Archive for the ‘Sourcing Strategy’ Category

Part I of II. Are reverse auctions a good tool to use in the retail distribution cost plus arena?

Wednesday, May 9th, 2018

 

Todays post is by Ron Southard, CEO at SafeSourcing

A lot of distributors have told this author that reverse auctions don’t apply to them because they use the cost plus model and as such they just add their price or profit margin on top of the contract price with their source to drive their distributed price.

The fallacy in this thinking is that it may make buyers and category managers lazy in their approach to driving margin within the categories that they manage. This results in a higher price to the retailers they distribute to and ultimately to the consumer or their customers customer. A worst case scenario is that the consumer stops shopping at their customer’s store which reduces overall volume and further increases prices by not meeting volume incentives. It’s a slipper slope.

Off course this argument is relatively easy to overcome when we get around to discussing capital goods and expense related products and services area. These areas have an impact on the distributor’s net profit. And I’m sure that many of you will agree that just because one says they are a cost plus provider does not necessarily mean it’s true in the most pure sense of the definition.

Check back tomorrow and we’ll review what the real definition of cost plus is in part II.

We look forward to and appreciate your comments.

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Procurement is a science. Retail procurement needs to be an exact science.

Monday, May 7th, 2018

 

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

I was talking to a meat buyer recently and it sounded more like talking to a commodity trader. In fact, that is exactly what they are. Data is important, and the breadth of data they need to watch is amazing.

Without getting into detailed spend management, strategic sourcing or analytics, a very simple example of what a retail meat buyer goes through every day should shed some light on the need for talent in the sourcing area.

Consider the following nine questions that a meat buyer might have to consider every day.

1. What is my companies demand for beef products?
2. What is the price of corn?
3. What is the price of diesel?
4. What is the price of plastic?
5. What is the price of paper?
6. What is the price of ink?
7. How do all of these products or interact to impact the price of beef?
8. How do I keep track of all these moving parts and what if I don’t?
9. Is there an index for each of these I should be watching?

That sounds like a commodity trader to me.

One place a meat buyer might turn for help is to their e-procurement solution provider and if they already have a partner and these questions have never come up, maybe it’s time to change solution providers.

If you’d like to learn more about the resources we use at SafeSourcing when developing the strategy for our customers e-procurement events, please contact a SafeSourcing customer services account manager.

We look forward to and appreciate your comments.

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RETAILERS! Clean out those back rooms and move your overstock items using a forward auction.

Friday, May 4th, 2018

 

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

Why is it that we never hear of retailers running forward auctions? There are dozens of sources waiting to buy your overstock which all retailers know will reduce shrink and improve bottom line profitability.

If you go to any internet search engine and type in the term overstock, the data returned is in the millions of pages. Many of these links are locations  for Business to Business (B2B) and Business to Consumer (B2C) companies that will gladly agree to participate in e-negotiation events in the form of a forward auction to purchase your overstock or liquidated products for resale through their on line offerings.

Online forward auctions are an ideal way to get the best price for capital equipment, materials, overstock and services you may want to sell, such as when you need to liquidate excess inventory.

There are two basic types of forward auctions. The first is a liquidation auction where sellers are reducing inventory from overstock or liquidation and buyers are seeking to obtain the lowest price for items they have an interest in for resale and other purposes. The second type is more of a marketing auction where sellers are trying to sell unique items and buyers wish to obtain unique items. This is typical of an eBay type of offering.

Much of retail shrink happens in the back room or receiving area of retail stores. It just so happens that this is also the location of much of the overstock in the retail community. Much of this product sits there month after month resulting in significant margin hits to quarterly and annual earnings and as such to a company’s stock price.

Ask your e-negotiation solution provider how they can help reduce your overstock and shrink with forward auction tools, and who they would invite as buyers. You company stakeholders will applaud your efforts.

For immediate help, please contact a SafeSourcing Customer Services Account Manager.

We look forward to and appreciate your comments.
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Sourcing Music

Tuesday, April 24th, 2018

 

Today’s post is by Mike Figueroa, Assistant Director of Customer Services at SafeSourcing.

There isn’t an organization on earth that doesn’t use music for its business in some capacity. Offices without any background music are awkward, phone lines without hold music makes customers think no one is actually holding for them, and video marketing is incomplete without song. Even though you may feel that the latest hit would be a perfect fit for your multimedia needs, without following the right procedures you could be on the hook for damages much larger than the actual licensing fees. But where do you start?

The rights to any musical composition’s distribution are typically managed by the publishing company under what are known as “mechanical licenses”. Sometimes the rights can be released directly by the copyright holder, but typically only under special circumstances such as when the request comes from a source with strong cross-promotional influence, or a friend of the artist themselves. The major Performing Rights Organizations (PROs) are ASCAP, BMI and SESAC. All commercial artists will be affiliated with one or the other organization. However, obtaining a license to use the music of one organization does not give you legal access to the libraries of all three PROs. There are, however, several third party companies who have licensing agreements with the PROs, and will grant access to specific works within their libraries for a fee. If you need to be able to customize how you use the creative work, such as by editing a song to fit within a TV commercial or radio jingle, obtaining licensing through a third party is usually the easiest way to go. However, if all you need is elevator music, obtaining licenses specific to your organization is probably unnecessary.

Typically, the best route for a company to take is to purchase systems with pre-existing music libraries already integrated. For example, many VOIP providers either have their own content created exclusively for their organization, or have purchased rights to creative works themselves. This places the burden of working through the licensing issues on the service provider you are using. However, if you want to make sure your service provider is compliant, you should ask for documentation proving compliance with current copyright laws identifying the corresponding PRO.

Please leave a comment or for more information on how SafeSourcing can assist your team with your procurement process 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.

 

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What POS System is Best for Your Business?

Friday, April 20th, 2018

 

Today’s post is by Troy Lowe; Vice President of Development at SafeSourcing.

Changing out a Point of Sale System is not something that a retailer can take lightly.  This is a very daunting task and takes a lot of pre-planning.  Since most retailers are open 7 days a week, there cannot be any or little down time when the transition takes place.  This means that there must be a lot of research and a good team in place to make a successful transition.  Researching all of the components can also be very time consuming.  There are a lot of suppliers that offer excellent solutions that will meet your needs.  Most of the suppliers offer POS systems that include both hardware and software solutions that will help streamline the transaction process.  When doing your research, you must first know what hardware that you will need and the amount of stress that will be put upon it.  Some systems are built to last extreme usage and temperatures where others are not.  It is also important to know all of the components that you will need.  For example, barcode scanners, register screens, payment terminals, cash drawers, and receipt printers.  When choosing a POS system, there are many other things to consider as well.  Below is a list of some things to keep in mind.

  • How many transactions do we average on a given day?
  • How many lanes need to be supported?
  • Are we planning on expanding in the near future?
  • What type of payments do we accept?
  • Does my environment cause the need for more durable equipment?
  • Do we support mobile transactions?
  • Do we need to have multiple locations linked together?
  • Do we need to synch data with other applications?

If you would like some help finding the right solution, we can gather all the necessary information for you and help you decide which device will meet your needs.  If you would like more information on how SafeSourcing can help you, please contact a SafeSourcing Customer Service representative.  We have an entire team ready to assist you today.

We look forward to your comments.

 

 

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What is a price or commodity index and how is it used?

Thursday, April 5th, 2018

 

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

SafeSourcing uses a number of  indices in our sourcing events every day and the same question always comes up from buyers when we do. While this is an older post from our archives I believe you will still find it useful today.

This author has heard a lot lately about prices indexes or indices. Every time we source something we are asked what index should we use. Although there are times when an index is helpful in sourcing in order to manage contracted pricing once a baseline has been determined versus the rise or fall of an index, that is not always the case for every product.

I was reading our local paper today “The Arizona Republic”. In their MARKET TIP on page 3 of the business section they had a nice synopsis of the Consumer Price Index or CPI relative to measuring inflation. It was brief and holds true in terms of how indices are used to measure the rise or drop in prices over time. In your annual contracts you may wish to review them quarterly and have escalator language that locks in price increases or decreases versus a specific index to protect you from volatile commodity markets like the oil market.

According to the Bureau of Labor Statistics website, the Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The CPI is used as an economic indicator, a deflator of other economic series and as a means of adjusting dollar values. The CPI affects nearly all Americans because of the many ways it is used.

To learn more about how the CPI index is used please visit the Bureau of Labor Statistics website.

If you’d like to learn more about the variety of indices and how they impact the many products that you buy for reuse as well as resale or if you are not in the business of prognostication, please contact a SafeSourcing  customer services account manager.

We look forward to and appreciate your comments.

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When should I use a Request for Quote or RFQ

Tuesday, March 13th, 2018

 

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

I’d like to thank my SafeSourcing associates both past and present for their constant quality input to my posts and whitepapers and upcoming book.

The Request for Quote (RFQ)

A Request For Quote is typically used to solicit price and price related details such as freight, that meet minimum quality specifications for a specific quantity of specific goods and/or services. “RFQs are usually not advertised publicly, and are used commonly for (1) standard, off-the-shelf items, (2) items built to known specifications, (3) items required in small quantities, or (4) items whose purchase price falls below sealed-bidding threshold. Suppliers respond to an RFQ with firm quotations, and generally the lowest-priced quotation is awarded the contract.” 4

Though the above historically represented the industry standard as to what an RFQ was, it is important to expand on each of the points and understand the pieces from a historical and practical standpoint. With online eProcurement tools suppliers have an indication of where they stand and an opportunity to adjust their pricing should they choose. In standard practice this is done by phone calls or e-mails and one at time. As such it is very time consuming and does show some savings, but not nearly the rate of success online tools have historically provided.

Standard, off-the-shelf items. This is a standard misconception of procurement departments everywhere. The fact is that virtually any product or service can be taken through the eRFX process.  Strategic Sourcing solutions providers with extensive global supplier databases can invite a number of new suppliers to participate in the bidding process on whatever items or service may be required.  Many will have some level of experience in successfully participating in eRFX events in a variety of functional areas within the organization such as HR, Marketing, Construction and IT to name a few.

Items built to known specifications. While this is a valid concern, it is also the biggest reason why projects are never taken out to bid; not having specifications or having the time to assemble them. Working with 3rd party procurement solution providers companies are more able to cover all of their needs, taking into consideration all of the moving parts that affect these items. Such as freight, fuel surcharges, additional fees and hourly rates.  Results can be achieved that are comprehensive enough to allow strong decisions once the project has been completed.

Items required in small quantities. Another misconception about RFQs are the quantities of items that can be sourced and duration of time for which those quantities are needed. There should be no limits at all, including number of items to have the suppliers bid on. With that established, however, there are always unique strategies to every event so that the host company can end up with the most complete set of information while allowing suppliers to focus on those areas that need the most attention.  This is part of the service that needs time to be considered as sourcing projects are strategized and developed.

Items whose purchase price falls below sealed-bidding thresholds. The recommended approach for pricing within the RFQ should be analyzed based on the historical spend, also taking into account any price indexes that can affect future pricing increases. Using historical spends and any additional information available, a max quote is often established that the suppliers must meet prior to participation. Setting a price decrement is also strongly recommended, and often plays a key role in the strategy as to how you would like to have the suppliers act, giving them the flexibility to make price adjustments they are comfortable with while driving savings as part of the process.

Understanding the differences between historical RFQ strategies and changes that are resulting in stronger results is the beginning of assembling the right strategy for your project. Strategies that have proven successful in the past generally have similar features in common and drive the two most important aspects of every project; valuable results and supplier participation.

Details, Details, Details- In the RFQ, send an invitation to potential suppliers containing a detailed list or description of all relevant parameters of the intended purchase, such as:

  • Personnel skills, training level or competencies
  • Part descriptions/specifications or numbers
  • Quantities/Volumes
  • Description or drawings
  • Quality levels
  • Delivery requirements
  • Term of contract
  • Terms and conditions
  • Other value added requirements or terms
  • Draft contract

An RFQ event can have many suppliers participating in your project. They will all be actively participating during the RFQ in a preset timeframe, which is usually 15 minutes, but can be adjusted when the line item count grows over 25 items. Within the 15 minutes, suppliers can lower their bid pricing an unlimited amount of times. Like sealed bidding, suppliers cannot see one another’s pricing. There is only one way they know they have a low quote on an items and that is through the use of a low quote indicator when they achieve that milestone by phishing for it.

Missing Pieces– An easy way to establish specifications and develop base pricing is from the RFP responses submitted earlier. Many times a list of suppliers is established that has already been educated on entering pricing through an online sourcing or bidding tool. The RFQ gives the supplier the opportunity within the live event to view whether or not if they have any low quotes and to “sharpen their pencils” in order to lower their pricing if they wish to do so. From this event an award of business based on the results can be made.

Training and Communication – Suppliers should be trained as to how to use the eProcurement system, how to place their bids, how to look for the low quote indicator, and at the same time communicated with on questions and the pricing and products and services you are looking for. The overall goal is to drive the best overall value, so suppliers should have an opportunity to enter notes within the RFQ during the live event. This additional information often offers additional hidden savings opportunity, i.e. if 1,000 cases are purchased rather than 900 cases, additional discounts, or other value added services such as freight waived for the first 6 months of a 1 year contract if awarded the business. These additional notes can provide and overall benefit, rather than just a low price wins.

Returning to our original RFI example of a company owning a building they intend to repurpose as a Distribution Center, the process began as an RFI in order to understand what was needed so it could be followed by an RFP in order to collect further detailed information and base pricing. These two steps were then followed by an RFQ in order to compress the pricing from suppliers who participated in the RFP and were invited to this final stage. In this last stage running the line items as a complete list of materials rather than an item by item list, total cost of freight, total installation pricing- which could include teardown pricing which could also be listed as its own line item can have great value and provide the opportunity for the suppliers to keep their focus where it is needed rather than on 100’s of individual line items submitted during the RFP. The four items mentioned here represent the largest spend items of the proposal and have the opportunity to lower pricing by 20% or greater from the original RFP pricing.

Determining what stage of the eRFX process to begin with and how to assemble those pieces can be a difficult puzzle to put together especially if a procurement team is already engaged in a myriad of other daily activities. A good Strategic Sourcing solution provider can help put these pieces together in a way that requires less of your company’s time and resources.

For more information on how SafeSourcing can help you through the complex minefield of eRFX strategies, please contact a SafeSourcing Customer Service representative.

We look forward to and appreciate your comments.

Resources————————————————

http://www.businessdictionary.com/definition/request-for-quotations-RFQ.html

 

 

 

 

 

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When should I use a Request for Proposal or RFP

Friday, March 9th, 2018

 

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

I’d like to thank my SafeSourcing associates both past and present for their constant quality input to my posts and whitepapers and upcoming book.

A Request for Proposal (RFP) is a document used in sealed or electronic bid procurement procedures through which a purchaser advises the potential suppliers of (1) statement and scope of work, (2) specifications, (3) schedules or timelines, (4) contract type, (5) data requirements, (6) terms and conditions, (7) description of goods and/or services to be procured, and (8) instructions for preparation of technical, management, and/or cost proposals. As an example, Government RFPs are publicly advertised and suppliers respond with a detailed proposal, not with only a price quotation. They provide clearly quoted specifications for negotiations after sealed proposals are opened, and the award of contract may not necessarily go to the lowest bidder.2

Breaking down each of these 8 pieces of information will help to form an understanding as to whether there is enough detail to move straight to an RFP,  thus skipping the Request For Information altogether.

Scope of Work: This refers to all of the elements that should be included in the proposal for the project and is generally specific to each customer along with the data and metrics provided to shape it. Simply, this is the definition of the needs and expectations for the work needing to be completed.

Specifications: “An exact statement of the particular needs to be satisfied, or essential characteristics that a customer requires (in a good, material, method, process, service, system, or work) and which a vendor must deliver. Specifications are written usually in a manner that enables both parties (and/or an independent certifier) to measure the degree of conformance. They are, however, not the same as control limits (which allow fluctuations within a range), and conformance to them does not necessarily mean quality (which is a predictable degree of dependability and uniformity).”3

Generally specifications will be broken into either performance or technical specifications that define the types of goods or services needed from the vendor community. Developing strong specifications ensures proposals containing exactly what is needed. As a result vendors will know not to over bid or under bid.

Schedules or Timelines: This is the time frame of the expectation of when the RFP is sent to the vendors, when questions (about the specifications or the RFP process) are due from the vendors, when the vendors can expect the questions with answers to be returned, and when the RFP is due to be completed.

Contract Type: This defines to the vendor if the contract is a spot buy, a one year, two year, or longer contract. There may also be additional special contractual requirements added within this area.

Data Requirements: This can vary from RFP to RFP, but every project should collect basic information about the vendors such as, their name, address, primary business, who the primary contact will be with their specific contact and other related information, usually a list of 3-5 references and a list of current businesses that are similar in size to the company running the RFP.

 

Terms and Conditions: General and special arrangements, provisions, requirements, rules, specifications, and standards that form an integral part of an agreement or contract.

Description of Goods and/or Services to Be Procured: This description defines what is being requested. It is a bridge between the scope of work and the specifications. This area is typically where vendors are asked to give their proposal of price based on the needs defined and within the guidelines of the specifications.

Instructions for preparation of technical, management, and/or cost proposals: These are the details on how to complete the RFP. Typically the supplier will be given a deadline to complete the RFP, to complete training on how to enter Responses and Pricing, and the additional information the customer may need as supplemental documentation and how to submit that information.

In the example I used in the RFI section, (Owning a new or used facility and turning it into a distribution center) It may be known where the racking should be located, how much racking is required (this would include a set materials listing), the details of labor to install new materials and remove and re-rack another area. All of these details are required for the suppliers to bid the job appropriately. Within a very detailed RFP there are fewer chances for over or under bidding from the suppliers. The quality of an RFP is very important to successful project management because it clearly delineates the deliverables that will be required.

The details received from an RFI can be used to build the specifications for an RFP. Multiple suppliers have verified and provided details needed to complete the project. The RFI may also produce details not previously known, for instance in the racking project: if the location is in California or other geographic areas prone to seismic activity a seismic analysis will also be required to complete the work. This can be completed, but for an additional charge from the supplier. Suppliers may all have similar products, but they may not be compatible to other supplier’s materials. In other words, their product will be proprietary and not interchangeable if a repair is required in the future. These details and more need to be inserted into the new RFP.

So how can an RFI be combined with an RFP? If there needs to be a high level of knowledge about a product, project, or service, but the same supplier has been used exclusively for a long period of time and it is unclear as to whom additional sources of supply might be. An RFI could be combined by asking the questions specifically related to the new potential suppliers; who are they, where are they located, what is their business structure, who the contacts are, what areas or locations can they service, what are their references, etc.  Along with the specifications and details of the RFP, an overall picture will develop of who the company is, what they can or cannot provide, and what their pricing structure will be.

With an idea of how to collect information on a project with little initial data through an RFI and details on collecting RFP responses with the known information, the next step is ensure understanding relative to the best value, data and price from the suppliers that can handle the opportunity.

For more information on how SafeSourcing can help you through the complex minefield of eRFX strategies, please contact a SafeSourcing Customer Service representative.

We look forward to and appreciate your comments.

Resources————————————————

  1. http://www.businessdictionary.com/definition/request-for-proposals-RFP.html
  2. http://www.businessdictionary.com/definition/specification-spec.html

 

 

 

 

 

 

 

 

 

 

 

 

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When should I use a Request for Information or RFI

Thursday, March 8th, 2018

 

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

I’d like to thank my SafeSourcing associates both past and present for their constant quality input to my posts and whitepapers and upcoming book.

A request for Information (RFI) is a request made typically during the project planning phase where a buyer cannot clearly identify product requirements, specifications, and purchase options. RFI’s clearly indicate that award of a contract will not automatically follow.1

An example for use of an RFI would be if a company acquired a used warehouse that needed to be turned into a distribution center. The facility has some racking installed but needs more. There has not been a defined idea of what layout will be needed to improve the warehouse for DC use, nor what types of rack are needed, how much material is needed, nor how long it will take to install the racking. The existing racking is in adequate shape but it is unknown whether it is safe, placed appropriately, outdated, or even needed in any way. A situation like this often is a good time to rely on experts to provide feedback as to these needs.  The best practice would be to get a minimum of 3 sets of data submissions, but I’d recommend getting 4 to 6, submissions from your requests for information from racking manufactures, distributor, and/or installers.

The higher the supplier count, in an area where you have no knowledge, provides the necessary data to begin to make more informed decisions. With at least 3 submissions it becomes clearer if there are major differences between suppliers and how they operate.  Lead time, outsourcing, geographical coverage are all very important pieces of information to gather from the suppliers at this stage of a sourcing project.

The application of an RFI can be used on new goods for use, re-sale, packaging design, any and all services, software, hardware, equipment of any kind, actually it is limitless as to what you can utilize an RFI for in business.

For more information on how SafeSourcing can help you through the complex minefield of eRFX strategies, please contact a SafeSourcing Customer Service representative.

We look forward to and appreciate your comments.

Resources————————————————

http://www.businessdictionary.com/definition/request-for-information-RFI.html

 

 

 

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Here are some additional thoughts on managing overstock and other inventory leftovers

Wednesday, March 7th, 2018

 

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

One of our customers recently mentioned that they were dealing with one of their vendors to purchase back some obsolete inventory.  This is just one of the methods some companies use to move old or excess items they have purchased and today’s blog will be taking a look at a few more.

Vendor Assisted – The example mentioned above is one method of dealing with excess inventory, and is one of the most important methods to consider when negotiating the purchase of new items.  Unfortunately, many companies miss this opportunity until it is too late.  Letting vendors you deal with know they may have an opportunity to buy back you excess inventory up front will many times get more aggressive pricing from them on the new items you are purchasing.

Third party buyback programs – If you are not able to negotiate a deal for your obsolete or discontinued items up front with the vendor, another approach is to contact third party companies who special in purchasing excess inventory at a reduced price and reselling it through their own channels.  Depending on the type of product you are looking to move there will always be companies who will specialize in handling it for you.

Donation Programs – Occasionally the sale of excess or obsolete will either not be possible or will not be not as valued as the tax write-off given when it is donated.  As in the cases above there are many companies who will coordinate the pickup and redistribution to charities that they work with; taking the entire burden of getting rid of the products off of your business and providing you with a tax incentive on top of it.

There are many ways to take care of your excess inventory and as is often the case, the earlier you plan the more options you will have in the directions you can take.  For assistance in finding ways to move your excess, discontinued or obsolete inventory, please contact a SafeSourcing Customer Service Representative.  

We look forward to your comments.

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