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The background for my career began in base supply in the U.S. Airforce during the Vietnam era. My AFSC was that of an inventory management and logistics specialist. I still use those tools today and think often of all the brothers and sisters in all branches of the service both past and present on this day.
Thanks to all of you for what you have done and continue to do for our country.
We appreciate all of your contributions.
Today’s post is by Mark Davis; Vice President of Operations and CTO at SafeSourcing.
There are thousands of categories that businesses purchase every year that are “complicated” to say the least. Categories like office supplies, for instance, involve thousands of individual items that a company must purchase in order to do business, but that can be very difficult to source in a manner that provides the best benefit to the company.
Let’s take a look at the process of sourcing these types of categories from one extreme of the complexity spectrum to the other with a couple of options that meet towards the middle.
Sourcing the market basket – The first end of the spectrum is to take the entire collection of all items in the category and source them as one large market basket that will be represented by a discount off of the vendor’s list pricing. One obvious pro of this approach is that it is easier to collect and manage an overall discount from a supplier than anything else and is one reason why procurement departments sometimes take this approach. On the downside this approach does not allow you to focus on items that have higher spends and because each vendor will have different beginning list prices, an overall discount can sometimes be misleading when comparing vendors side by side.
Sourcing every item – At the other end of the spectrum is the approach of gathering pricing and proposals on every item in the category. The advantages to this approach is that it allows you to show where your purchases are heavier for the vendors and it gives you absolute pricing and comparison of the group across all proposals from the vendor community. The trouble with this approach is that when you are looking at 4,000 items this can be a time-consuming task for the vendors to complete and for your team to evaluate at the end, and in some cases vendors do not have the capability to provide unique price sheet pricing on a customer by customer basis.
Group Discount Sourcing – In the group discount approach you collect discount pricing off of list on a product group by product group basis which allows you to split your spend into smaller areas for the vendors to focus on providing more competitive quotes in the areas you need them most. Also, many vendors support this approach in their internal systems much easier. The downside in this approach is like the first approach where the list prices of the vendors can vary a great deal making a straight discount to discount comparison more difficult to evaluate.
Hybrid Sourcing – The final approach is one that takes the positive elements of all three and blends them together. This approach leverages the individual focus pricing on items making up the majority of your spend. From there, the majority of what is left is split into product groups market baskets, with a final market basket of products gathering a discount off of list representing no more than 10% of the spend. The advantage for your company is that you have the focus in all the areas you need and discounts on areas that aren’t as large. The downside is that many vendors are not generally equipped to handle this approach on an account by account basis so it may require more effort on their part in order to support you and the hybrid pricing model.
Regardless of how you choose to source these types of categories there is a model that fits for you and your business. For assistance in sourcing these categories for your business, please contact a SafeSourcing Customer Service Representative.
We look forward to your comments.
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.
Let’s first try to understand what analytics actually is. According to Wikipedia’ a simple definition of analytics is “the science of analysis”. A practical definition, however, would be that analytics is the process of obtaining an optimal or realistic decision based on existing data. Business managers may choose to make decisions based on past experiences or rules of thumb, or there might be other qualitative aspects to decision making; but unless there are data involved in the process, it would not be considered analytics.
So why can’t many companies afford analytics? The answer is because they are complex. In my early days of selling data warehouses with one of the industry leaders, in fact the best in the space today the combination and analysis of data from disparate functional areas of a business were nearly impossible. As such if a company was advanced enough to have this type of information it most likely existed in islands that evolved into departmental data marts like category management systems. These data marts ultimately evolved to complex databases with relational data models that allowed access of data contained in these disparate systems and then into on line analytical systems capable of managing massive amounts of data .
It’s probably no surprise that the early adopters of these technologies were the biggest of the big companies and governments. So when we get to analytics that support e-procurement systems or procurement systems in general, the systems that provide the analytics have to reside within a company’s corporately supported data model. If not, they initially at least have to have a procurement data model that supports data contained in ERP systems, Financial systems etc. Since the trend is not a backwards direction of recreating islands of information, pilots of these systems that show significant benefits, will only end up as a corporate roll out through integration within the corporate framework and data model.
I could go on to explain the expense and time associated with these implementations, but there is a reason that these solutions are not readily implemented within lower tier one and tier two retailers. Number one is that many still do not have easily accessible corporate views of data. Number two is the cost; resources and time to implement them are difficult for these companies to justify.
As such there continues to be a need (niche) for providers that understand retail from an operational and financial perspective that know where to look, what to ask for and can assemble, analyze and report on data the old way to support the procurement data requirements of mid tier one and tier two retailers.
We look forward to and appreciate your comments.
However, we continue to see a reasonable uptick in the use of e-negotiation tools in retail and this author believes that some of the following quotes from a retail CEO and his team that watched their first reverse auction last week may be the reason why.
1. “This was pretty simple to do”
2. “If we hired someone we could do these ourselves with you guys”
3. “This is fun”
4. “You mean the reports are already available”
5. “I love the sports concept”
6. “It was easy to follow the marquis and what was going on from one screen”
7. “The multiple color schemes were great”
8. “I can’t believe how fast you guys set this up”
9. “We saved that much money and only have to pay what we discussed”
10. “Can we do another one today”
11. “I may get a promotion out of this”
12. “I love that calculator at the end of the bid process”
13. “I like all of the supplier data that was accessible during the auction”
14. “Now I know how the big guys get the pricing they do”
Why not join others that have come a little late to the party. You can still benefit because today’s tools are easier to use, more interactive, maintain your attention during an auction, integrate gaming technology to keep it fun and are lower cost than their predecessors. If you happen to have already been doing this for years, why not find an easier way or do it less expensively.
If you would like to have fun, save money and do it quickly, please visit us at www.safesoucing.com.
We look forward to and appreciate your comments.
Here is a challenge: Pick a product that you purchase and write out a specification. Be specific and include components and peripherals. Take it a step further and write down how many and how often you purchase. Finally, what is the price you are currently paying for this product? Is that the same price you agreed to pay when at the beginning of the contract?
This exercise may seem basic, but this knowledge is a vital component of the procurement process. Here is a list of potential red flags that may mean it is time to research your products.
1. All of your product data is in the form of a vendor invoice.
2. You are uncertain of your order volumes or frequencies.
3. You have been placing the exact same orders for years.
4. Your pricing fluctuates often.
Be honest with yourself; is there room for improvement in product knowledge? I would encourage you to reach out to your strategic sourcing partner for suggestions. Aside from dollar savings results, you will also benefit from having a complete set of product specifications, vendor information and more at the completions of your strategic sourcing process.
For more information on SafeSourcing and how we can assist with this process, please contact a Customer Service Representative for more information.
We look forward to and appreciate your comments.
If you had the tools to check all of the market indices, they are all up or headed up. Fuel, pulp, resin, metals, beef, grain and the list goes on. Many are up double digits over the last year and headed higher still. As such, your suppliers will be increasing their prices to you.
It is in this environment that procurement professionals are being asked to take cost out of the business or at a minimum hold costs flat. The question is how?
To begin with, even in up markets there remains significant opportunity for cost reduction and other savings. This does not apply to every category or to every product within a category, but there are opportunities.
Here are some things for procurement professionals to consider as they embark on this journey. All of these can provide clues that will help you map your way through today’s markets.
1) Review the last time all products or services were sourced in detail?
2) Review the dates on all current contracts?
3) Are there additional suppliers that are interested in your business?
4) Review all Terms and Conditions to uncover hidden opportunities.
5) Have your volumes increased or will they?
6) Will a longer term increase discounts?
7) Leverage freight and shipping terms?
8) Use indices and escalator language to control price increases.
9) Understand what drives the pricing of the product or service you are buying.
10) Aggregate your volumes with other companies.
11) Reach out to procurement providers that have the expertise to help you.
If you can’t come up with at least another 10 items to add to this list of more than 3 of the items above did not occur to you, it’s time to reach out for some help.
The reality is that prices are always going to go up over the long term. The other reality is that there are companies that are still saving or holding costs. The reason is because they plan better than most and ask for help when they need it.
We look forward to and appreciate your comments.
These author tires of the desire of businesses that are trying to reinvent themselves and in so doing constantly coming up with new buzz words, industry terms and business jargon in order to try and prove that they are thinking differently and as such should be trusted to be on the right path. Maybe their original business plan was just flawed and they are not deserving of our trust.
Lean in any functional area of a business simply means producing more or getting more done with fewer resources. I’m not sure this is a great message for companies that are just launching, trying to grow or improve. If you’ve been around for while, and your customer reads between the lines properly, this may just mean that you did not plan your launch properly or react properly to market indicators in the past.
We all know that lean practices were originally a move to reduce costs in the manufacturing process and since it worked for manufacturing where we are typically talking about thousands if not millions of pieces and parts, other companies began to think why not for our business. As such let’s apply the term lean to the supply chain or the procurement space. Any one that knows the procurement space already understands the lack of resources.
The goal of every business should be to provide the end user or customer with what they want or what you have promised them at a fare price. If you do so, that customer and others that hear about that customers experience should buy more. When this happens, if the business plans appropriately they should grow and grow profitably. And this should create new and sustainable jobs. So, how is this any different than the way businesses were run 50 years go or 100 years ago? The truth is that it’s not.
The decision to not hire, to try and do more with less and to reposition resources rather than firing someone is a better way to run a business. Unfortunately they do not teach this in business school. This author has been through many mergers, acquisitions, downsizings and the like over a lengthy career. One thing you can always count on in these scenarios is let’s cut expenses. You can call it lean, but it’s not.
So, let’s not hide behind the term lean or other business jargon or buzz words.
We look forward to and appreciate your comments.
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 dozen 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.
We look forward to and appreciate your comments.
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.
