Archive for the ‘Procurement Solutions’ Category

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.

Understanding the Relationship Between Procurement and Marketing

Thursday, April 8th, 2021

 

Todays post is from our SafeSourcing Archives

The relationship between a retailer’s Marketing and Procurement Departments has been one struggling to maintain cohesiveness in many companies for quite some time.

While the Marketing team is continually trying to find creative and cutting-edge ways to increase sales within a retail organization, Procurement is constantly looking for ways in which to not only reduce costs, but find the best fit of suppliers with their company.

In many cases, marketing will expend a good deal of effort to find vendors to work with them on projects that when turned over to the procurement team can’t even be considered because their price is too high.  In the end this costs the company money, creates continued division between departments, and causes unnecessary lost time and sales.

Studies and reports have shown, and we at SafeSourcing agree, that the involvement of the Procurement department, even at the most basic level, into marketing projects can reap huge benefits as both departments work toward finding partners in their suppliers to achieve both their marketing and procurement objectives.

Retailers whose Marketing departments can leverage the database of the Procurement department’s suppliers will find a positive effect on their spend while achieving the ROI they are looking for on their campaigns and will create a better team environment within the company to achieve like-minded goals.

For more information about how the SafeSourcing database of known suppliers can help your company’s marketing and procurement departments work together to achieve these goals, please contact a Customer Service representative today.

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.

 

The Central Procurement Function!

Tuesday, March 9th, 2021

 

Today’s post is from Ron Southard, CEO at SafeSourcing Inc.

As you can imagine the answer to this question could actually be pages in length. However the following is directionally correct based on the question and minus the organizational structure and alignment. However, it is this authors firm belief that Procurement should ultimately report to Finance. Example: CPO reports to CFO.

The Central Procurement Function in responsible for the procurement of goods, services and capital projects by an authorized group within a company’s hierarchy. Central procurement in a best case scenario includes the financial decision making authority specific to that procurement on behalf of the entire company for reuse or resale from an approved list of vendors or suppliers. In some cases the budget for a specific spend may reside within another functional area  where central procurement collaborates and negotiates on behalf of that areas subject matter experts but the subject matter experts approve the final vendor selection.  In the case of manufacturing company’s  this function also includes the purchase of commodities used in the manufacture of finished goods.

The central procurement function is typically authorized within a company in order to insure consistency thought-out the organizations procurement process by eliminating the potential negative effects of non-collaborative, non-aggregated purchasing by multiple divisions, departments and other corporate entities that can support rogue or unstructured buying.

Measurements of a central procurement organizations success can differ widely from company to company depending upon where they fall relative to a procurement maturity model. Typically these organizations are measured by overall procurement Key Performance Indicators or KPI’s at the procurement department level that usually includes the following at a minimum.

1.  Percent of spend under management
2.  Price Improvement
3.  Quality Improvement
4.  Safety Improvement
5.  Reduction in Carbon Footprint
6.  Service Level Improvement
7.  Distribution Flexibility
8.  On  Time Delivery Improvement
9.  Supplier Management

Management of these KPI’s is intended to insure that  companies have a defined  processes in place so as to promote a fair and open competitive model for the supplier community that’s  interested in soliciting their business.  This also minimizes the opportunity for fraud and collusion while insuring the best possible product or service is purchased at the best possible price and overall value to the company.

If you’d like to learn more about the central procurement function, please contact SafeSourcing.

We look forward to and appreciate your comments.

Retailers; is your sourcing transparent enough?

Sunday, February 21st, 2021

 

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

If you are not sourcing at least 30% of your cost of goods and services using e-procurement tools, you are lagging your industry leaders as well as being significantly behind other industries. As such; you are not getting the best costs and not driving the best margins for your company.

Reverse auctions since their inception more than a 16 years ago haven driven healthy competition amongst supplier companies. As such the results of a reverse auction can provide a great benchmark for both the buyer and the supplier. For the buyer the results can be used as a tool to evaluate how to best source other products and services. Additionally suppliers that are not the low quote or winning bid now have the opportunity to evaluate why that is and what they need to do in order to improve or to be more competitive in the market place. This of course is all happening without the need to collect, collate, compare or negotiate during the process. In other words it is happening transparently to the normal sourcing process. I watched a reverse auction today where 4 suppliers placed 180 quotes for a dozen line items in under 30 minutes. No buyer can do that. Additionally reverse auctions provide the opportunity for suppliers that are outside of your business area or knowledge base to bid for your business.

Possibly the single largest area of benefit to reverse auctions outside of price compression  for  procurement professionals  is that it offers  a significant opportunity for process improvement since most solution providers offer a standard process for hosting reverse auctions. Everything is done in one place using standard processes in building the event to the final analysis of the bids collected. Information availability is immediate for evaluation and is archived for easy access in the future. This reduces the overall procurement life cycle, eliminates or reduces the opportunity for human error, and provides a standard way to conduct and award business.

Please contact a SafeSourcing Project Manager in order to learn more.

We look forward to and appreciate your comments.

Part II of here is some Lasik for retail e-procurement professionals in order to create better focus.

Thursday, January 28th, 2021

 

During yesterdays post Here is some Lasik for retail e-procurement professionals in order to create better focus we discussed the following four retail P&L measures and how to use them to pin point a starting point for e-procurement evaluation and events. They were

  1. Gross Sales,
  2. Cost of Goods Sold,
  3. Gross Margin and
  4. EBITDA.

Also in yesterdays post, we promised to review what underperforming the above measures means and how careful evaluation will point you in the direction as to where to begin your e-procurement journey.

Here you go!

If your EBITDA is low, and your top line sales are in line with your plan, it is pretty clear that you have either an expense problem or a cost of goods problem. If the problem is expense related the first indicator is that your gross margin is most likely in line and your costs of goods are ok relative to your plan. In this case since the issue looks like it is below the gross margin line you have an expense problem. This does not always mean that the issue is your largest expense category like health benefits. Often times the problem can be caused by mid level expense related categories particularly categories that are hard to monitor and as such hard to control like hired services. A few examples are items like landscaping, snow removal, pest control, window washing and other similar types of expenses. These expenses have multiple invoices from multiple suppliers multiple times each month and are approved at store level. As a result, eProcurement results for these categories return impressive results while also streamlining suppliers as well as the process. With out going into to much detail the exact same process works if you turn this issue around and sales are near plan and gross margin is out of line, you most likely have a cost of goods issue.

A caution that procurement professionals should be aware of is that of measuring yourself solely against your own plan. You may be achieving your plan, but underperforming the industry you serve. This author believes that this is the 2nd level of analysis required once you have addressed the items indicated above and want to take the next step in creating a sustainable e-procurement process.

I hope this helps and allows you to use the lyrics from the 1972 song by Johnny Nash titled ?I can see clearly now? as your sourcing mantra.

If you’d like to discuss further how I can personally help your company, please use our contact page as I get the updates as soon as you submit it.

 

Collaborative Buyer Organizations, Share Groups and Consortiums are evolving in order to compete with mega retailers.

Wednesday, October 28th, 2020

 

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

These business structures have been around for a long time. Many have evolved to use cutting edge e-negotiation and eProcurement tools. Their retailer members are also benefiting from their use of these tools in order to reduce their net landed costs in many different ways.

These types of organization can go by many different names such as wholesaler, collective buyer, consortium, cooperative, share groups and more. They all have one thing in common. They consolidate purchasing volumes for a wide array of groups that may have very similar business structures, but for the savvy consortium can also be wildly different.

In the retail vertical, companies may actually belong to several different buying groups because their primary group does not offer expertise in a certain area.

Consortiums are also evolving and beginning to focus mixed markets where it makes sense. In general consortiums tend to be vertically focused such as a drug industry consortium with the members generally representing the drug industry only. However some consortiums are beginning to market them selves outside of their vertical to retailers or other companies who want to take advantage of learned expertise that the consortium possesses in the categories that are common across more than their own vertical and offer increased volumes. An example might be drug stores sourcing very similar products that health care organizations like hospitals source. Although this may seem like a stretch fro most, it is now very common within retail for non vertical specific players to work together.

Today’s advanced e-negotiation or e-procurement tools make it much easier to accomplish collective buying and aggregating outside of a consortiums initial area of expertise. Large and small retailers alike now have the capability of viewing a much broader universe of suppliers and other companies while also coordinating and participating in collaborative events from hundreds if not thousands of miles away. Suppliers now have an opportunity to earn business they could never compete for in the past.

Retailers should ask their collective buyers how they plan to make the use of these types of tools and what they have to offer in terms of introductions to other companies for increased volume.

If you’d like to learn more about our risk free trial or how SafeSourcing may be of service to you, please contact a SafeSourcing Customer Services Representative.

What is a Third Party Procurement Company?

Friday, October 11th, 2019

 

 

Today’s post is from our SafeSourcing Inc Archives

What is a Third Party Procurement Company? The quick answer? We are our client’s right-hand man in procurement.

When speaking to suppliers, on a daily basis, we are asked who are you, why are you working on behalf of so and so, and what does third party mean?

The name third party procurement company has a couple of other names that mean the same thing, but are just as confusing, PSP or Procurement Service Provider.

According to Procurement Service Provider:

A Procurement Service Provider, or PSP, is a third party organization or consultant which is used to supplement internal procurement departments. PSP’s have their own staffing which assist in a variety of tasks for their clients. These tasks include: strategic planning, implementing best practices, supplier rationalization, and supplier collaboration, strategic sourcing and negotiation.

“Enterprises utilizing PSP’s have been able to improve spending coverage, reduce costs for goods and services, employ industry best practices, leverage the latest procurement technologies, and streamline source-to-pay processes – all without taking on the risks and assets required to achieve such results.” Aberdeen Group Research Abstract: You Will Outsource Procurement: Here’s Why and How – October 16, 2002.

SafeSourcing can assist you in exploring your procurement solutions for your business 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.

 

 

Watch out that your Spend Cube does not overwhelm you!

Thursday, January 11th, 2018

 

Today’s post is by Ronald D. Southard, CEO at SafeSourcing.

I’ve participated  in a lot of discussions lately about spend cubes, which can just as easily be called data cubes, because that is all they really are.

Just what is a spend cube?  In its most simple form it is a data set that includes information that when analyzed as a whole provides a better or more completed  picture of your spend universe such as the expense category.  Spend cubes help to identify opportunities within a broad category of products and services that may require more attention including going to market and ideally, when they should. Because  a spend cube includes vendor data, causal data,  and  other specifics such as commodity pressures relative to the related cost center being impacted, spend cubes by their nature are very complex.

Unfortunately good spend cubes as well as improperly built managed spend cubes can deteriorate over time based on a number of factors. Probably the primary reason is that the originating data was not complete to begin with or scrubbed properly in the first place. This is kind of a one bad apple can spoil the whole bunch issue or the wrong data bumping into the wrong data. Another reason may be that you don’t have all of the data that you need and therefore the result sets are compromised or left to conjecture that creates improperly built and executed sourcing strategies. Additionally there is the analyst’s interpretation of the data and to this author that is really the most important part once you get the data sources right (think ERP). This person or group of persons needs to know their stuff (industry and products) in order for the data to be interpreted properly. It’s pretty easy to read a GL and determine what suppliers you have been spending the most with. It’s an entirely different thing to understand what the market for a commodity that impacts that particular spend was doing during the last contract versus what it is doing now and how it is trending for the future. All of this has to be attached to specific sourcing unit activity. Think of it this way?  If your vendor does not invoice you at the unit level, where will you come up with corroborated unit spend from regardless as to whether it is a can of beans or a fork lift.

Ask your solutions provider where your data should come from, who will be interpreting your data and what data they will be interpreting. Also thinks start small.

If you’d like to learn more about how to optimize your spend data, contact SafeSouricng.

We look forward to and appreciate your comments.

Force Majeure

Monday, November 6th, 2017

 

 

Today’s post is from our  SafeSourcing Archives

  1. According to Merriam-Webster, force majeure is defined as 1. Superior or irresistible force 2. An event or effect that cannot be reasonably anticipated or controlled.[i]

Force majeure is a French term translating to “greater force”. Force majeure is a clause included in contracts to remove legal responsibility for natural and uncontrollable calamities that disrupt the expected course of business and restrict those involved from fulfilling terms of a contract. These events may include armed conflict, labor strikes, and extreme weather.

Due to differing legislation and interpretations of force majeure, it is common in contracts to include specific definitions of force majeure. Some contracts will limit force majeure to “acts of god” such as floods, earthquakes, and hurricanes while excluding human influenced failures such as terrorist activities and mass failure of communication or electrical systems. The key would be having your contract written to detail the difference between an act of God and the other forms of force majeure.

We enjoy bringing this blog to you every week and hope you find value in it.   For more information on how we can help you with your procurement needs or on our “Risk Free” trial program, please contact a SafeSourcing Customer Service Representative. We have an entire customer services team waiting to assist you today.

We look forward to your comments.

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[i]  “Force Majeure.” Merriam-Webster.com. Merriam-Webster, n.d. Web. 14 July 2016