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Do you want onion with that?

Monday, May 20th, 2013

Today’s post is by Mark Davis; Sr. Vice President and COO at SafeSourcing. Mark asks ”

It wasn’t too long ago that restaurants and quick service restaurants included onions on things they served as part of the package.  If you didn’t want them included you needed to make a special request. Somewhere along the line onions must have gotten a bad name because more and more when you order something they tell you in advance and give you the opportunity to remove them from the deal right then and there.

It occurred to me that I have begun seeing this mindset frequently in the procurement world as well, as departments are now getting to choose when the procurement department gets brought in and at what level they are participating.  Like the onion, I don’t think procurement teams have deserved their new fate, but like it or not, it is the way many companies now operate.

Today we will be looking at some ways to deal with this change using methods not unlike a chef would in order to keep the onions in the dish and keep the customer happy.

Understand the onion – One of  the many  issues that many procurement departments are dealing with is that they do not truly understand the issues other departments have with involving them. Without knowing why someone is hesitant to include you it makes it difficult to counter on why you should be included.  Arguments like “you only care about the lowest price”, “This project is too complicated”, “we are too far along”, “this isn’t a commodity” are common and how they are responded too must be addressed in advance by your team so that you can acknowledge the other departments’ hesitancy.   Please review the SafeSourcing blog on handling objections to help with this.

Transform the onion – In my family I have people who would not touch a raw onion to save their life but have no problem eating onion rings (I know, I don’t get that either).  By transforming the onion it becomes an agreeable object.  There are times when procurement teams need to undergo a similar transformation by assisting departments in ways that help them while still achieving your goals of controlling costs.  Working on requests for proposals that offer vendors a best and final price adjustment can help everyone achieve their goals in a new way that does not threaten the integrity other departments are hoping to keep.

Don’t tell on the onion -  I have watched people cooking meals sneak unwanted ingredients into the recipe masterfully in ways that no one would know only to be undone by feeling the need to tell their secret afterwards.  Telling someone they just ate an onion they didn’t know about rarely leads to them to start liking onions.  For a procurement professional this means when you get an opportunity to help a department like IT run a project on enterprise software don’t ruin it by touting about how you reduced the cost, instead focus on how you helped that team find the best solution for the company while getting the vendor to include free training and a reducing the costs by 12%.   This lets the business owners hold onto the fact that the decision was truly made based on value and not just price which is really how every project should be.

If you are a procurement team struggling to get included in all of your company’s spend projects we at SafeSourcing are constantly helping our customers and can assist you by explaining our recommended strategy for helping departments that historically not wanted “help.”

 For more information on these strategies 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.

Posted in Online Procurement, Procurement Solutions

Understanding “The Internet of Things”

Monday, January 14th, 2013

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

Although it is a term that has been around for almost 15 years, “The Internet of Things” is really starting to pop its head up in research industry reports, magazines, news specials and other business journals.  The question is what is “The Internet of Things” and what does it mean for your business as we head into 2013.

The concept which had its roots begin with radio-frequency identification tags that were designed to track equipment more easily, the Internet of Things was coined to define a world in which sensors, tags, and other data points will continue being imbedded into equipment and devices allowing them to not only be tracked, but to share information like health, location, status, and supply or service levels.  In essence the network of information will expand outside of the internet into the world of objects.

So the question still becomes for businesses of how this new concept can be used to help them.  Today we will look at a few of the ways you may already be using this concepts today without even knowing it.

Intelligent Sensors – One of the downsides to human beings collecting and creating much of the data available on the internet today is that we tend to be inaccurate and fallible in the manner in which we go through this process.  No one wants to sit for 24 hours a day recording the temperature, humidity and air pressure in a room so that they at some point notify someone else that there may be an issue.  With intelligent sensors that can send alerts through a company’s network of through the internet, accurate and frequent readings can be taken every second if need to be report changes as they occur real time.  Add to the fact that this becomes independent of the most rural locations or extreme conditions and the value of these sensors becomes extremely important to companies where changes in these types of conditions can drastically affect their products.

Object to Object communication – In the example above the sensors on objects become important channels to collect information, aggregate and analyze the data and provide decision points for people to act on.  What is also part of the Internet of Things if the capability for objects, based on data from their surroundings, to communicate and request changes right away.  If the sensor on a multi-million dollar reel of airplane material could read the temperature, which must be kept in a freezer, and then send an alert to the system controlling the temperature of that freezer to slightly adjust the environment you could reduce the possibility of damage in real time without having to wait for a response.

Image and voice recognition – As technology changes and information data centers grow in size, the Internet of Things will be able to take input such as photos, video and audio and create actions based on what they see.  Consider a network video appliance that has the capability to analyze and recognize objects in the video frames as it streams and saves them.  Recognizing the shape of gun, the metrics of a car wreck, the numbers on a license plate or the shape of a face could all be used and sent to other Internet of Things objects to help create scenarios where lives are saved and disasters averted.

Over the next few months you will be hearing a lot of the Internet of Things and the affect it can begin to have on your business from financial, safety and efficiency standpoints.  To understand more about the Internet of Things or how you can begin to look at this concept in how you source your goods or services, please contact a SafeSourcing Customer Service Representative.

We look forward to your comments.

 

Posted in Online Procurement

Is the inclusion of freight in an e- bid or reverse auction equal to the net landed cost?

Wednesday, February 9th, 2011

If you are looking to break out all of the other costs associated in a product bid, just asking to have freight included or free freight within a certain radius or other similar language will not accomplish net landed cost or allow you to manage it going forward.

Quite often the terms net landed cost, haul back, FOB and others come up during the logistics portion of a sourcing event. Some times they are bid on separately and or delivered by a third party. When a company says they want a net landed cost what they are referring to is the cost of a product or products plus all of the relevant logistics costs, such as transportation, warehousing, handling etc. In other words, what’s my cost when it gets here or where we want it?

If you want to drive the best pricing and service possible you need to understand the terminology and make sure it is clear in your specifications and terms and conditions.

We look forward to and appreciate your comments.

Posted in B2b Reverse Auction, Online Procurement, Online Reverse Auction, Procurement Auctioning, Procurement Purchasing

Here is how to insure that your e-procurement bids as successful as possible

Tuesday, January 11th, 2011

Competitive bidding is the process of inviting and obtaining bids from competing suppliers in response to documented specifications, by which an award is made to the best overall bid that meets or exceeds the specifications in areas such as price and quality. Probably one of the most important elements and most overlooked is that of incumbent supplier communication once a bid has been authorized. That is not setting any false expectations with your incumbent suppliers. As you already have a relationship you will most likely receive calls, emails or texts as to what is going on. Your answer has to be that we value our relationship and encourage you to use this process as it is the only process by which we will review bids.. Do not indicate that everything will be ok or that things will work out just fine or any similar language. If you are using a 3rd party, instruct your supplier to provide any questions or communications through the third party only. 

The e-negotiation process contemplates giving potential bidders a reasonable opportunity to bid, and requires that all bidders be placed on an equal playing field. Ideally each supplier must bid on the same documented specifications, terms, and conditions for all items. However breaking out individual line items that a specialty supplier can provide bids for can help to reduce the opportunity for suppliers to manage the overall gross margin of their bids and drive higher savings. The purpose of competitive bidding is to stimulate competition, prevent favoritism, and secure the best goods and services at the lowest possible price, for the benefit of the host company. Competitive bidding cannot occur where specifications, terms, or conditions prevent or unduly restrict competition, favor a particular supplier, or increase the cost of goods or services without providing a corresponding tangible benefit for the host company.

The above message needs to be communicated to any and all associates that are involved in the process and may have a reason to communicate with suppliers.

We look forward to and appreciate your comments.

Posted in E-procurement, Eprocurement Auction, Global E-procurement, Online Procurement, Online Reverse Auction

Should I buy on demand software (SaaS) for my e-procurement needs?

Friday, September 10th, 2010

On demand software or SaaS (Software as a Service) by its nature is an internet based application and as such is accessible from wherever you happen to be as long as you have a network connection. With today’s broad band offerings that literally means anywhere. So the first rule of thumb is that it provides easy access. In addition, since most of the newest versions of SaaS applications are native web based applications, they integrate very nicely with most office infrastructures. With Microsoft being the most deployed environment, data is easily exported or imported to formats that comply with their standards. In many cases these tools can also be made 100% available to you within days of contract signature

Most of us have horror stories about when our PC, Network, Application etc. went down and we were not able to complete tasks at work. When we call our internal service department, the response is normally less than what we would like or hurry up and wait. With a hosted software application, it is the responsibility of the SaaS provider to maintain the application. They know up front that if they don’t do a superior job of support and availability, that you the customer can go somewhere else to find a provider that will. This is not the case with internally installed corporate applications.

Your data at a SaaS provider is also often more secured than the data at your corporate office. Since this is the core business of a SaaS provider, the architecture of the application normally has multiple levels of redundancy, failover recovery and is backed up regularly.

Typically, SaaS applications are easier to change than traditionally installed corporate applications. There are not as many feature upgrade charges with every point release in a SaaS environment because the provider needs to provide these features to continue to attract new customers and to keep up with the pace of the industry.

Finally, the total cost of ownership is much quicker in a SaaS environment than traditional application software installations. Often as much as 100% faster. In fact there are many stories of breakeven ROI’s with your first series of e-procurement events. The biggest question you have to ask of your future provider is are you a true SaaS environment with the newest technologies available or are you a reengineered ASP provider. I’ll comment more on that later.

We look forward to and appreciate your comments.

Ron

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

E-procurement.What’s in a definition?

Thursday, September 2nd, 2010

I was reading a blog post from the Doctor over at Sourcing Innovation today titled “A Hitchhiker’s Guide to e-Procurement: Terminology” and I thought it was great as well as very timely.

Ultimately it is up to practitioners and solution providers of these tools to educate their customers as to what the proper terms are for the tools they are using. As an example E-RFI, E-RFP, E-RFQ. I have numbers of customers that have used other solution providers and not only are the definitions different by customer; they are actually different within a specific company. In some cases everything is referred to as a reverse auction and in other situations the companies have made up their own name for the service or tool.

This author uses Wikipedia and Wictionary quite often as a source and in this case, they have a very good definition that covers most of the terminology in the entire e-procurement space as well as related B2B and B2C internet based or private network based functions. As your company moves in the direction of a computerized supply chain management solution for your company understanding what you are asking for and what you are using will make both your job and that of your solution provider easier.

We look forward to and appreciate your comments.

Posted in B2b Reverse Auction, B2b Supply Chain, E-procurement, E-procurement Solutions, E-procurement Tools, E-supply Chain, Eprocurement Auction, Online Procurement, Online Reverse Auction, Procurement Auctioning, Procurement Outsourcing, Procurement Purchasing, Procurement Solutions, Procurement Tool, Product Procurement, Reverse Auction, Reverse Auction Procurement, Supply Chain Procurement

So, just what is a retail market exchange?

Thursday, August 19th, 2010

Quite honestly this is a fairly complex question so the answer is not simple. To begin with let’s take a look at just what a market (retail) exchange is.

One of the earliest exchanges in the retail space was called the Retail Exchange which was sponsored by some very large retailers and is still available today from a company that bought the system from its retailer sponsors. As simply as possible, a  Market (Retail) Exchange  is a business to business or B2B E-commerce platform that allows Suppliers, Resellers, and their customers or buyers to offer, purchase and manage their goods and services in a simple and effective way. Typically an organization must be a member of the exchange in order to participate. Once a member the organization can then conduct business with other organizations by establishing on line connections with each other. Typically exchanges are a shared hosting environment and in some cases for very large companies dedicated server implementations. In recent years exchanges have migrated to SaaS or software as a service models in order to address wider markets.

The success of an exchange is based on the number of suppliers or resellers that belong to it and their willingness to participate with a retailer for their business. The activity is more of hands off approach once your offer is posted that can include punch outs to a supplier’s website and catalog services for sourcing of products.

From my perspective I like the personal touch of the historical RFX process in the form of a SaaS full service offering that actively engages new sources of supply and sells them on wanting your business.  There is a much smaller investment from both a financial and resource perspective. If you want to learn more about the RFX process please visit SafeSourcing Blog archive or the SafeSourcing Wiki.

We look forward to and appreciate your comments.

Posted in B2b Reverse Auction, B2b Supply Chain, E-procurement Solutions, Online Procurement, Procurement Outsourcing, Procurement Solutions, Retail Supply Chain

Retail buyers need to think individually and act collectively in their e-negotiations.

Tuesday, August 3rd, 2010

This is as true for e-negotiation events as it is for personal negotiations. The question is how the tools you are using allow you the flexibility to do so.

I was reading an article in the USA TODAY on Friday July 30th by Jillian Berman titled “Negotiate your way to savings”.  The lead in was Cable TV, cell phone bills are ripe for cutting. This author would add the following; so is everything else.

So what is a negotiation? According to Wikipedia, negotiation is a dialogue intended to resolve disputes, to produce an agreement upon courses of action, to bargain for individual or collective advantage, or to craft outcomes to satisfy various interests. It is the primary method of alternative dispute resolution.

In terms of our discussion and the article we are talking about pricing and services. The article goes on to suggest what they call tenacious bargainers tips. Two of the tips are; don’t be afraid to complain and negotiate away extra fees up front.

Retail buyers need to do the same and the ability to think individually and act collectively when they develop the specifications and rules of their e-negotiation events. What would you ask for if you were buying this product or service for yourself and then be just as aggressive when it comes to your department and company?

We look forward to and appreciate your comments

Posted in Business Sourcing, Online Procurement, Strategic Sourcing

Pricing for Retail E-Procurement can be interesting!

Tuesday, July 27th, 2010

In other words, there are too many companies that have been at this for a long time whose pricing is way too high in the retail marketplace for what they provide.

I was speaking to a large retailer recently that has an unlimited use tool in place from a very large player in the e-procurement space. I asked what type of savings they were able to achieve and how many people they had assigned to handle events, supplier communication, hosting support etc. These are all of the normal questions.

After we had discussed at least 20 different categories, it occurred to the both of us that the savings from our events were at least a third higher than the savings from the use of the unlimited tool.  Even if you added in our fees, the savings were still substantially higher on event by event basis with SafeSourcing. There are a number of reasons for this. One is that to many times when retailers deploy a solution internally or as a SaaS offering they default back to their old way of doing business with a new tool once the solutions provider has left. Supplier research is limited, the number of participants is less, training is inadequate and the result is lower savings. There are also proprietary benefits to the SafeSourcing solution that I won’t share.

Another way that retailers over pay, is when an older company comes in and matches the lower cost of doing business with a newer and better provider in order to win the business. This model will not last because many of these older companies are not structured in such a way that will allow them to absorb these lower fees profitably on an ongoing basis. Over time your price will continue to rise. In fact next year, your price should go down if you are running the same event again. Hasn’t most of the work already been done in the past?

Some good questions to ask your prospective solutions provider would be the following.

1. How many events per month can one of associate host?
2. What are you doing to automate your solution to take out cost?
3. Will we pay the same in year two as we paid in year one for identical events?
4. Is your cost higher because of your investment in brick and mortar locations?
5. Is your cost higher because of your headcount required to run events?
6. What are your average savings for events over $100K?
7. What are your average savings for events under $100K?

There are certainly more questions but you get the idea. Be careful out there.

We look forward to and appreciate your comments.

Posted in Business Sourcing, E-procurement Solutions, E-procurement Tools, Eprocurement Auction, Online Procurement

Yesterday’s post created a lot of questions relative to attacking Gross Margin!

Wednesday, June 30th, 2010

The following position was offered relative to the title. “This has always been a great question for retailers”. Should we attack the bottom line by focusing on shrink, cost of goods or gross margin?

During the post we answered the areas of shrink and cost of goods and services. The question now is how would we focus on gross margin and what would the bottom line impact be?

Let’s begin by restated our gross margin assumption. 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%. Now that we know our gross margin, it is pretty simple to measure the impact. The first step is to look at the categories which generally fall into gross margin reduction such as the expense category. Examples might include employee benefits, construction, insurance and not for resale purchases etc.

We already know that our gross margin dollars are equal to 25% of our fictional company’s sales of $1B or $250M. Therefore the impact to the bottom line at most could be a percentage of $250. The next logical step is to look for the largest category spends with in the gross margin area. Let’s assume that employee benefits are 15% of payroll costs and that payroll costs for our fictional company are 15% of revenue. For our $1B retailer payroll would be $150M and benefits would be 15% of that or $22.5M. If we attacked health benefits costs and were able to reduce them by 20% the improvement to the bottom line would be $4.5M or 45%. This would certainly be a worthy target, but would not impact net profit as much as our shrink or COGs models as discussed yesterday. To summarize the impact to net profit as discussed in both posts.

1. COGS  up to 300%
2. Shrink up to 100%
3. Gross Margin up to 45%

Please remember these numbers are fictitious.

We look forward to and appreciate your comments.

Posted in Business Sourcing, E-procurement Solutions, E-procurement Tools, Online Procurement, Procurement Company, Procurement Outsourcing, Procurement Purchasing

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