Archive for the ‘E-procurement Tools’ Category

Retail Contract Leakage. Where does it come from and how can we stop it?

Tuesday, December 6th, 2022

 

Todays post is by Ronald D. Southard, CEO at SafeSourcing Inc.

How does your organization  now ensure that the award of business is implemented or delivered as awarded so that you indeed receive all of your savings?

This is probably the most difficult part of the entire procurement lifecycle. The first part is to understand your data and where it is kept, that includes understanding what constitutes contract leakage so that you know what you are looking at. Once you have the data needs to be looked at on a regular basis in order to insure leakage is not occurring. This should be at least monthly depending on contract language. Most contract management systems have alerts that can be triggered as frequently as required.

The following list although not all inclusive speaks too many of areas in which contract leakage can occur. This happens in all companies large and small. If you are aware of them, capture them and report on them there is a good possibility of controlling them.

1. Buying without a contract.

2. Expensing something outside of a contract

3. Having multiple contracts in place:

4. Executing a new agreement when one is already in place

5. Paying a price different from the contract

6. Delivery variances

7. Quality specifications variances

8. Making payments at a prices different from the contract

9. Scope creep

10. Invoice discrepancies

11. Missed volume discounts

12. Insurance discrepancies

13. Shipping discrepancies

14. Expired contracts resulting in price uplift

15. Evergreening

16. Overtime Violations

17. Material discrepancies

18. Sub Contractor discrepancies

Don’t  have your team work hard to drive benefits with your procurement solutions and then lose much of what you have gained to contract leakage. Ask your e-procurement solutions provider how they can help or save yourself a lot of time or please contact a SafeSourcing Customer Services Account Manager.

We look forward to and appreciate your comments.

Retailers it’s really pretty simple; just look at your Gross Profit.

Thursday, October 20th, 2022

 

Todays post is by Ron Southard, CEO at SafeSourcing Inc.

How many times do we hear all of the reasons for a retail company’s performance being off? It’s the cost of doing business over seas, the economy, the cost of fuel, heath care costs etc. How often do we hear, that we are doing better than the same period a year ago or we are exceeding plan. All of that is nice stuff, but the bottom line is your bottom line. If you top line sales are up and your net profit is up it does not necessarily mean that you have all of your procurement issues under control.

Let’s start with some numbers you might want to look at. Don’t just assume that profit is a good thing because profit could be caused by an imbalance in your category margins.

Here are a few good questions to ask yourself.
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1. How do your cost of goods compare to the rest of the industry for a chain of your size?
2. How do your operating expenses compare to other chains of your size?
3. How do your gross margins compare to other chains your size?

All of the above can be good indicators of overall company health and certainly procurement health. If your cost of goods is higher than industry averages for a chain of your size, why is that? Is there a specific category that is causing the issue? Do you know how to isolate the problem and then eliminate it?

If you don’t have or know this information, you should ask your e-procurement provider if they have it, because they should if they want to model an improvement plan for you.

As an example, here is an example of a previous years U.S. based convenience store chains targets for non fuel.

1. Cost of Goods Sold should run somewhere around 71% or 72%
2. Gross Profit should run around 28% to 30%
3. Operating Expenses should run around 26% to 29%
4. Net Operating Income around 2%

While these numbers are certainly off based on Pandemic issues, product  or services mix, you can build a case model on them to compare before and after for you company. That is if you have a tool like SafeBIM™ from SafeSourcing. BIM stands for Business Impact Model.

If you are way out of balance with these numbers and want to understand how to rebalance them, contact a  SafeSourcing Customer Services Associate.

 

The importance of RFx in the Procurement Process – Part I of II

Wednesday, March 2nd, 2022

 

As businesses continue to use reverse auction tools more frequently to reduce their costs and introduce competitive pricing from existing and new suppliers, it is inevitable that the events will also begin to increase in complexity.  With complexity comes the need to understand the offerings of the invited companies before price is ever brought up.  You need to know that the companies you may be dealing with have experience and can handle your business.

To ensure that the right companies are involved in competing for your business many times it is necessary to run a Request for Proposal or Information (RFP or RFI) to gather information about the suppliers before a pricing event is run.  Some of the important things to keep in mind when doing this are:

• Be Specific! – Make sure the RFP/RFI is specific about the types of information requested.  Leaving the document open-ended will result in several completely different responses that will be difficult to compare to each other.

• It’s ok to run an RFx for something you have already purchased.  Many times, especially in technical product purchasing, the landscape can change so fast from contract to contract that running an RFx is not only a possibly but is probably the wisest thing to do especially if the spend is large and/or the contract is longer than a year.

There will be more tips in my next post but if you would like more information about the SafeSourcing Rfx tools and professional services, please contact a Customer Service Representative today.

We look forward to and appreciate your comments.

Where is the best place for retailers to spend their effort to improve profitability?

Tuesday, January 11th, 2022

 

Today’s post is an oldie but goody by Ronald D. Southard, CEO at SafeSourcing

The answer to this posts byline is of course all three!

Obviously, all retail companies would like to focus on all three areas and there are even sub sections of these top line areas that we could spell out as needing attention. The challenge is where to deploy already taxed resources?

It does not require an accountant to figure this out. If we assume that COGS or cost of goods and services is about 75% of top line revenue that would result in a simple gross margin of 25%. Based on a number of industries reports we are also safe using a shrink number of 3% of top line revenue.

This author is aware that there are a a few companies with shrink below 1% and cost of goods below 75% which means there are also companies with gross margin better than 25%. The obvious question is are these companies that solution providers want to target for profit improvement sales? Probably not.

So, let’s look at an example of shrink improvement with data analysis tools and process improvement tools versus cost compression with SaaS e-procurement tools. Let’s assume we have a company that does top line sales of $1B. Using a shrink number of 3% shrink would be $30M annually. If you were able to reduce shrink by a third in one year, profit improvement would be $10M. If this were a supermarket company with a 1% bottom line or $10M, improvement could be as much as 100%.

Now let’s take a look at reduction in cost. If we assume the same company has COGS of 75% or $750M and that we were only going to address 20% of that number or $150 and only reduce those costs by 20% which is slightly above industry averages the net profit improvement would be $30M or 300% improvement in year over year net profit. If we were only able to achieve 10% savings which is well below industry averages, net profit would improve by 150%.

I’ll leave the gross margin example for you to figure out. In the above case it is clear that attacking COGS has an impact on the bottom line of up to 3 to 1 versus addressing shrink with your already taxed resources.

If you are interested in an immediate impact to your bottom line, please contact a SafeSourcing Customer Services associate today.

We look forward to and appreciate your comments.

Do you know how a price index plays into e-procurement best practices?

Wednesday, January 5th, 2022

 

Todays post is a repost by Ron Southard, CEO at SafeSourcing Inc.

Todays post is a little long in the tooth, but still relevant for sourcing professionals.

Being overly simplistic an index is a system used to make finding causal information easier! There are any numbers of indexes or indices available to help procurement knowledge workers insure they are sourcing products at the best possible pricing. The key word here is price as what we will be discussing are specifically price indices.

According to Wikipedia a price index (plural: “price indices” or “price indexes”) is a normalized average (typically a weighted average) of prices for a given class of goods or services in a given region, during a given interval of time. It is a statistic designed to help to compare how these prices, taken as a whole, differ between time periods or geographical locations.

Price indices have several potential uses. For particularly broad indices, the index can be said to measure the economy’s price level or a cost of living. More narrow price indices can help producers with business plans and pricing. Sometimes, they can be useful in helping to guide investment.

Normally an index reflects the current and historical price of a variety of commodities ranging from metals to grain. A common index used in sourcing petroleum products is OPIS or the Oil Price Information Service which you can learn more about by visiting www.opisnet.com.  However in order to drive the best possible fuel pricing there are other dependencies such as whether you are doing spot buys or bulk purchases and these strategies will determine what specific index you would want to review as well as it’s relation to other product information sources such as Platts or the Gulf Coast spot assessments.  This will put you in a better position to determine how to bid the product and also earn a discount relative to the lowest common denominator.

All other commodities have similar sourcing issues dependant on what the highest cost item is in their product makeup. An example here might be the cost of grain in the feeding of cattle or poultry.

Ask you solution provider to explain these tools to you and to recommend how you might use them toward the best outcome.

If you’d like more information, please contact a SafeSourcing Customer Services Account Manager.

We look forward to and appreciate your comments.

On the Twelve Days of e-Procurement Christmas.

Tuesday, December 14th, 2021

 

It is actually twelve days until Christmas and today’s post is a holiday favorite by our CEO Ron Southard from our SafeSourcing Archives.

  1. On the first day of Christmas our e-procurement service provider gave to us, a streamlined procurement process.
  2. On the second day of Christmas our e-service provider gave to us, more suppliers to source our goods and services from.
  3. On the third day of Christmas our e-procurement service provider gave to us, pricing that works for smallest categories.
  4. On the fourth day of Christmas our e-procurement service provider gave to us, consistent and customized product specifications.
  5. On the fifth day of Christmas our e-procurement service supplier gave to us, more time for other priorities.
  6. On the sixth day of Christmas our e-procurement service provider gave to us, improved quality in our products and services.
  7. On the seventh day of Christmas our e-procurement service supplier gave to us, better supplier education.
  8. On the eighth day of Christmas our e-procurement service provider gave to us, a simple award of business process.
  9. On the ninth day of Christmas our e-procurement service provider gave to us, support for a better carbon footprint.
  10. On the tenth day of Christmas our e-procurement service supplier gave to us, total category e-procurement.
  11. On the eleventh day of Christmas our e-procurement service provider gave to us, safer products for our customers and planet.
  12. On the twelfth day of Christmas our e-procurement service provider gave to us, a sustainable e-procurement process and improved corporate net earnings.

Now, ask yourself if all of these goals are accomplished on your company’s behalf by your present e-procurement service provider. If n0t, please contact a SafeSourcing customer services account manager.

Continued best wishes for a very Merry Christmas the rest of the 2021 Holiday Season.

Why increased profitability continues to evade the middle market retailers.

Wednesday, June 23rd, 2021

 

Todays post is from Ron Southard, CEO at SafeSourcing Inc.

I wrote this post 12 years ago. Not much has changed. That’s a shame.

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.? 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 hundreds of contracts auto renewing 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 a 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 b well aware of or even using these technologies to reduce their costs, middle tier retailers have not able to share in these savings to the extent they should.

If middle market senior executives lead the charge and cost and the availability of new sources of supply is no longer an issue, there is no reason middle market retailers should not benefit greatly from running reverse auctions.

If you’d like a risk free trial, please contact SafeSourcing.

Here are Five Basic Tips for Writing a Strategic Online Survey!

Monday, April 26th, 2021

 

Todays post is from our SafeSourcing Archives

Creating an effective, quality written Online Survey that produces the detailed information you require from respondents can be a challenge. In this post, we’ll review 5 quick tips for writing a Strategic Online Survey.

  1. Create a naming convention for the survey and write a brief summarizing introduction. A Survey name and a brief introduction are great ways to give your respondents some detailed background and a frame of reference.
  2. Write a summarizing, brief survey. Begin with an outline of details as to what is important to know for the project. Formulate a question only when the answer will provide data you can use and need.
  3. Think ahead as to how the analysis of the information will look, as in what your end game will look like. This should impact how you format your questions. Statistical reporting may not be able to be performed if your questions to not adhere to the results framework you have pre planned.
  4. Attempt to use closed-ended questions. Limit the number of open-ended questions as these provide and opportunity to the respondent to get off track. Respondents usually have a better understanding of closed-ended questions because they are more straightforward and offer responses they can choose from. An excessive number of open-ended questions can frustrate the respondent and affect the quality of the answers they may provide.
  5. Craft a well-written pertinent subject line for the invitation email you plan on sending with the survey in order to capture your respondents’ attention.

Although these five simple steps are enough to get you started in the right direction reaching out to professionals like SafeSourcing about their SafeSurvey™ tool for additional guidance will guarantee the results you are looking for. A well-written online survey has much higher completion rates and is an effective method for gathering disparate data from differing sources in a format that us usable.

If you’d like to learn more about the SafeSourcing  SafeSurvey™ please contact a SafeSourcing Project Manager.

We look forward to and appreciate your comments

What is a Third Party Logistics Provider or 3PL and how do retailers use them?

Tuesday, April 13th, 2021

 

If you are having difficulty with your current distribution model, compress your spend using eProcurement tools and then source a reputable 3PL.

According to Wikipedia a third-party logistics provider (abbreviated 3PL) is a firm that provides outsourced or “third party” logistics services to companies for part, or sometimes all of their supply chain management functions. Third party logistics providers typically specialize in integrated operation, warehousing and transportation services that can be scaled and customized to customer’s needs based on market conditions and the demands and delivery service requirements for their products and materials.

As such, there are a number of types of 3PL’s within retail that may in fact service a single retailer as well as smaller buying groups of small retailers. All might fall under this umbrella including wholesalers such as SUPERVALU, collective buyers such as TOPCO or even a retailer collaborative that may in fact just coordinate aggregated purchases and in fact pick other 3PL’s to provide warehousing, picking and packing and distribution. Each of these providers may in fact provide some or all of the same services. The later or collaborative of multiple retailers might even be looked at as a non asset based 3PL.

In all categories of third party logistics providers however it is still the end user or retailer regardless of size that determines what products they buy and accept delivery of in their stores. As such, it should be no more difficult for smaller retailers to run e-negotiation events? There will need to be discussions as to costs that are purely associated with the warehousing, slotting, picking and distribution of products by a 3PL once an e-negotiation event has been planned, but these items should be easy to break out for bid or add to the final pricing prior to award of business as a flat fee. This is a practice that all 3PL’s should be familiar with already. Retailers should anticipate that their existing 3PL depending on services offered would rather not have you conduct these types of events as it negatively impacts their volumes with manufacturers and other providers and as such their company’s margins.

Understanding your options and the flexibility that 3PL’s can provide may actually make it easier for all retailers to use e-negotiation tools to impact their bottom line.

We look forward to and appreciate your comments.

Why should retailers be concerned with evergreen contracts?

Friday, April 2nd, 2021

 

Todays post is a rework by Ron Southard, CEO at SafeSourcing Inc.

This author has been asked on numerous occasions why I am so concerned with evergreen contracts. First, let’s discuss what an evergreen contract is. A simple definition is that it is a contract or an agreement between two parties (you and your supplier) that is automatically renewed or rolled over after each completion period which is typically a year, until canceled by the either party.

This does not sound so bad at first glance, particularly if the current terms of the contract such as price, performance, quality, service or service level are all being met and are to your advantage when they automatically renew. However this is not normally the case, particularly with contracts that are driven by commodity markets such as oil, chemicals, resins, pulp, steel and many others. In addition you can bet if the advantage is in your favor in the initial contract that your current supplier will notify you in writing within the specified period which is usually 60 days that they are going to let the contract expire or want to renegotiate.

In large parts of the retail trade, there are very few sophisticated contract management solutions deployed, the cost to the industry annually runs in the billions of dollars. This is because the original contract normally has language that includes price increases above the current contract when it auto renews and the auto renewal is normally for a year if the supplier is not notified in writing prior to the anniversary date. Once renewed you are stuck. This happens because most buyers or executives think they will remember in time to notify your supplier when in fact this almost never is the case. As most retail companies have thousands of contracts in the place the amount of data requiring review is unmanageable.

The worst case I ever reviewed was a contract written nine years earlier that had renewed every year. The customer was actually paying the uplifted prices and substantially more than a much smaller company was paying for the same type of service at significantly lower volumes. This did not even include newer technology benefits.

Contract management solutions that offer alert subsystems based on contracts Meta data are the best solution to this problem and typically provide near immediate ROI based solely on the cost avoidance associated with evergreen contracts.

SafeSourcing offers an easy to use solution called SafeContract™ to help our customers with this problem. Ask your solution provider how they can help you. Or contact SafeSourcing.