Archive for the ‘Sourcing Strategy’ Category

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

Friday, March 3rd, 2017

 

Todays post is by Ron Southard, CEO at SafeSourcing

Yesterdays post reviewed why and how this author felt that reverse auctions were potentially good for both the distributor and the retailer alike. So just what is cost plus?

According to Wikipedia  Cost-plus pricing is a pricing method used by companies. It is used primarily because it is easy to calculate and requires little information. There are several varieties, but the common thread in all of them is that one first calculates the cost of the product, and then includes an additional amount to represent profit. It is a way for companies to calculate how much profit they will make. Cost-plus pricing is often used on government contracts, and has been criticized as promoting wasteful expenditures.

Once unit level cost has been established for the distribution of products it’s easy to turn that into a percentage and add it to the price of a product coming up with a distributed unit price or category price. The most important part of this pricing exercise for the distributor is to get the distribution costs correct. This can include price of storage, freight, length of travel, driver cost and any number of other costs. This is an area where a distributor can lose a lot of money if they are not very careful.

So, are revere auctions a tool that can help distribution companies?  The answer is a clear yes both above and below the gross margin line. If you like to know more please contact me at ronsouthard@safesourcing.com.

We look forward to and appreciate your comments.

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

Thursday, March 2nd, 2017

 

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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Do You Know The Different Types of Knowledge?

Wednesday, February 22nd, 2017

 

Today’s post is written by Heather Powell, Director of Customer Services & Project Manager at SafeSourcing Inc.

“Understanding the different forms that knowledge can exist in, and thereby being able to distinguish between various types of knowledge, is an essential step for knowledge management (KM). For example, it should be fairly evident that the knowledge captured in a document would need to be managed (i.e. stored, retrieved, shared, changed, etc.) in a totally different way than that gathered over the years by an expert craftsman.”1.

Over the centuries many attempts have been made to classify knowledge, and different fields have focused on different dimensions. Within business and KM, two types of knowledge are usually defined, namely explicit and tacit knowledge. The former refers to codified knowledge, such as that found in documents, while the latter refers to non-codified and often personal/experience-based knowledge. KM and organizational learning theory almost always take root in the interaction and relationship between these two types of knowledge. Some researchers make a further distinction and talk of embedded knowledge. This way, one differentiates between knowledge embodied in people and that embedded in processes, organizational culture, routines, etc. (Horvath 2000).

Explicit: information or knowledge that is set out in tangible form.2

Implicit: information or knowledge that is not set out in tangible form but could be made explicit.2

Tacit: information or knowledge that one would have extreme difficulty operationally setting out in tangible form.2

Embedded: knowledge that is locked in processes, products, culture, routines, artifacts, or structures (Horvath 2000, Gamble & Blackwell 2001).1

All knowledge is a mixture of tacit and explicit elements rather than being one or the other. The “build it and they will come” expectation typifies this approach: Organizations take an exhaustive inventory of tangible knowledge (i.e., documents, digital records) and make them accessible to all employees. Senior management is then mystified as to why employees are not using this wonderful new resource. In fact, knowledge management is broader and includes leveraging the value of the organizational knowledge and know-how that accumulates over time. This approach is a much more holistic and user-centered approach that begins not with an audit of existing documents but with a needs analysis to better understand how improved knowledge sharing may benefit specific individuals, groups, and the organization as a whole. Successful knowledge-sharing examples are gathered and documented in the form of lessons learned and best practices and these then form the kernel of organizational stories.3

Stay tuned for next month’s blog where we explore more about Knowledge Management Framework.

We hope you enjoyed today’s blog. For more information on how 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.

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Resource: 

  1. http://www.knowledge-management-tools.net/different-types-of-knowledge.html
  2. http://www.knowledge-management-cafe.com/faq/what-explicit-implicit-and-tacit-knowledge
  3. https://mitpress.mit.edu/sites/default/files/titles/content/9780262015080_sch_0001.pdf

 

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Retail spend management basics.

Friday, February 10th, 2017

 

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

No you do not!

A major step to trying to understand where to spend your effort when building an e-RFX attack plan is to understand the detail of your company’s P&L and how it can provide clues as to where you might have the most impact.

I meet with buyers or 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-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 and detailed P&L if available in order to get a good idea as to where the opportunities are hiding that can have an immediate 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.

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
3. Compare your cost of goods with your Industries averages
4. Compare your gross margins with your Industry averages
5. Compare your net earnings with your industry averages
6. Conduct the same comparisons with selected retailers with whom you compete. Pretty easy if they are public.
7. Compare your departmental sales and 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

One example of the above might be to look at the grocery department sub category of pet care. Now 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.

In summary, did you need a spend cube to try and figure this out? No you did not. You needed someone that understands your industry and your P&L with some analytical common sense.

If you’d like to learn how these techniques can assist you, please contact a SafeSourcing customer services account manager.

As always, we look forward to and appreciate your comments.

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Why Knowledge Management is Important?

Thursday, January 19th, 2017

 

Today’s post is written by Heather Powell, Director of Customer Services at SafeSourcing Inc.

“Knowledge management (KM) is a discipline that promotes an integrated approach to identifying, capturing, evaluating, retrieving, and sharing all of an enterprise’s information assets. These assets may include databases, documents, policies, procedures, and previously un-captured expertise and experience in individual workers.”1.

KM is about making the right knowledge available to the right people. It is about making sure that an organization can learn, and that it will be able to retrieve and use its knowledge assets in current applications as they are needed. In the words of Peter Drucker it is “the coordination and exploitation of organizational knowledge resources, in order to create benefit and competitive advantage” (Drucker 1999).

Three key reasons why actively managing knowledge is important to a company’s success are: 1.) Facilitates decision-making capabilities, 2.) Builds learning organizations by making learning routine, and, 3.) Stimulates cultural change and innovation 2.

Fortune 500 companies lose roughly “$31.5 billion a year by failing to share knowledge” (Babcock, 2004, p. 46), a very scary figure in this global economy filled with turbulence and change. Actively managing knowledge can help companies increase their chances of success by facilitating decision-making, building learning environments by making learning routine, and stimulating cultural change and innovation.2 By proactively implementing knowledge management systems, companies can re-write the old saying, “Change is inevitable, growth is optional” to “Change is inevitable, growth is intentional.”2

Stay tuned for next month’s blog where we explore more about explicit and tacit knowledge management.

We hope you enjoyed today’s blog. For more information on how 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.

 

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Happy New Year 2017. This year’s strategic sourcing plan should already be in place

Tuesday, January 3rd, 2017

What specific short term tactics will you deploy that support your plan and drive immediate and measureable results.

One example of the above might be to augment the manual processes that many  sourcing professionals use today in order to find new sources of supply interested in bidding for their business rather than continuing to live with the same small, known group of suppliers they have used for years. Historically this has been a very time consuming practice that results in few if any new sources of supply. This represents a great opportunity to deploy a tactic that can have an immediate impact for an organization without the need for the implementation of a complete new sourcing strategy.

There is a specific process to follow that will encourage new sources of supply to want to bid for a companies business beyond just being invited. Simply having your buyer assigned the task of picking up the phone and calling new sources of supply will not result in new suppliers agreeing to bid for your business. There are specific objections to overcome and questions to answer that require a specific skill set.  This is a perfect opportunity for Software as a Service providers that offer supplier research. Skilled providers in this area can provide companies with as many as a half dozen or more willing new sources of supply in as little as thirty minutes  that may in fact reside within a companies existing marketing  area.

Sourcing tactics can be isolated procurement related actions or events that take advantage of opportunities offered by the gaps within strategic plans such as lack of new sources of supply mentioned above.  So our tactic here would be to find additional sources of supply that we can invite to compete for a companies business in a variety of categories. The fact is that additional sources of supply competing for a companies business results in compressed pricing and often better quality products.

We appreciate and look forward to your comments.

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How SafeSourcing Saved Christmas…

Friday, December 23rd, 2016

 

Today’s holiday repost is written by Heather Powell, Director Customer Services at SafeSourcing, Inc.

As with most children being curious, my 7  year old niece and I were baking cookies last weekend when she said, “Aunt Heather, what do you do for a living? Mommy is a nurse and Daddy is a policeman. What do you do?”

Well, I said, thinking quickly of how to explain what a project manager does in the e-procurement world at SafeSourcing, “I help Santa with getting toys for presents and delivering them to all the children around the world.”
She said, “Aunt Heather, you’re silly! Santa has elves that make the presents, and Santa has reindeer help his pull the sleigh to deliver the presents!”

“Oh Alli, I have to tell you a secret, but you have to promise not to tell a soul what I tell you, ok?” She agrees.

Santa needs help lots and lots of help. Yes, his elves make the homemade toys, but toys like Furbies and Barbie’s have to be made somewhere else and delivered to the North Pole to be wrapped.

With big eyes, she says, “ooohhhh. That makes sense. Elves are mostly boys and boys don’t know anything about Barbies!”

So then I tell her, that Santa comes to me with his list of toys and how many he needs, and it is my job to make sure he buys them all much cheaper than what he can buy them for at the store. In fact, it is my job to make sure all the companies that make and sell the toys compete against each other to make sure Santa gets the best price for them.

“Wow!!” she said, you have an important job helping Santa!

I said yes, but that isn’t all I do for Santa. She said really??? I said, yes, I help him deliver the presents too. She said, how???

I said that Santa does use his sleigh and reindeer for most of the night, but the reindeer do get tired. So we help Santa by hiring a charter jet to cross the ocean with the presents and reindeer. Saving him money by having the airlines compete against each other to get lower pricing for Santa. This way the reindeer get to rest and Santa can get to the other side of the world much faster.

Also Santa pre-ships the presents to parts of the world to keep the weight down on the sleigh. So we help him with semi-trucks picking up the presents and taking them to all areas of the globe waiting for Santa to pick them up to deliver them to all the boys and girls. I explain to her that this is called transportation logistics. I told her that, like the people who make and sell toys, we ask the trucking companies to compete against each other lowering their prices for gas (fuel rates was too hard to explain to her), and mileage.

My, oh so smart niece, says, “Santa really has a big job to do in one night. He is so lucky he has you to help him!!”

So I ask her, do you understand what I do now?

She said,” yes, you help Santa buy toys and you help him fly across the ocean in an air plane, and you help him ship presents across the world to be picked up and delivered all in one night, AND you save him lots of money!”

So if SafeSourcing can help save Christmas, what can you do to help save you money in your business?

If you’d like to learn more about how SafeSourcing can help energize your self-service program, please contact a SafeSourcing customer services representative.

We look forward to and appreciate your comments.

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You can procure anything, including Candy Canes Part II!

Wednesday, December 14th, 2016

 

Today’s post is by Heather Powell, Director of Customer Services at SafeSourcing Inc.

What does it take to make a candy cane, package it, market it, and distribution? All of these involve procurement. Today, the candy cane makes up a significant amount of the $1.4 billion Christmas candy market. In fact, billions of candy canes are made and consumed each year.

What raw materials are included to make candy canes from madehow.com

Confectioners have steadily refined candy cane recipes and production methods. By incorporating new information about the characteristics of ingredients and food production processes, they have been able to make candy cane manufacturing an efficient process. The raw materials used to make candy canes are specifically chosen to produce the appropriate texture, taste, and appearance. Sweeteners are the primary ingredients, but recipes also call for water, processing ingredients, colorants, and flavorings.

Candy canes are primarily made up of sugar. When sugar (sucrose) is refined, it is typically provided as tiny grains or crystals. It is derived from beet and cane sugars. The sugar used in candy cane manufacture must be of high quality so that the proper texture and structure will be achieved. It is the unique physical and chemical characteristics of sugar that makes formation possible. When sugar is heated, it melts and becomes a workable syrup. The syrup can be manipulated, rolled, and fashioned. As it cools, the syrup becomes thicker and begins to hold its shape. When the candy is completely cooled, the sugar crystals remain together and form the solid candy cane.

Corn syrup is also used to produce candy canes. It is a modified form of starch, and like sugar it provides a sweet flavor. When it is mixed with the sugar, it inhibits the natural tendency of sugar to crystallize. Crystallization would result in a grainy appearance and a brittle structure. Corn syrup has the added effect of making the sugar concoction more opaque. Without the corn syrup and other ingredients, the candy would be transparent. The corn syrup also helps to control moisture retention and limits microbial spoilage. Beyond sugar and corn syrup, other sweeteners are sometimes incorporated into the candy cane recipe. These may include glucose syrups, molasses, or other crude sugars. Some low calorie candy cane recipes may incorporate artificial sweeteners like aspartame.

Certain ingredients are put in the candy cane recipe to aid in production. To dilute the sugar and make it workable, water is used. During the manufacturing process the water is steadily boiled off, and the end product has much less water than what it started with. Another processing ingredient is cream of tartar. This compound has the effect of producing air bubbles that help expand the sugar loaf and make it more stable. Salt also helps to adjust the chemical characteristics of the syrup. Typically, a small amount is used so that it is undetectable in the final product.

A variety of other ingredients may be incorporated into a candy cane recipe to produce various effects. To give the candy flavor and color, wintergreen or peppermint oils are added. Other natural flavors obtained from fruits, berries, honey, molasses, and maple sugar have also been used in candy cane production. Artificial flavors have also been added to improve taste. Additionally, fruit acids like citric acid and lactic acid can be added to provide flavor. Artificial colors such as certified Federal Food, Drug, and Cosmetic Act (FD&C) colorants are used to modify the color of the final product. In the United States, the federal government regulates these colors and qualifies each batch of colorant produced by the dye manufacturers. This ensures that no carcinogenic compounds are added to food products.

Sugar is a commodity that has a price index that fluctuates with the market increases and decreases. As of December 6, 2013 the market is down -0.10 bring the price per pound to $16.59 per the Sugar, Free Market, Coffee Sugar and Cocoa Exchange (CSCE) contract no.11 nearest future position, US cents per Pound.

Manufactures of candy canes can source their sugar directly from manufactures or wholesalers. This can create extra spend or savings depending on which source you purchase from. Typically through distributors and wholesale companies, there is additional shipping, handlings, and middle man fees included in the purchase price.

Whether you have been purchasing from the same source for years or you are just starting your business, running a Request for Proposal will help you understand who the companies are, where they source their sugar, what their pricing structure is, what price index they use (this will help you determine historically any increases or decreases), and any additional fees they may include.

SafeSourcing, Inc. can help you source your goods, create and run a Request for Proposal and compress the suppliers pricing by running a Request for Quote. 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.

Tomorrow we will discuss how to make candy canes and package them and how SafeSourcing can help in these areas.

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A Christmas related spend cube analogy. “Little Jack Horner sat in corner eating his Christmas Pie.”

Tuesday, November 29th, 2016

 

Todays post is an oldie but goodie from Ron Southard CEO at SafeSourcing.

And is still true three years later.

The rest of the Little Jack Horner spend cube analogy might go like this. He stuck in his thumb and pulled out a peach and said what the heck is a peach doing in a plumb pie?

If you look to Wikipedia, there is no definition of a spend cube. You can find information relative to spend cubes in a discussion about spend analysis. However t the original discussion we are talking about data in this case multi-dimensional data about spend information. Consultants love to talk about it because it allows them to charge you a lot of money without necessarily delivering any results other than, well a spend cube.

Quite frankly you are going to hear terms like data model, data warehouse, data scrubbing, data cleansing, data access, data sources and incomplete data. All of which allow consultants to charge you more money in order to develop yours from what is likely incomplete data kept in many places like GL’s, ERP systems and the like.

Once you get your model or cube, I promise you additional discovery is going to be required in order to determine what categories or products should go to market. One category manager’s category is another category mangers product. So now what?

Don’t get confused by consultants touting their spend cube analysis software because if you do, you will be in for a dime in for a dollar and continue to get peaches when you are looking for plumbs.

If you’re totally confused, SafeSourcing can help, and we deliver results quickly. Contact a SafeSourcing representative.

We look forward to and appreciate your comments.

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Making, Not Losing Money on Trash

Friday, September 2nd, 2016

 

Today’s post is from our SafeSourcing Archives

Every year businesses are moving waste out of their building that becomes part of the $18 billion dollar industry for other companies.   While they continue to pay millions of dollars to have their trash removed, other companies are reaping that unclaimed money and generating huge profits.  The problem is that most companies don’t realize the potential money they are losing and even fewer know the steps that could be taken to easily begin capturing some of this revenue for themselves.

Ask the experts  – The first thing most companies need to realize whether it is in IT, HR, operations, or Waste Removal, is that they do what they do well but they aren’t experts in everything.  Consulting with a 3rd party expert on how the company is structured and how it handles waste can lead to great solutions that can equal a revenue stream back to the company.  Many times these consultants will work for a small contingent percentage of what the company makes back by using their recommendations.  Many times they will offer to work with the employees at different locations to help educate them as well.  These consultants will be able to explain how to separate one category of trash from another and what affect that can have on a bottom line.

Understand the trash – Frequently businesses don’t develop strong recycling programs because they don’t understand their own trash and what makes some more valuable than other and how doing simple things like keeping certain recycled materials separated from other types can almost double the revenue the company can get back.  Comingled recycled material, even if it is two types that have high revenue potential attached to them (corrugated and stretch wrap material), pays much less than the same products if they are picked up already separated.  This is due to the cost the recyclers pass onto the company for having to manually sort what is picked up.   Understanding the business and its waste will help prioritize the rollout of any program based on the highest revenue potential.

Top down effort – No matter how a company plans to attack its waste for revenue potential, it must developed into an educational program that hits at every level from the CEO down.  Without the buy-in at the top, the people who will eventually be responsible for executing the plan will never treat the program seriously.  Many companies will even attach performance reviews and incentives to their employees/departments/divisions who return large revenue streams back to the company.  Working with an independent consultant or your normal waste removal company can help with this step.

Developing a strong recycling program can not only benefit a company financially but is also seen as a positive aspect of doing business with the company by potential partners and customers.   For more information on how we can help you understand the options for getting assistance with developing this type of program 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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