As the salmonella scare winds down, with no new cases reported since the 27th of July and the count of infected individuals at 1,423. The leading causal candidate seems to be water used on Jalapeños from Mexico. Two questions come to mind. What did procurement professionals learn from the St. Paul Salmonella out break? And, what can be done in the future to shorten the amount of time it takes to come to an end game that does not result in millions of dollars in lost revenue for farmers, distributors, brokers, suppliers, retailers and any other organization in the supply chain.

Below are fifteen (15) thought provoking take aways:

1. Present certifications and laws are not enough to police safety properly.
2. The FDA is not staffed properly to handle an out break of this nature.
3. The FDA is understaffed to handle an issue larger than this outbreak
4. Policies in place to create traceability since 2002 are not being followed in their entirety.
5. One forward one back is not sufficient to support source level traceability.
6. New legislation Safe And Fair Enforcement and Recall for (SAFER) Meat, Poultry, and Food Act of 2008 has been introduced to give the government control over these issues in the future.
7. The CDC does not have the detailed information it requires in a timely manner.
8. Headlines in Major Newspapers are not always accurate. This headline from a June 18th article. How modern science and old fashioned detective work cracked the Salmonella case. Page two?s continuation title is Fast Action, great teamwork nabbed culprit.
9. What is sorely needed is a database of manufacturers, suppliers, brokers, growers and products that can be searched in a variety of ways in order to trace goods to their original source of supply when situations like this occur.
10. Growers have lost revenue unnecessarily.
11. Retailers have lost revenue including sales of products affiliated with tomatoes.
12. The FDA has lost man hours that could be focused on preventative tasks to outbreaks in the future.
13. Consumers to some extent have lost confidence in the safety of our food products.
14. Retail sales take a long time to recover even after products are declared safe.
15. It may be easier for retailers to rely on their e-procurement providers to provide safety data in a form greater than one forward one back.

The above list is certainly not complete and in no way is meant to be negative. It is however a call to action to all players in the supply chain to work together to create a traceability standard that will help to eliminate this type of issue or god forbid worse outbreaks in the future.

I look forward to your comments

Many of you are probably tired of my posts regarding the Salmonella outbreak that sickened over 1400 US citizens from one of my June first posts ?I say Tomato, you say Tomahto? to a July post on the same subject ?Holy Jalapeño? I have discussed the lack of traceability and adherence to food safety standrdards in our supply chain. Below are some other activities also related to this subject. As a former Ohio resident, I applaud Senator Browns work.

I read two interesting articles today. Once came from US Senator from Ohio Sherrod Browns monthly newsletter http://brown.senate.gov/ . The other came from a related news article in the Thursday August 14, 2008 edition of USA TODAY Money section cover story titled “Tracing tainted produce isn?t easy.” written by Julie Schmit The following are excerpts from Senator Brown?s news letter.

Recent salmonella and E. coli outbreaks in Ohio and across the nation have highlighted the serious shortcomings of our current food safety system. It’s bad enough that many Ohioans are struggling to afford groceries; they should not also have to worry about the safety of the food on their dinner tables. The safety of our food supply is too important to be left to voluntary self-policing by private industry. The Safe And Fair Enforcement and Recall for (SAFER) Meat, Poultry, and Food Act of 2008 would give federal regulators the authority they need to achieve our government’s most important duty: to keep Americans safe.

The aforementioned USA today story discusses issues causing the slowness in traceability within the produce supply chain being caused by a lack of inadequate record keeping. Record keeping required by bio-terrorism laws enacted after the events of 9/11. The following quote ?A faster system would allow (us) to exclude products faster and give you a source faster? is from David Acheson the FDA?s food safety chief to law makers?

The SafeSourceIt? Supplier Database with over 250,000 North American suppliers is focused on safe and environmentally focused sources of supply and traceability for retailers.

I continue to appreciate your shared concerns and look forward to your comments

The vast majority of e-procurement events are in the form of a reverse auction. That does not necessarily mean that reverse auctions are the only auction format that retail e-procurement strategists should consider. There are additional auction formats available when trying to drive to the best event strategy. In fact at times, using different auction types may have a positive impact on price compression when used strategically.

The traditional reverse and forward auction format used by most companies today is called an English auction. This type of auction allows the buyers and sellers to specify a reserve price below which the item will not be sold. In a forward English auction buyers bid the highest price they are willing to pay for an item and bidding activity stops when the auction duration is complete. In retail, this type of auction may be used for overstock items to help reduce shrink and may be attended by a variety of buyers such as dollar stores or companies like overstock.com. Generally the item or lot is sold to the highest bidder at their bid price. On the opposite end of the spectrum, but using the same tool set is a reverse English auction. In this case suppliers bid the lowest price they are willing to sell an item or lot for and bidding activity stops when the auction duration is complete. The item is bought from the lowest bidder at their bid price unless auction rules dictate that award of business will go to multiple suppliers or not be awarded at all based on other criteria such as quality.

Other types of auctions include the following. Understanding their functionality may help drive additional savings. Ask your provider if they can run these types of events and how to use them to your benefit.

1. Fixed Price Auction
2. Japanese Auction
3. Brazilian Auction
4. Vickrey Auction
5. Dutch Auction
6. Yankee Auction

I look forward to your comments

A high profile Presidential election issue this year has been the loss of jobs particularly in the manufacturing area to low cost of labor countries out side of the USA and North America like China. This practice is known as off shoring. If the price of oil continues to rise, that problem may be solved for us. So, where are the new sources of supply located and how would you find them once this happens.

I read a couple of good articles today. One was a post on the Spend Matters blog located at www.spendmatters.com titled Your eProcurement Implementation Sucks (and What You Can Do About It). The first area suggested as to what one can do about it is to ?deploy a central registration and supplier management hub to onboard suppliers and manage supplier content / catalog information from the start.? The next article by David J. Lynch was the USA TODAY cover story in the Money section titled Transport costs could alter world trade. In summary the article discusses the fact that the North American countries could see an increase in production related jobs as a result of rising oil costs. In the article Jeff Rubin an analyst at CIBC World Markets in Toronto states that ?Globalization is reversible? Now, if our presidential candidates hurry up, they can take credit for this before it even happens. Another source from Morgan Stanley indicated that high fuel costs could reshape global trade into regional blocs and result in the USA going to other low cost areas such as Mexico instead of to China which is 7500 miles away. Only time will tell the outcome, but one thing is certain, long term fuel costs are not going down.

So, how does all of this relate to NAFTA and to the Spend Matters blog post? The first hint is in a name North American Free Trade Agreement. North America is made up of the United States, Canada and Mexico. Although NAFTA is primarily focused on agricultural products traded between North American Country?s it also represents one of one of the most successful trade agreements in history and has contributed significantly to increases in agricultural trade and investment between the United States, Canada and Mexico. If the trade increases realized since this 1994 agreement went into affect, maybe it can translate to other areas. Regional low cost manufacturing bases could have the same type of regional impact on many types of retail goods. In support of the Spend Matters blog, it is even more important that North American Retail Companies have a source that can tell them where suppliers within the trade zone are located by category and product. It is also important that the supplier community be able to register at such a site in order to be easily accessible to regional retailers.

Are you aware that a tool like this already exists which can tell you that there are 928 general merchandise suppliers located in Mexico, 1,585 Grocery Suppliers located in Canada, and 1,940 Pharmaceutical suppliers located in the United States. Please visit the SafeSourcing Query Tool at www.safesourcing.com and view solutions/query tool to learn more.

I look forward to your comments.

I?m just back in the office after spending three weeks on the road meeting with retailers and business partners in eight different cities. During that time, we discussed next generation e-procurement tools. On several occasions the subject of greenwashing came up. So as regards e-procurement, just what is greenwashing? I?ll leave it up to you to determine if you are guilty.

Basically, greenwash is paying lip service to something to make it seem like you are involved without actually conducting any practice or process that supports that lip services. I have been reading an interesting blog lately blog.sourcinginnovation.com by an individual who refers to himself as the doctor. In an 18th of June post titled Greenwashing: A brief introduction, he describes green washing as a practice used by a company to mislead consumers about the environmental benefits of a product or service. This can apply to any person or company in the sourcing cycle of life which includes retailers, suppliers, manufacturers, brokers, and vendors that provide the tools that bind this circle.

By example, at SafeSourcing we have a corporate social responsibility program we call R⁵. The five R?s refer to the Reduce, Reuse, and Recycle terms that all green focused organizations are familiar with. Additionally, we have added Reward and Renew. By reward we mean that we will contribute ten percent (10%) of our corporate profits annually to the safety and environmentally focused organizations that our customers support through their initiatives?. This reward will be based on the vote of our customers. By renew we mean that we will continue this cycle annually and support it in all of our products, programs and best practices.

Greenwashing might be linking to green websites or using green terminology without any practical application associated with it. If you are a retailer, ask your supplier?s, vendors and business partners what their green programs are. Compare their programs with yours and then learn from each other. Pay this support forward by rewarding suppliers, vendors and business partners that share and support your social consciousness.

I look forward to your comments.

This seems like a silly question, but it begs asking. Becoming world class at e-procurement and assigning a significant amount of your spend to these types of tools has not historically been a top priority for the executive office. Let?s face it, this is not as sexy as releasing a new format, not as political as chasing down run away health care costs, and it just doesn?t resonate as fun.

For most companies, the cost of goods and services (GOGS) is the single largest item on their profit and loss statement (P&L). Historically the Retail industry has cost of goods across all segments of between 55% and 81%. The supermarket segment cost of goods has a historical average of 72.0% and the convenience stores segment a staggering 81%! Recently the Retail food segment averaged net income of 1.46%. That is the first time in years that net income has exceeded 1%. So just how much can significant reductions in cost of goods impact a retail company. Read on.

The single-largest opportunity to improve net income is by addressing the largest line on the P&L which is the cost of goods and services. The good news is that every dollar reduction in COGS falls directly to the bottom line. The finance department may argue that there are supplier related switching and timing costs incurred in order to get to the true savings, but the majority of these savings end up on the bottom line.

So let?s measure the impact this could have on a supermarket company. The math can easily be applied to any retail vertical. An Aberdeen report stated that a 5% reduction in cost of goods would have the same impact to a retailer as a 30% increase in top line sales.

Let?s do some simple math: a five billion dollar ($5B) supermarket company has an approximate cost of goods of $3.6B. Assuming a net income of one percent (1%) this retailer would have earnings of $50M. Let?s assume that they assigned fifteen percent (15%) of their total spend next generation e-procurement tools. This would be approximately $540M. Assuming a savings of 10% which is well documented within the industry, savings would equal $54M which would equate to a net earnings improvement of $54M or greater than 100%.

This author agrees that this is simple math. There are dependencies related to percent of above the gross margin line and below the gross margin line spend allocation. There is also the issue of the rest of the company performing to their plan guidelines so that these real reductions don?t just mask other problem areas. Although some retailers are making progress, the real issue is that not many have assigned a significant portion of their spend to these tools.

Now just imagine if there were a wealth of suppliers willing to bid on your business whose products were safe, of high quality, traceable and supported your environmental practices. Many people would want to shop at that company or work for them.

I look forward to yogurt comments.

Reviewing why retailers do not have continuing success when running prior e-procurement events over again, one area of commonality is a lack of new suppliers. Another is the price being too high for the same event that has already been built and will result in lower savings the 2nd and 3rd time around.

There is a proper way to insure the sustainability of your reverse auctions going forward. Following these guidelines will also encourage senior management to consider placing more spend under the control of e-procurement tools and specifically reverse auction tools. Armed with a robust retail supplier database and related tools:

1. Conduct a detailed category discovery
a. Learn all there is to learn about the retailers way of doing business.
b. Walk distribution centers and warehouses
c. Walk an array of stores and understand all formats of the enterprise.
d. Compile a list of all corporate categories
2. Rank categories by
a. Total spend
b. Importance
c. Sourcing frequency
d. Quality objectives
e. Look for aggregation opportunities
i. Lighters, lighter fluid, flints, fire sticks.
3. Conduct supplier discovery
a. Rank suppliers
i. Size
ii. Experience
iii. References
iv. Environmental certifications
v. Safety Certifications
4. With all of the above in hand; develop a three year game plan
a. Identify suppliers for each event over the three years
b. Develop savings targets by category
c. Develop a three year time line for all categories
5. Role Play internally the first year for a test category
a. Ask the following questions
i. How will you award the business
ii. Review alternate scenarios
iii. Review savings by scenario
iv. Determine which suppliers will be invited back
v. Determine what new suppliers from your database search will be invited next year

I look forward to your comments.

As I visit with retailers throughout North America, one theme continues to prevail. The percent of spend that retailers assign to the use of e-procurement tools lags that of all other industries. In fact in retail companies with sales of less than two billion dollars, the use of these tools is almost non existent.

I have heard everything from we don?t do things this way at our company to we?ve already attacked most of the low hanging fruit and our buyers are telling us there are no additional savings to be had from these categories.

I?m not trying to suggest that retail is adverse to driving change, or in fact being early adopters of technology. After all, retail was the original user of the cash register which evolved to electronic point of sale systems, sophisticated scanning systems and ultimately today?s self checkout systems. Retail has been a leader in the use of all types of technology driving advanced products such as electronic shelf labels and other RF technology. So why does there seem to be a reluctance to driving more spend with e-procurement tools.

I believe the answer lies in the tools themselves. E-procurement tools such as reverse auctions have a rich history of board room proof of concepts attended by CEO?s and CFO?s with astounding savings sometimes as high as 30% to 40%. This to the delight of the presenting vendor when the attending executive says we should be doing all of our buying this way.

As a result the retail company assigns resources and moves ahead with passion and vigor. Slowly however they seem to lose steam and both the number of events and the savings either stabilize or drop off.

The following issues lead to low utilization but are certainly not the only issues resulting in lack of transition to more spend being assigned.

1. Proper Executive sponsorship with resulting corporate policy changes are not in place and reviewed for compliance regularly.
2. Proper discovery of every category with all buyers is not conducted
3. Stores, offices and distribution centers are not walked and reviewed as part of the discovery process.
4. Products within categories are not weighted, calendarized and prioritized.
5. Tools are not easy enough to use so that retailers can host there own events after they run successfully the first time.
6. Vendors direct retailers to not run events that may have limited financial success.
7. Proper discussion is not held to review strategy like the use of and RFI versus an RFQ or how to use both successfully within the same category.
8. Pricing for an event that drove large savings the first time is the same the second and third time the event is run.
9. Due to the complexity of the tools, options for self service and assisted service are not available without staff increases if at all.
10. Databases with adequate sources of supply are not readily available to bring new suppliers and their resulting energy to events over an extended period.
11. An overall business plan is not developed with savings targets, percent of spend, reward systems and other milestones necessary to drive corporate wide utilization.

I look forward to your comments.

I was walking my best friend the other day. He?s over fourteen and still loves to go to the park. He?s blind now, but can still smell the grass and the p-mail and go about doing his other business. When I went to the container to clean up after him; He?s blind so he can?t do it himself. I noticed that the bag said biodegradable. If there are plastic bags good enough for this purpose, why not for our groceries and other retail purchases?

My wife forwarded me an email the other day that was titled Switch from Plastic Please look at this! I understand the problem with plastic bag use, and that many communities are trying to ban these bags, but how bad can it be? The first picture said that according to the Environmental Protection Agency (EPA) that somewhere between five hundred billion and a trillion plastic bags are consumed worldwide each year. That data was from 2003. The next picture indicated that less than one percent of plastic bags are recycled because it costs less to produce a new one. It costs about $4,000 to process and recycle one ton of plastic bags and the commodity can then be sold on the open market for $32.
What really got to me were the pictures of wild life that had consumed, become entangled or otherwise injured by this discarded waste. It did not matter what part of the world you were in, Lions, Sea Turtles, Dolphins, whales, water fowl. Over two hundred species of sea life have been impacted. There are even pictures of plastic bags floating in the arctic seas. This author was overcome by the magnitude of the problem and the future impact to our soil and waterways.

So, what can we do? Together we can use cloth bags that we carry to the store ourselves. The number of countries that have banned plastic bags is growing rapidly as are the local communities in the US. Another thing we can do is explore what it will take to produce weight sufficient biodegradable plastic bags that may cost a little more but will have an invaluable impact on our environment, our wildlife, our children and theirs. Do your part and support the reduction in use of non biodegradable plastic bags. You?ll sleep better at night and so will all of the wild life who suffer needlessly.

I look forward to your comments

This author has discussed the concept of paying it forward with social responsibility initiatives focused on safety and the environment. So, how does a retailer go about doing that when sourcing bulk hotel stays with an e-procurement tool?

I recently read an article in Continental Magazine titled A GREEN NIGHTS SLEEP. In it author Neil Weilheimer posits Eco-friendly hotels offer travelers a variety of ways to love the Earth. In the article a spokeswoman for TripAdvisor.com quotes their survey where twenty six (26) percent of consumers indicated they planned to be more green conscious during the next year. Thirty four (34) percent indicated they would even be willing to pay more for it.

First it is important that a retailer set their own environmental guidelines, after all we are planning on paying our own programs forward to suppliers that support similar initiatives right? If a retailer follows best practices in the e-procurement process and during the discovery process follows a hotel stays template created with the environment in mind, they can do just that. In the same article, according to Patty Griffin, founder and president of the Green Hotels Association there are steps a consumer can take, and like wise so can a retailer.

Ask the hotels you are considering about their policies and practices. As an example:

1. Does the hotel use energy star approved appliances and televisions.
2. Are rooms cooled by ceiling fans to limit air conditioning usage?
3. What about their linens and towels, are they made of organic cotton?

Additionally you can check prospective hotels websites to see if they list other green initiatives that you can discuss with them further.

This author believes that it is not that difficult. Focus on your company?s social conscience and include that in your discovery. Then pay it forward based on more than just price.

I look forward to your comments.