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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

Posted in E-procurement, E-procurement Solutions, E-procurement Tools

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.

Posted in E-procurement, E-procurement Solutions, E-procurement Tools

Getting to your RFP Short list!

Monday, January 30th, 2012

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

The RFI/RFP process has been the source of a few SafeSourcing blogs over the past few months and no piece is as important to the process as the plan you develop to move forward with the final stages of the RFx process, as you have companies that barely make the shortlist all of a sudden leap to the front of the pack if done right.

Today’s blog will take a look at some of the aspects that you should be thinking about when preparing for the final presentations.

Who makes the list?  – The main purpose to holding the final stage presentations is to get a final look at the vendor team that you may be getting ready to give your business too.  In almost every case, the RFx process will immediately drop a few vendors out of the mix based on their responses, their initial pricing or a combination of both.  Typically the final presentations will be given by 2 4, sometimes 5 vendors.  To have a larger list makes managing the list difficult, and generally is the stage where you have it narrowed down to companies who can truly handle your account.

What is the focus? – As you are developing the items in the next two points it will be important to develop the content for what you want to know more about.  In many cases RFIs and RFPs are unable to completely do justice for some of the details you need especially if those details revolve around a demonstration.  This is not to rehash the RFI/RFP itself but rather to dig deeper into answers that may have been confusing or not quite as complete as what you wanted.

What’s the Agenda? –  Once you know what you want to focus on and prior to holding your presentations it will be important to create the agenda you wish the vendors to follow.  Not doing so allows the vendors to present whatever they want and may leave you with more follow-up questions than you started with.  Vendors generally appreciate an agenda so that they can focus their energy on the things that are important to you.  This agenda will help be the foundation for the next two points so making it thorough without being so detailed there is no flexibility is the key to a good agenda.

How will you score it? – The final piece you will want to develop before the presentations will be a scorecard that can be distributed to the evaluation team covering every aspect that you want reviewed.  This is a critical step because not everyone will automatically evaluate the presentations in a similar way without guidance.  This can be as detailed as you want to make, however, it should at the very least follow the agenda the vendors have been given so that thoughts and comments on each point can be captured by every member of the team.

Getting ready for final RFI/RFP presentations is an important part of the evaluation process and one that should have as much thought and preparation put into it as the RFx itself.

For more information on helping your company prepare on RFI/RFP or in help preparing for final presentations, please contact a SafeSourcing Customer Service Representative.  

We look forward to your comments.

Posted in E-procurement, E-procurement Solutions, E-procurement Tools

Going Postal!

Thursday, January 26th, 2012

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

Back in December, the U.S. Postal Service announced that it wanted to cut $3 billion in costs in 2012 so that they could avoid bankruptcy.  Delays in mail, eliminating Next day mail, eliminating Saturday delivery are all things that were under consideration for upcoming changes.  As the organization struggles to maintain operations in the wake of an electronic world that has eliminated the need for so much mail, the question for businesses becomes how are they going to begin migrating as well to avoid the rising postage costs?

Today we will be looking at a few ways companies are already doing this, in some cases saving as much as $250 to $500k a year in postage costs.

Customer statements  – Customer statements can encompass many things, be it invoices, monthly statements, performance reports, etc. but in the end what it really means is that there is at least one piece of paper that is getting inserted into an envelope and being mailed to an address or P.O. box.  In just this one activity there is the cost of printing and paper, the envelope, the postage, the processing time (whether machine or human), the delay of having that item be received and on top of all of that there is the element of an imperfect world where, due to address changes, handling mistakes or customer error, the item may never make into the hands of who it was intended to at all.  With all these things in mind, and because of the savings for handling this electronically it is easy to see why it is a big focus many businesses are starting to have.

Catalogs – There will be an element of customers that for a while will always want paper catalogs, however with the cost of generating those catalogs going up and the generations of people that will continue to demand them decreasing, the need to continue producing paper catalogs will be one that many companies closely examine in the next 5-10 years.  Add to all of that the fact that updating on online catalog can take mere seconds and updating a printed catalog is impossible after it is printed and the need to assess the ROI on continuing to print large catalogs.  In fact it’s been almost 20 years since one of the most famous catalogs (Sears RoebucK in 1993) stopped printing due to rising costs.

Employee communications – Newsletters, paystubs, tax forms, medical forms, human resource packages are all examples of traditional items that companies spend millions of dollars on every year to send their employees.  With the advent of company HR portals that now allow an employee to login through the internet and access all of these items with very low cost to the company it is a third area where companies are placing their focus in reducing printing, processing and especially postage costs..

Watching the timeline of events for the USPS since declaring itself debt-free in 2005 has been a hard and painful thing to watch.  As costs have increased and usage decreased it is a critical time for businesses to evaluate the items that are being produced and mailed and whether taking those items into the digital age is the right move from an operations and costs standpoint.

For more information on finding suppliers and products to help you make this move, please contact a SafeSourcing Customer Service Representative.  

We look forward to your comments.

Posted in B2b Supply Chain, E-procurement, E-supply Chain

What should our category savings be?

Wednesday, January 4th, 2012

The answer is that it depends on the industry, company or vertical within an industry as well as who you are asking and what you will actually be measuring. There are dozens of procurement focused websites that speak to or quote category savings.

The reason the answer depends on who you ask is that to begin with every company defines their categories differently. Yes there is similarity across industries in areas like fleet maintenance or currier services. However when we look at the retail landscape and an example like bottled water, thinks get a little murky. Is bottled water really a category or is it a sub category of beverages which is a sub category of grocery. If it is a true category, your buyer or category manager should be able to provide you with pricing, margin and any related cost that shrinks the later.  So, the first question that needs to be answered is…are you looking for true category savings or are you looking for specific product savings. The products savings are good, but don’t get the product to your shelf.  The next question one might ask is, are you asking for actual realized savings or are you asking for savings that are hi-lited at the end of an e-procurement event? If you are asking for true realized savings, there are a multitude issues that need to be discussed.  If the successful supplier is your incumbent, then the savings may actually be closer to those viewed during the e-procurement event; however, reality indicates that a large number of incumbents do not end up as the low quote.  If the supplier is not the incumbent, there are actually quite a few elements that result in true savings that have to be considered.  By in large, they can be included in a bucket referred to switching costs. To begin with the supplier that you may have just awarded business to may not be an authorized vendor in your data base. As such, the IT department and or the finance department are needed to add them to your database. A new contract may also be required with a company that you have not done business with before. This requires the involvement of your legal department and may, in fact,  add delays to the process that require you to order additional product from your existing supplier at potentially higher prices than awarded during the e-procurement event.  If products are being delivered to a distribution center, slotting requirements are needed and pick lists require updating in order for the product to be available when ordered by individual store locations.

All of the above assumes that your buyers know where to find additional suppliers in order to make the event competitive in the first place. Should they go to other wholesalers, manufacturers, distributors, other vertical suppliers that don’t traditionally supply your vertical?

Now, let’s go back to the actual e-procurement event for a minute. At the end of the e-procurement event when business was awarded were the savings the same as displayed during the event? Did the e-procurement event just provide you with high level savings made up of all low quotes; or, if business was awarded to multiple suppliers ,were savings calculated in that manner?  Were funds, if included in the winning bid, included in the savings and treated the same way that your company treats them from an accounting perspective? Were distribution charges and other uplifted costs removed or bid on separately?  Are pre-event historical savings a result of how companies awarded business; or are you being quoted a historical average of all low quotes run through a system even though business was not actually awarded that way and savings may not have been realized?

In order to actually answer the questioned posed in this post, the real answer is that I need to ask you some questions and depending on your answers I can give you a range of savings based on the size of your total spend and dependant on other market influences such as fuel costs and other related commodity costs.

So, what can you expect for category savings in an e-procurement event? The answer is it depends.

We look forward to your comments.

Posted in Business Sourcing, E-procurement, Reverse Auction

We plan to launch a procurement department. Now What?

Thursday, December 1st, 2011

The following twenty bullet points are certainly not a complete list, but are areas that should be considered for any supply chain re-structuring including what is needed to drive success. These points should help frame your thought process and get you headed in the right direction.

1. Request CEO and CFO support.
2. Empower the Department.
3. Structure and staff the department for success. Not just one person.
4. Plan a detailed review of all contracts.
5. Plan a detailed review of all suppliers. 
6. Improve the performance of all suppliers or replace them.
7. Find a way to gain access to additional sources of supply.
8. Improve your view of all spend categories. Technology, Technology,  Technology.
9. Review any off shore and near shore sourcing.
10. Meet with all departments that controlled historical spend.
11. Review all sourcing methods being used by others today.
12. Review all Environmental strategies
13. Review all Product Safety strategies
14. Collect or create a product specification library
15. Conduct detailed category discovery session
16. Review lower cost SaaS oriented solutions that can ramp up quickly.
17. Develop and education plan.
18. Outline a plan of where you will be in 90 days, Six months and a Year.
19. Develop short and long terms goals that support your plan.
20. Build a department that delivers zero incremental cost to the organization.

As you use the above list and grow it, it is important to remember that the job of a procurement management leader is to think outside of the box and educate while looking for innovative ways to do things better, faster and at a lower cost. And to hopefully create an environment that will inspire co-workers while doing that.

We look forward to and appreciate your comments.

Posted in E-procurement, E-supply Chain, Sourcing Strategy, Strategic Sourcing

When using e-procurement tools are you just driven by a reduction in price?

Friday, November 4th, 2011

The real question you should be asking is just what makes up total cost to begin with. A good friend of mine who has been a fortune 100 retail CFO helped to crystallize my thinking in this area. As such we look at cost differently today than we did a year ago. So, when we run an RFX event for our customers at SafeSourcing we think of cost in the form of three basic dimensions that cause a different type of thinking during discovery and strategy. They are as follows.

1. Price: This is the unit cost. It is expressed as an amount per unit. Price involves vendor comparison and negotiation.
2. Use: This is the consumption of a product or service. This is driven by the activities or needs. Authorization and control processes are key elements. Without these, you may not derive all of the savings from negotiating price alone
3. Mix: This is the inclusion of similar products or services to achieve a similar result. Company policies support this.

Certainly there are many more aspects to running a successful RFX like making sure the T&C’s are clear and that the process is managed through the award and contract stages. These steps or KPI’s along with the ones mentioned above collectively serve to insure that your strategic sourcing strategy uncovers all of the clues that have or may cause leakage to your sourcing events. They also proved the basis of a scorecard system that can track progress over time

We look forward to and appreciate your comments.

Posted in Business Sourcing, Contract Management, E-procurement, Sourcing Strategy, Strategic Sourcing

Executive Teams, are you thinking through e-procurement self service? Think Again!

Thursday, November 3rd, 2011

Let’s also assume that you want to drive the greatest possible savings across the broadest range of categories in the shortest amount of time, like the next budget period; and have a sustainable process moving forward.

If all of the above is true, you should consider what constitutes developing full service events and whether you have the requisite headcount, specifications, strategy and research skills as well as new sources of supply to conduct the service yourself. Then there is always the question of what tool sets to use.

The question one needs to ask is; what type of event services can an e-procurement provider offer to help us get ready if we did want to do it ourselves? What we are talking about is to be 100% self-sufficient. A provider should offer readily available classroom education that can be conducted on-site in order to train your team in all the nuances of event creation and support. These skills are the foundation that allows e-procurement providers to support large volumes of events in a full service mode, which drive greater savings over the long term. They should be able to provide reference to where they have done it in the past and how much staff the reference needed to add. Ask the reference what their average savings were in year one versus what a full service provider can drive. Remember, knowledge transfer in this area is one thing; the passion, skill and headcount to carry out these practices on a day by day basis are what drive results.

This process is normally provided by people behind the scenes with a very specific skill set. If you plan to do self service it would be very wise to make sure you have them covered at the same quality level.

We look forward to and appreciate your comments.

Posted in E-procurement, E-procurement Solutions, E-procurement Tools, Sourcing Strategy, Strategic Sourcing

What should companies do after they have addressed all of the low hanging fruit with their reverse auctions?

Friday, October 21st, 2011

Retailers ask me all the time where to begin with their reverse auctions. It might surprise you that I tell them not to necessarily place all of their focus on the expense or indirect categories by default. The fact of the matter is that for most retail companies their largest area of expense is their cost of goods. In most cases this is going to be somewhere between 65% to 75% of total revenue depending on the industry vertical. By default the gross margin line is going to be somewhere between 25% and 35%. The expense categories also contains salary and benefits which makes the spend for indirect categories actually smaller than the number represented by a companies gross margin. Historically savings on indirect or expense categories has been larger than those of products for resale. In fact it may only represent a 1/3 of the gross margin line.

As an example let’s take a look at a retailer that does $1B in gross sales and has cost of goods of 70% or $700M. This retailer’s gross margin is 30% or $300M. About $100M of that is available for e-procurement related price compression. Savings promises are really all over the board depending on what e-procurement provider you talk to and how they measure actual savings. Let’s assume you do indeed source the entire $100M in indirect spend and end up saving 15%. If (and it’s a big if) all of the savings make it to the P&L, savings would total $15M. Now let’s take a look at the cost of goods (COGS) line. All of this is available for price compression. Let’s target just 50% of the spend in year one or $350M. If we assume savings here to be only 50% of what we see in the indirect spend area or 7.5%, savings generated would total $26.25M.

With the above very hi level calculations, let’s go back to the original premise of where a company should get started. This authors answer is actually everywhere. You should use these tools in the form of e-procurement to standardize the way you conduct sourcing. Maybe you’ll drive $41.5M in savings from both direct and indirect areas.

If you’d like to understand an easy six step process to accomplish these types of results without adding staff, please contact us at SafeSourcing.

We look forward to and appreciate your comments.

Posted in E-procurement, E-procurement Solutions, E-procurement Tools, Reverse Auction, Reverse Auction Procurement

Twenty steps to running higher quality e-procurement events.

Thursday, October 20th, 2011

There are rules which if followed that will create higher quality e-procurement events for the companies and their suppliers?

Here are twenty you can begin with and then refine with others that your own team comes up with.

1. Executive sponsorship is mandatory
     a. This is required at the CEO and CFO level
2. Get the entire buying organization together for a kickoff session.
3. Provide a detailed over view of what you are going to do and the financial impact you expect it to have on the company.
4. Determine who your Subject Matter Experts are.
5. Conduct detailed data discovery sessions with all who have spend authority
6. Set specific success criteria.
7. Under stand that every event is not going to be a homerun.
8. Remember that singles and doubles score runs.
9. Create a fun environment.
10. Use scorecards to reinforce results attainment
11. Hand out E-RFX templates to gather existing product specifications.
12. Develop a standard timeline for event completion.
13. Gather an accurate list of your present suppliers.
14. Calendar your categories.
15. Prioritize by dollar value, date and strategic value.
16. Investigate existing contract language.
17. Look for auto renewal (evergreen) language and other roadblocks.
18. Determine alternate sources of supply with your sourcing company.
19. Develop a standard T& C document.
20. Assign an overall project owner
This list simply provides a format for getting started that offers suggestions that will help to create the best opportunity for reduction in cost of goods, expenses and improvement in corporate earnings. Be sure to combine this with a business partner like SafeSourcing that understands your business.
 
We appreciate and look forward to you comments.

Posted in E-procurement, E-procurement Solutions, Eprocurement Auction

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