probably many reasons for this. One is that unlike sharing a negative experience, giving a referral puts the referrer in a position of perceived risk. Clearly, they were satisfied with their experience, but will the contact in their network also feel satisfied? Worse, if they are not satisfied, will the recipient of the referral hold the referrer accountable?

Yet, this practice of sharing, both positive and negative, thrives today. Our own networks have grown steadily larger and easier to manage. Much of this is as a result of social media and technology in general. We’re able to connect with more people in more meaningful ways now that communicating from any distance is a negligible feat. While conversation about social media can be polarizing, there is no denying the scope of its impact.

Here is a Mark Zuckerberg quote about influence and referral. “People influence people. Nothing influences people more than a recommendation from a trusted friend. A trusted referral influences people more than the best broadcast message.” Given that, Mr. Zuckerberg is the third richest person in the world as of the day I’m writing this, we should at least consider his opinion.

At SafeSourcing, we understand that to give a referral is no small thing. We understand that this is a vote of confidence and that this is a personal investment. We are fortunate enough to have been on the receiving end of many customer referrals and are always incredibly appreciative of this act. We also take this very seriously and we feel the full weight of the responsibility.

SafeSourcing wants to thank our customers who think highly enough of us and the eProcurement service that we provide to stick their necks out for us with a referral. From the date of this posting through September of 2018, we’re offering a discount program for referrals. For our current clients, we’ll offer a 50% discount on your next RFx Event for any new referrals that lead to an RFx Event (contact SafeSourcing for full details).

We appreciate and are honored by each referral we receive.

For more information, please contact SafeSourcing.  

 

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To Fix or To Prevent…. Part I of V

Wednesday, August 15th, 2018

 

Today’s post is from our SafeSourcing Archives

One of the toughest questions that face companies is where to put their Repair & Maintenance budget dollars.  One train of thought is to try and reduce the costs for hourly repair rates and parts as much as possible and then deal with the issue when it arises, while the other train of thought is to invest heavily in a preventative maintenance program and try and extend the life of the equipment and head off major damages before they occur.  Over the next week we will be taking a look at a recent SafeSourcing study on Refrigeration repair and maintenance decisions our customers have made and apply it to repairs and maintenance of all equipment.

Repair and Maintenance spend is one of the largest non-payroll expenses that companies have.  Whether it is to service HVAC, refrigeration, computer, security, roof, or other equipment, companies are spending hundreds millions of dollars to keep their machines and businesses running.  SafeSourcing customers generally fall into one of three categories when we begin to discuss the repair and maintenance categories with them and out of that proper move forward strategies can be developed.

Exploring – These customers are unsure of which model will work best for their organization.  Historically they may have “tinkered” preventative maintenance plans but by and large they have been primarily break fix companies.  Most of these customers are seeing R&M costs rise and equipment life expectancy decline and are at the point where they need to determine which model will work best for them.  These customers typically will follow all three phases of exploration which will be covered over the next three days.

New management – As seems to be happening every day, companies are being acquired, companies are merging, old regimes are retiring and new ones are coming up to speed.   During these times companies tend to review every aspect of their business and where money is being spent regardless of whether it is an area that seems to be working well.  Repair and maintenance expenses are typically an early category that is reviewed because of its size.  While companies in this group tend to follow the three phases, they tend to use it validate they are doing the right thing just as much as to explore a different way of doing things.

Established – Customers that fall into this category have already invested the time to determine the best fit for their company and have usually conducted extension studies and data reviews to land themselves where they are today.  Even with all of that, these companies will still look at running phase 2 and 3 so that they validate any new companies or programs that have been introduced since the last contract and then use those details to develop Statements of Work that are the most beneficial for their company.

Please continue to follow this series this week as we break down the most widely used approaches for determining R&M needs, concluding with some of the average results we are seeing with our customers from these three phases.  For more information on this tool or on our “Risk Free” trial program, please contact a SafeSourcing Customer Service Representative.  We have an entire customer services team waiting to assist you today.

We look forward to your comments.

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Procurement after a Natural Disaster

Monday, August 13th, 2018

 

Today’s repost is from our  SafeSourcing Archives

To be prepared is to not forget!

During 2017 both hurricane Harvey and hurricane Irma  wreaked havoc in Texas and Florida, resulting in dozens of lives lost, and costs in damage to buildings alone are being estimated as between $100 and $400 billion dollars. But of course the cost isn’t limited to direct building damage as there will be costs in disruption to production activities, costs, and increased demand for goods. So what are some of the things procurement professionals should keep an eye out for post-natural disaster?

Crop losses: Orange crop losses are estimated at 10%, grapefruit at 20%, and could increase due to the greening disease Florida has been battling with that is exacerbated by moisture. Other crops of fruit, nuts, and melons are expected to be similarly affected.

Lumber: Even before the two hurricanes hit land, demand for plywood for boarding up windows increased. Now that the rebuilding efforts are underway, lumber is in greater demand than ever. Prices in Texas and Florida are expected to rise by 20%, partially due to a secondary cause of a recent 10% tax on Canadian soft wood imports.

Insurance: Currently the insurance industry is estimating they will be on the hook for about $300 billion in property and business loss claims, with losses in the $35-$70 billion dollar range. The re-insurance industry that further protects the financial health of the insurance agencies, is considering re-negotiating their rates to account for such monumental loses.

Energy: Total production of gasoline and natural gas is not expected to have been reduced by more than 1%. However, the disruption caused by the storms has had an interesting impact on demand as well, while hundreds of thousands of people are not driving back and forth or able to utilize the amount of energy they did on a normal basis. The outlook in the mid-term is a volatile and unpredictable market.

The bottom line is that for procurement professionals, a wide variety of industries have been thrown into turmoil, making it difficult to begin new initiatives or guarantee pricing for the short term. Furthermore, logistical concerns for moving product in and out of the affected areas will incur protracted lead times. This both presents challenges to sourcing new contracts, while also making it critical to lock down future agreements. Where commodities affected by natural disasters are concerned, everyone will be feeling the pinch. However, these challenges above make it more important than ever to lock-in favorable agreements more important than ever.

For more information on how SafeSourcing can assist your team with this process or on our “Risk Free” trial program, please contact a SafeSourcing Customer Service Representative. We have an entire customer services team waiting to assist you today.

 

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The Procurement Integrity Act

Tuesday, August 7th, 2018

 

Today’s blog is from our SafeSourcing Archives

Depending on your political leanings, the government might not be your first choice of where to get guidance on integrity. I would suggest, however, that the government guidelines may not be the end-all source for all of your policy development, but it may be a great starting point. When experts speak about business ethics, they usually talk ethics as a spectrum of more ethical and less ethical, not as an on/off switch. The starting point of that threshold for most ethicists is the law. So even though you may want to go above and beyond the law for determining how you conduct your business, the law is where you would start for ensuring your policies are compliant, and you may want to begin with the government’s procurement integrity policies when developing your own.

The purpose of the Procurement Integrity Act is to prevent the award of contracts based on corporate espionage or bribery. The intention is for this act to encourage contracts that provide the best value to the government and, by proxy, its citizens. Below we will summarize a few key concepts from the Procurement Integrity Act for you to consider:

Communication must be much more regulated after a formal request for proposal has been released: It is expected that before the release of an RFP, a government procurement representative will be conducting industry research that may involve direct communication with the vendor community. However, after the release, communication must be well documented and must not include information that would give advantage to any one vendor over another.

Conflicts of interest: If you are advising the government in a procurement project and yourself, a family member, or company you are involved with have a financial interest in the project, criminal law may prevent you from working on the project. This policy applies to both giving AND receiving gifts between the purchaser and the vendor, applicable to gifts and other “perks” as well.

If you think it would be inappropriate for you to be involved on a project, speak with an agency ethics officer: Not many private companies have an ethics officer, but it should be within your policy to have the ability to notify a supervisor and self-identify any reasons why an employee shouldn’t be involved on a project when warranted.

Obligate participating vendors to minimize exposure to competitor information: It should be within your terms of participation that a company should never knowingly obtain confidential competitor information, and if ever erroneously receiving such information, they agree to minimize that exposure. In other words, the error should be immediately disclosed and information destroyed, not further disseminated. It does not benefit the purchasing party to have any one vendor have an informational advantage over another.
For more details, we recommend further study of the resources available at the website for the Office of Government Ethics at: http://www.oge.gov/

For more information on how SafeSourcing can assist your team in this process, please contact a SafeSourcing Customer Service Representative.  We have an entire customer services team waiting to assist you today.

We look forward to your comments.

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Avoiding common RFP mistakes

Monday, August 6th, 2018

 

Today’s post is from our  SafeSourcing Archives

I sometimes hear stories from suppliers that are downright outrageous; I’ve literally been told “the dog ate my RFP”, and “I didn’t read any of the documentation” on multi-million dollar projects by executive level professionals. I’ve worked with a supplier on multiple year projects who has been late on each one, and always because his “mother just passed away”. If you’ve worked with me before you know I can sometimes be a little bit pushy to make sure you understand the structure of the RFP at hand, but I assure you it’s only to make sure the process goes smoothly for you. But what causes people to overlook the details of a project? I would suggest that the root of the problem is something every human being is susceptible to: Assuming we already know everything we need to know.

When going into a new RFP or other procurement project, the first assumption should be that we don’t know the needs of the customer until we’ve taken the time to learn them. I’ve seen suppliers come into a project trying to force their agenda, or assume the details of an RFP rather than observing, learning, and understanding first and asking questions second. It will always be difficult to come to a mutually beneficial business partnership if you don’t even understand the initial request that is being made. A successful RFP provides some basic information and asks questions, allowing the supplier to respond explaining their position, including product/service details, quotes, constraints, etc. Not actively listening and learning causes us to talk past each other, and can cause a misalignment of value propositions.

Listening well is a skill so commonly lacking that it is one of the first things taught in relationship counseling, and shouldn’t be overlooked in our professional lives. Active listening is taught formally in the classroom or counseling session by having one person take turns speaking to another, with the listener repeating in his/her words what was heard. This is effective because it prevents us from falling into the destructive habit of thinking about what we want to say while we should be listening to what is being said. Research suggests we only have the mental bandwidth to process a maximum of 1.6 conversations at a time, and if you’re fully listening to your own thoughts about what you want to say, you’re only hearing 60% of what you should be observing1.

[1] “Too Much Noise – Steelcase.” 2015. 15 Jul. 2015 <http://www.steelcase.com/insights/articles/much-noise/>

We make every effort at our company to make sure you are aware of the details of any procurement project, and also encourage feedback during the process to ensure each project is a positive opportunity, allowing you to put your best foot forward.

For more information on how SafeSourcing can assist your team with this process or on our “Risk Free” trial program, please contact a SafeSourcing Customer Service Representative.  We have an entire customer services team waiting to assist you today.

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Sourcing Corrugated Boxes

Friday, August 3rd, 2018

 

Today’s post is from our SafeSourcing Archives

When companies are looking to save money, they often look in places that have the largest spend, but also the greatest fixed costs. Sometimes the most commonly used items represent the best opportunity to compress spend. In today’s case, we are going to look at Corrugated Boxes. Don’t be fooled though by this deceptively simple item. If you aren’t intimately familiar with what your company buys today, especially if you have multiple Distribution Centers, developing a new RFP can get complicated quickly. Here are a few specification considerations to understand about this category that might save you some frustration before you get too far into the project:

Dimensions (Inside or outside?): Sometimes your invoices will give you measurements different than what you would measure yourself simply because the invoice gives interior measurements and you are measuring the outside. Make sure you indicate whether your specified sizes are interior or exterior. Also make sure you are consolidating box sizes where you can. If DC1 uses the exact box DC2 uses with a 1/16th inch difference, is there a good reason? You might be able to save a lot of expense by getting your DC’s all on the same program with a limited variety of box types.

Grade: The most commonly used measurement of corrugate strength is the Edge Crush Test (ETC). For example, an ETC of 32 would mean a box could withstand a maximum load of 40 lbs. Suppliers would need to know this requirement in order to gauge how to construct the box in terms of its flute size, number of walls, etc.

Coatings: Your intended use will determine the type of coating requirement you will have. For instance, food safe boxes may require non-stick surface coating, and boxes with marketing information may be colored white with logo printing. But for basic usage to fulfill your supply chain and distribution needs, the unaltered brown standard color is the cheapest, and the term for it is “Kraft”.

Printing: A print design can be both functional, or marketing related. Meaning, you may need certain marks for optical machine box loading, barcodes for tracking, or simply logos for easy retail identification. Either way, you will likely want to provide detailed drawings and artwork along with dimensions, and precise color in order to end up with what you intended.

The Usual Suspects: All of the typical concerns within any given sourcing project still apply, such as:

  • Shipping terms: If delivered to multiple DC’s, you’ll probably want separate quotes per location. However, if you don’t need delivered pricing, obtaining FOB quotes can save you a lot of headaches.
  •  Volume: Unit of measure, lead time, delivery schedule, must be indicated, and under the correct annual multiplier.
  •  Current cost: Is it inclusive of any promotional allowances, taxes, freight, etc and are you asking for quotes to include all of the same factors for accurate comparison?
  • Always run through a sample process before approving a large production run. A mountain of useless boxes would ruin anyone’s day.

For more information on how SafeSourcing can assist your team with this process or on our “Risk Free” trial program, please contact a SafeSourcing Customer Service Representative. We have an entire customer services team waiting to assist you today.

 

 

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