Archive for the ‘Procurement Purchasing’ Category

Retail spend management basics for e-procurement professionals and knowledge workers.

Friday, March 7th, 2014

Todays post is by Ron Southard, CEO at SafeSourcing.

I meet with buyers, category managers and  other e-procurement knowledge workers on a regular basis that want to know what categories are the best to select in the short term to prove the benefit of e-procurement or e-negotiation tools. This quite honestly is not a bad approach for pilot selection as it creates an almost sure thing that results in a lot of excitement and the energy to move the process forward within a company.

Quite often before meeting with a new client, I will analyze their annual report and their summary P&L to get a good idea of where the opportunities are hiding that can have quick hit impact. However in order to have long term viability as a way to conduct the business of buying, a more detailed analysis is required. Quite frankly before you can even begin to discuss vendor or supplier selection, management or evaluation this process is critical to long term success.

Some of the key data required to prepare you for this analysis can consist of but is certainly not limited to the following. All of this data is readily available from a variety of industry sources. Quite often the data is a year old but you can bet it is better than anything else your customer may be using today.

1. Research and accumulate your specific Industry data
2. Analyze last years P&L, GL and other financial data sources
3. Compare your cost of goods with your Industries averages
4. Compare your gross margins with you Industry averages
5. Compare your net earnings with your industry averages
6. Conduct the same comparisons with selected retailers with whom you compete
7. Compare your departmental sales and contribution margin results to those of your specific industry.
8. Look for department level anomalies
9. Look for specific product anomalies within major and sub departments.
10. Select top categories that are below plan and outside industry average for cost of goods and margin.
11. Select top products that are underperforming to industry averages and plan

An example of the above might be to look at the major department of grocery and the major category of pet care then drill down to the sub category of cat and dog products and a list of all accessories. Now look at what products are underperforming to the industry and plan.  Continue your analysis with other underperforming categories.

Ask your e-procurement provider how they can assist you in accomplishing this with their tools.

Please contact a SafeSourcing Customer Services Account Manager to learn more about our risk free trial and conducting a category discovery on your behalf.

We look forward to and appreciate your comments.

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“The Negotiation Began Long Before the Quote. Or, Make a Plan and Stick with It”

Friday, August 9th, 2013

The answer may be surprising. One may assume that the negotiation begins when the vendors begin quoting. This is a reasonable assumption, but I know that negotiation begins long before this point.

Often, in procurement, a negotiation can begin with the writing of the specification. I find that when the host organization is writing their specifications, they are forced to rely on their incumbent vendors for details about the products or services that they are providing. During this process a vendor may have the upper hand and, as a result, may influence the specification in a way that will benefit them throughout the process. Not so long ago, a specification was written for a fairly simple manufactured product. The specification for this product dictated the use of stainless steel. This would not have been an issue, except that only one of the vendors was able to meet the specifications. It turns out the use of stainless steel was patented in this case.

Even more often, this type of influence can be felt in the days leading up to an RFQ. Typical vendor negotiation tactics during this timeframe may include calling on the sourcing partner or host organization directly to try to get time extensions or to attempt to implement last minute specification changes as discussed above. Worse yet, they may also use this time to negotiate for higher prices. If a maximum has been set for price submission, it is not uncommon to hear feedback that these prices are too low. While these complaints may be valid, the timing seems suspect. In these last minute cases, it is important to react carefully and avoid being forced into a decision that you would not have made two weeks ago.

So, how do you sort through the feedback and specification input (solicited or not)?

You have to make a plan and see it through. Your strategic sourcing partner has experience navigating vendor communications. They are actively tracking the feedback and working with the vendor community make the journey from planning an RFQ to awarding business go as smoothly as possible. Place your trust in both your partner and the process and you will find favorable results.

We look forward to and appreciate your comments.

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There has never a better time to Source. Part II of II!

Wednesday, May 22nd, 2013

Today’s post is by Ron Southard, CEO at Safesourcing.

Once you have looked at the commodity markets to determine historical movement since you last sourced your category and the future outlook, the opportunity to drive your prices lower is also based on other factors such as the financial performance of the companies you may want to invite to participate including your incumbent supplier.

Using an example from EDAGR as we discussed yesterday for an unnamed supplier we have determined the following data. The unnamed supplier’s sales have risen consistently from 2010 through 2012. In particular, sales rose 19% from 2011 to 2012. Gross profit during the same period rose 44.8% and net income rose 90%. All of this is supported by an increase in unit sales of 26.6%. I know your next question, what does this mean?
1.   We’ve learned that even in the face of a slightly rising market which also has lower futures that your potential supplier was able to produce enviable numbers. Their Sales and Margins are both up so they have increased sales and reduced the cost (net income is up) of sales at the same time. This is a key indicator.

2.   As a result of the aforementioned numbers, it would indicate that they have room to move on price for selected customers if the new business is important to them or a net gain. Remember they still have to grow to please their shareholders. There is often margin set aside for winning new business and they are not the incumbent.

3.   Finding suppliers with these metrics of which there were several also suggests that your incumbent supplier may have to discount to a certain extent in order to keep your business. As such, an award here may help to avoid switching costs and make a slightly higher bid a better total deal, so do the math.

If you’d like to learn more about SafeSourcing spend analysis process please contact a SafeSourcing customer services representative.

We look forward to and appreciate your comments

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There has never a better time to Source. Part I of II or Maybe III?

Tuesday, May 21st, 2013

Today’s post is by Ron Southard, CEO at Safesourcing.

Customers always ask me when the best time to source a particular category is. The answer always requires some thought and fact based research relative to what drives that particular category. For the most part this means staying on top of the commodity markets to begin with. However there are other indicators for those procurement knowledge workers that are willing to take the time to do some basic research.

I was reading the Wall Street Journal today and noticed an article in the MONEY & INVESTING section titled Oil Out Of Sync With the Market by Christian Berthelsen. The first sentence of the article says, “Prices of many commodities are down this year, but U.S. oil futures have rallied”. Here’s the key in that sentence. “Prices of many commodities are down this year”. Forget about oil for the moment. Yes it does impact many areas of procurement. And yes the futures for oil are up. This is mostly because hope springs eternal that demand will rise as the global economy continues to improve. Remember that other commodities are also influenced by oil. As a simple example, you can’t harvest Corn or Soy without fuel. So when you look at commodities you have to determine if the price is trending down more than the price of another commodity that impacts it is trending in the other direction. Let’s assume that without going through a math formula that you determine to source a category that is trending down by a decent
percentage like five or six percent. The initial decision here would be to take a run at this category. The next question however should be what else can we take a look at in order to reinforce our hypothesis that there is an opportunity to reduce our cost?

The answer to the above question is to take a detailed look at your supplier’s financial data! There are a number of ways to do this for both public and private companies. In the US, foreign and local companies file their 10K’s and 10Q’s and other data periodically. This data can be accessed on the US Security and Exchange Commission Website EDGAR.  All companies, foreign and domestic, are required to file registration statements, periodic reports, and other forms electronically through EDGAR. Your next question should be, what data should we look at and what can we determine from that data?

If you check back tomorrow for Part II, I’ll share that information with you.

If you’d like to learn more about SafeSourcing spend analysis process please Contact a SafeSourcing customer services representative.

We look forward to and appreciate your comments

 

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What does ISO mean to you and your company? Making order of Chaos Part V of V!

Friday, August 24th, 2012

This post is written by Heather Powell   Account Manager for SafeSourcing.

ISO  9000 is a standard created to make the attainment of quality, consistent products easier by providing specific steps for development of an organization’s quality management system. This quality management system is meant to monitor the progress of a product or service as it goes through each stage of production, from development to testing to assembly to customer feedback.

One cornerstone of ISO 9000 is continual improvement. No company should ever be satisfied with the conditions of a process at the given moment; they should always be looking for ways to make these processes more efficient and effective. ISO 9000 was written with the business world’s insatiable desire for excellence in mind. This is why continual improvement is a requirement of the standard – to inspire progress and the pursuit of perfection.

ISO 9000 is an internationally recognized standard, and that may seem daunting for some smaller businesses. How are they going to implement the same standard adopted by multi-national corporations? Quite easily, actually. ISO 9000 is a flexible standard that lays down requirements for an organization to follow, but allows the organization to fulfill these requirements any way they choose. This increases ISO 9000′s scope of effectiveness, allowing a wide range of companies to create quality management systems that match their needs.

ISO 9000 is seen in every sector of the business world, and its success is a testament to its worth. With a focus on customer satisfaction, products and services improve and flourish under ISO 9000′s quality management system. With a combination of continual improvement and corrective actions – tenets of ISO 9000 – a business will create processes that run smoothly and efficiently.

Is there another ISO methods? Yes!

There are many reasons to become certified to the Business Continuity Management standard, ISO 22301 and they all amount to the same thing – it gives you a competitive advantage.

Certification helps you to demonstrate to your stakeholders that your business is run effectively and that it will continue to do so in the event of a disruption. The process of achieving and maintaining the Business Continuity Management (BCM) certification also helps ensure that you are continually improving and refining your BCM activities. The regular assessment process will also improve staff responsibility, commitment and motivation.

Certification improves overall performance, removes uncertainty and widens market opportunities. It will prove to your customers that you can be trusted to deliver. Certification to ISO 22301 creates an opportunity to reduce the burdens of internal and external audits from your key customers.

Despite all these internal reasons, the reason for many companies will be that a major customer requires some evidence of competent BCM performance. 

If this is your reason then don’t panic; BCM isn’t as complicated or as difficult as you might think.  Also you don’t have to be an expert in any of the other management systems such as ISO 9001 (Quality management systems) or ISO 14001 (Environmental management systems) – the BCM system can be implemented alone.

However because it follows the simple Plan, Do, Check, Act cycle of other management systems if you are already a user of ISO 9001 and/or ISO 14001 then getting started with the BCM system will be very familiar to you.1

Resource: 1 http://www.talkingbusinesscontinuity.com/becoming-certified/why-should-my-business-become-certified.aspx

If you’d like to learn more about the process required to improve your procurement departments procure to pay process, please contact a SafeSourcing customer services representative.

We look forward to and appreciate your comments.
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ISO is Organization! Making order of out of Chaos Part IV of V.

Thursday, August 23rd, 2012

This post is written by Heather Powell Account Manager for SafeSourcing

Scott Sherrill ,“What is ISO 9001 certification? We just got a big customer and they require it, but no one else does. We are getting big enough that we’re getting into standards territory, which I know we should embrace, but there’s so much work involved. Is this an important one?”  

Andrea Herran, “ISO is important if it’s important for your clients (now and future). You can make ISO as simple or complicated as you want. I have seen two companies go through the process – one was a job shop so it was more complicated and the other made its own products so once it was set up, it was just a matter of maintenance. Don’t just look at this for today but what it means to your business in the future.”

Yesterday we explained the importance of ISO 9000, and today we want to give you the 8 principals that will benefit your company.

1. A Customer Focus

The customer is the primary focus of a business. By understanding and responding to the needs of customers, an organization can correctly targeting key demographics and therefore increase revenue by delivering the products and services that the customer is looking for. With knowledge of customer needs, resources can be allocated appropriately and efficiently. Most importantly, a business’s dedication will be recognized by the customer, creating customer loyalty. And customer loyalty is return business.

2. Good Leadership

A team of good leaders will establish unity and direction quickly in a business environment. Their goal is to motivate everyone working on the project, and successful leaders will minimize miscommunication within and between departments. Their role is intimately intertwined with the next ISO 9000 principle.

3. Involvement of people

Including everyone on a business team is critical to its success. Involvement of substance will lead to a personal investment in a project and in turn create motivated, committed workers. These people will tend towards innovation and creativity, and utilize their full abilities to complete a project. If people have a vested interest in performance, they will be eager to participate in the continual improvement that ISO 9000 facilitates.

4. Process approach to quality management

The best results are achieved when activities and resources are managed together. This process approach to quality management can lower costs through the effective use of resources, personnel, and time. If a process is controlled as a whole, management can focus on goals that are important to the big picture, and prioritize objectives to maximize effectiveness.

5. Management system approach

Combining management groups may seem like a dangerous clash of titans, but if done correctly can result in an efficient and effective management system. If leaders are dedicated to the goals of an organization, they will aid each other to achieve improved productivity. Some results include integration and alignment of key processes. Additionally, interested parties will recognize the consistency, effectiveness, and efficiency that come with a management system. Both suppliers and customers will gain confidence in a business’s abilities.

6. Continual Improvement

The importance of this principle is paramount, and should a permanent objective of every organization. Through increased performance, a company can increase profits and gain an advantage over competitors. If a whole business is dedicated to continual improvement, improvement activities will be aligned, leading to faster and more efficient development.

Ready for improvement and change, businesses will have the flexibility to react quickly to new opportunities.

7. Factual approach to decision making

Effective decisions are based on the analysis and interpretation of information and data. By making informed decisions, an organization will be more likely to make the right decision. As companies make this a habit, they will be able to demonstrate the effectiveness of past decisions. This will put confidence in current and future decisions.

8. Supplier relationships

It is important to establish a mutually beneficial supplier relationship; such a relationship creates value for both parties. A supplier that recognizes a mutually beneficial relationship will be quick to react when a business needs to respond to customer needs or market changes. Through close contact and interaction with a supplier, both organizations will be able to optimize resources and costs.
Tomorrow we will discuss what ISO 9000 will mean to you and your company.

If you’d like to learn more about the process required to improve your procurement departments procure to pay process, please contact a SafeSourcing customer services representative.

We look forward to and appreciate your comments.

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Audit?? No worries!! Making order of Chaos Part III of V

Wednesday, August 22nd, 2012

This post is written by Heather Powell  Account Manager for SafeSourcing.

 Do you fear the word “audit”?  Never fear ISO 9000 is HERE!

Yesterday we explained what ISO, the ISO standards, and a little bit about ISO 9000. Today we will explain why it is important.  The importance of ISO 9000 is the importance of quality. Many companies offer products and services, but it is those companies who put out the best products and services efficiently that succeed. With ISO 9000, an organization can identify the root of the problem, and therefore find a solution. By improving efficiency, profit can be maximized.

As a broad range of companies implement the ISO 9000 standards, a supply chain with integrity is created. Each company that participates in the process of developing, manufacturing, and marketing a product knows that it is part of internationally known, reliable system.

Not only do businesses recognize the importance of the ISO 9000, but also the customer realizes the importance of quality. And because the consumer is most important to a company, ISO 9000 makes the customer its focus.

ISO 9000 is the standard for a quality management system that closely resembles many other management systems. These other systems, based on health, safety, the environment, and business continuity, can be integrated into an overarching business management system. Benefits of this system include aligned interests, reduced costs, and improved efficiency. With one of these systems in place, it is easier to implement any of the others; many documents required for a different standard are already prepared, and personnel are already accustomed to the audit process. Using multiple standards will not only increase the efficiency of an organization, but increase the integrity of its operations.

A good foundation builds a good business, and ISO 9000 is a good foundation for small businesses that want to expand their market. By introducing a quality management system like ISO 9000 to a small business, the quality of processes will increase and costs due to inefficiency will decrease. In addition, a small business will be able to advertise their use of the internationally recognized ISO 9000. This may create business opportunities that were not available before an objectively verified quality management system was in place.

Having management systems in place, such as ISO 9000, will also help when selling a business. The integrity and value of a small business will be apparent with well-documented processes and proof of quality. ISO 9000 will ensure the reputation of your business in any situation.

Tomorrow we will explain the 7 principals of ISO 9000.

If you’d like to learn more about the process required to improve your procurement departments procure to pay process, please contact a SafeSourcing customer services representative.

We look forward to and appreciate your comments.

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Making order of Chaos Part II of V

Tuesday, August 21st, 2012

This post is written by Heather Powell  Account Manager for SafeSourcing.

 Do you fear the word “audit”?

Do you know where all the annual invoices are for one supplier from 68 locations?

There are ways to organize your business that can not only help you through the trials of an audit, the tribulations of a co-worker taking a day off, but also finding those invoices you need. Some are easier than others, and some are harder than others to implement. However, taking the time to organize your business now will help you in the future.

What is ISO? ISO (International Organization for Standardization) is the world’s largest developer of voluntary International Standards. International Standards give state of the art specifications for products, services and good practice, helping to make industry more efficient and effective. Developed through global consensus, they help to break down barriers to international trade. 1

ISO develops International Standards. A standard is a document that provides requirements, specifications, guidelines or characteristics that can be used consistently to ensure that materials, products, processes and services are fit for their purpose.

ISO International Standards ensure that products and services are safe, reliable and of good quality. For business, they are strategic tools that reduce costs by minimizing waste and errors and increasing productivity. They help companies to access new markets, level the playing field for developing countries and facilitate free and fair global trade.

Quality is something every company strives for and is often times very difficult to achieve. Complications concerning efficiency and quality present themselves every day in business, whether an important document cannot be found or a consumer finds a product not up to their expectations. How can a company increase the quality of its products and services? The answer is ISO 9000.

As standards go, ISO 9000 is one of the most widely recognized in the world. ISO 9000 is a quality management standard that presents guidelines intended to increase business efficiency and customer satisfaction. The goal of ISO 9000 is to embed a quality management system within an organization, increasing productivity, reducing unnecessary costs, and ensuring quality of processes and products.

ISO 9001:2008 is applicable to businesses and organizations from every sector. The process oriented approach makes the standard applicable to service organizations as well. Its general guidelines allow for the flexibility needed for today’s diverse business world.

Tomorrow we’ll explain why ISO 9000 is so important to your company.

If you’d like to learn more about the process required to improve your procurement departments procure to pay process, please contact a SafeSourcing customer services representative.

We look forward to and appreciate your comments.

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

Wednesday, March 28th, 2012

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

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

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

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

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

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

We look forward to and appreciate your comments.

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A Purchasing Managers’ Index (PMI)

Monday, February 13th, 2012

This author wonders how to measure the economy’s ups and downs as it relates to your specific industry.  There are business trends that can be somewhat of a prediction, but is there any way to keep a measure on the pulse of how the economy is affecting you on a more regular basis?

A Purchasing Managers’ Index (PMI) is a great way to keep track of market fluctuations.  The PMI measures activity such as production, new orders, inventories, and employment levels.  The PMI is compiled by the Markit Group and the Institute for Supply Management and is calculated on a monthly basis by polling businesses that represent the make-up of the private sector.  According to Wikipedia, “the manufacturing data is generally released on the 1st working day of the month, followed by construction on the 2nd working day and services on the 3rd working day.”

The data for the index are collected through a survey of over 400 purchasing managers in the manufacturing sector on five different fields.  Each respondent has the opportunity to report on levels of better, same, or worse than previous months.  Depending on the manufacturing region, there may be a specific survey of results for the region as well as the specific manufacturing sector.

The national PMI was issued in the first few days of February reporting that nine out of eighteen manufacturing industries were reporting growth in January.  So if you want to keep a better pulse on the economy of your industry, the PMI survey is a great place to start.

For more information on SafeSourcing and how your industry is doing, please contact a Customer Service Representative for more information.

We look forward to and appreciate your comments.

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