The U.S. Consumer Price Index rose 1.5% in December.

February 8th, 2011

Accordingly many companies sited this as a primary reason for raising their prices. For one, this author does not buy it and neither should you whether you are a consumer or a company.

For every commodity that rises there are also commodities that fall. For every company that raises their prices to their end user be it consumer or company, there are others that want your business bad enough to keep prices stable if not lower them. The issue is that companies have to be willing to put the work in if they want to keep prices down. Too many companies continue to operate in a business as usual manner. It?s pretty easy to spot when individuals or companies operate from the ?this is how I learned it and this is how I do it? point of view. Some clues are;

1.?They buy from the same suppliers over and over again.
2.?The do not have a? view of their contracts.
3.?They do not have a view of their performance against those contracts.
4.?They do not have a view of additional sources of supply.
5.?They do not put their products and services out to bid on a regular basis.
6.?They do not have basic specifications.

I was reading an article in U.S. TODAY last Friday February 4th titled Prices starting to creep higher By Paul Davidson. The sub title was Businesses hit point where they can?t absorb higher costs. The article sited several manufacturers and retailers that were raising their prices as a result of increased costs.

Here?s a promise. If you can?t figure out how to keep your costs down, call us at SafeSourcing because we can.? As a matter of fact call me personally 480-773-7524 or email me at ronsouthard@safesourcing.com.

We look forward to your comments.

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Winter Storms Wreak Havoc in the Land of Sourcing!

February 7th, 2011

Todays post is by Mark Davis; Vice President of Operations and CTO at SafeSourcing. Mark asks "What affect does severe weather have on the business world, specifically that involving procurement"?

Last week more than one third of the United States was hammered by a winter storm that left hundreds of people stranded in airports, without power and without the means to conduct their normal lives.? This storm comes on the heels of what has already been an extremely bad winter for much of the northern and eastern part of the country.

The question lies, what type of impact do storms like this really have on the business world and the activity surrounding the sourcing of goods and services.

Any time retailers have to go more than 2 or 3 days with no or very limited sales the impact is enormous.? That is lost revenue that cannot be retrieved; not to mention the waste involved for perishable products that were not sold.? Loss of this nature must be recouped somehow and often that is in the form of an increase in prices.

The service industry is also affected as poor travel conditions and canceled flights lead to lost revenue in many sectors while some sectors such as snow removal, roof repairs and maintenance companies can barely handle the increases they see.? Companies without a good procurement process and or have negotiated strong contracts are left waiting or paying extreme premiums to get attention.

Lost man hours due to driving conditions and increased illness are also a major impact of a storm like last week that certainly affects the areas being hit, but it also affects companies in other parts of the country as they suffer the pains of canceled meetings and delayed activity in the aftermath of the storm.? All of this ends up meaning one thing, lost revenue and time that usually leads to increased prices and shorter supply levels.

Whether this storm dramatically affects the slight economic upturn being displayed before it hit remains to be seen but one thing is sure; the ripple effect of the storm will be felt for weeks to come.

We look forward to and appreciate your comments.

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It’s crazy blog Friday! Tell me again why our price on plastic bags is going up.

February 4th, 2011

Why do buyers and category managers need commodity education?

Because the price increases relating to plastic bags is based on a Non-Renewable Resource which is oil.

Some plastics are produced from oil feedstocks.  And some resins use natural gas feed stocks.  So if what you make the product from goes up in price the finished product must go up in price.

For those of you that remember Professor Irwin Corey I offer the following explanation of what a non renewable resource like oil is or in fact is not if in fact it actually is renewable.

So according to a variety of sources such as Wikipedia and the SafeSourcing Wiki, a non-renewable resource is a natural resource that cannot be renewed through production on an effective scale. However with that said there is the theory of a biogenic fuel which hypothesizes that petroleum was formed from deep carbon deposits, perhaps dating to the formation of the Earth. In the case of the former the resources are either consumed too quickly to be naturally replenished or only exist in a fixed amount. In the case of the later, the biogenic hypothesis suggests that a great deal more petroleum exists on our planet and maybe others like Pluto or Uranus than commonly thought.

So, is what I think I said what you thought you heard? We’ll leave that up to the good professor.

Enjoy your weekend.

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It?s crazy blog Friday! Tell me again why our price on plastic bags is going up.

February 4th, 2011

Why do buyers and category managers need commodity education?

Because the price increases relating to plastic bags is based on a Non-Renewable Resource which is oil.

Some plastics are produced from oil feedstocks.? And some resins use natural gas feed stocks.? So if what you make the product from goes up in price the finished product must go up in price.

For those of you that remember Professor Irwin Corey I offer the following explanation of what a non renewable resource like oil is or in fact is not if in fact it actually is renewable.

So according to a variety of sources such as Wikipedia and the SafeSourcing Wiki, a non-renewable resource is a natural resource that cannot be renewed through production on an effective scale. However with that said there is the theory of a biogenic fuel which hypothesizes that petroleum was formed from deep carbon deposits, perhaps dating to the formation of the Earth. In the case of the former the resources are either consumed too quickly to be naturally replenished or only exist in a fixed amount. In the case of the later, the biogenic hypothesis suggests that a great deal more petroleum exists on our planet and maybe others like Pluto or Uranus than commonly thought.

So, is what I think I said what you thought you heard? We?ll leave that up to the good professor.

Enjoy your weekend.

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What are you doing with your overstock?

February 3rd, 2011

When?s the last time you visited a supermarkets or other retail formats backroom?

A good way to help control and reduce retail shrinkage is to offer overstock items in the form of a forward auction.

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.

We look forward to and appreciate your comments.
.

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When is the right time to renegotiate products and services contracts?

February 1st, 2011

There are more than a few clues as to when the right time to review your purchase of products, services and expense related items.

For most buyers and category managers, cycles are important. That is that the normal flow of business dictates how and why they buy their products and services. Some financial related examples of this are End of Year, End of Period, contract expiration and capital need. Other examples may be seasonal needs, change in demand either up or down or growth through acquisition.

However there are other clues that should also be analyzed on a regular basis that play an important role in predicting cost increases even if you are only mid contract that might make you want to reconsider a contract that is already in place. One of those is unusual spikes in the commodity markets.

An example of the above is the forecast for oil prices. We are hearing a lot lately about oil hitting $100 per barrel with some forecasts as high as $105 be year end. That?s a clue to take a look at contracts that are impacted by oil such as resin markets and fuel prices that affect transportation costs such as diesel prices. Judging how realistic these forecasts are can also be tricky but here are also clues for that such as instability in areas like Egypt because they control daily transit through the Suez Canal of oil.

As a buyer you have to be aware of more than just the need to renegotiate a contract because it is expiring. If you need help doing that your e-procurement provider should be able to offer the category expertise to help you.

We look forward to and appreciate your comments.

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How many times does someone ask you what does procurement mean?

January 31st, 2011

This author is asked all of the time when I am queried on what I or we do. So what is procurement or what is e-procurement and who in a company is impacted by it?

It really is a curious question; pretty much along the same line as what is spend management. Well my answer might create more questions, but all of the following job areas within your company are probably involved or impacted by procurement or e-procurement?

1.?Finance
2.?Purchasing
3.?Logistics
4.?Manufacturing
5.?Warehousing
6.?Materials Management
7.?Inventory Management
8.?Supply Chain
9.?Distribution
10.?Transportation

There are certainly many more areas of a company that have procurement or? e-procurement connections, but the above probably give you a pretty good idea of the breadth of involvement within any company. In fact, I can?t think of a job that is not impacted by procurement. Maybe I should just say we save every department in your company money every day.

We look forward to and appreciate your comments.

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How does your company support food safety in your e-procurement process?

January 28th, 2011

What would your answer be if a customer asked you to explain what Certified Humane Raised and Handled means? What if the follow up is; do the products I buy from you meet these standards?

The?SafeSourceIt? global? supplier database includes more than 35 safety and environmental standards and certifications?that suppliers are vetted against. The Certified Humane Raised and Handled? program is one of them.

The Certified Humane Raised and Handled? program is a certification and labeling program that is the only animal welfare label requiring the humane treatment of farm animals from birth through slaughter.? The goal of the program is to improve the lives of farm animals by driving consumer demand for kinder and more responsible farm animal practices.? When you see the Certified Humane Raised and Handled? label on a product you can be assured that the food products have come from facilities that meet precise, objective standards for farm animal treatment.
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The Certified Humane Raised and Handled? label assures consumers:
??That the producer meets our standards and applies them to animals from birth through slaughter.
??Animals have ample space, shelter and gentle handling to limit stress.
??Ample fresh water and a healthy diet of quality feed, without added antibiotics or hormones.
??Cages, crates and tie stalls are among the forbidden practices, and animals must be free to do what comes naturally.? For example, chickens are ale to flap their wings and dust bathe, and pigs have the space to move around and root.

We look forward to an appreciate your comments

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Should prices really be rising based on the commodity markets?

January 27th, 2011

I was reading an article the other day and McDonalds Corporation said they would have to raise prices based on increases in the commodity markets.

Then yesterday as I was browsing another subject, I found the following on MSN. ?Commodities had a weak session, which culminated in a 1.5% loss for its worst single-session slide in three weeks. Weakness was widespread among commodities?. My response was huh?

So just what is a commodity and how can a company keep track of these trends for themselves. According to Wikipedia a commodity is a good for which there is demand, but which is supplied without qualitative differentiation across a market. Commodities are often substances that come out of the earth and maintain roughly a universal price.

Your product costs should fluctuate periodically based on the commodity markets, but being aware of them allows you to enter terminology in your contracts that should protect you against any significant spikes and your supplier against any significant drops in the market. Without this language you are really playing Russian roulette with your company?s money.

Commodities exchanges that you can easily follow include:

1.?Chicago Board of Trade (CBOT)
2.?Chicago Mercantile Exchange (CME)
3.?Dalian Commodity Exchange (DCE)
4.?Euronext.liffe (LIFFE)
5.?Kansas City Board of Trade (KCBT)
6.?Kuala Lumpur Futures Exchange (KLSE)
7.?London Metal Exchange (LME)
8.?New York Mercantile Exchange (NYMEX)
9.?National Commodity Exchange Limited (NCEL)
10.?Multi Commodity Exchange (MCX)
11.?International Indonesian Forex Change Market (IIFCM)

If you have a quality e-procurement partner they should be able to provide you with this type of data because it is still possible to compress pricing even in an up market. This author is not sure the preset trend is in that direction however.

We look forward to and appreciate your comments.

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Maybe a good way to address rising costs is a more robust private label program.

January 26th, 2011

If you already have a private label program maybe it?s time to grow your offering or increase your mix because customers are buying more of these products.

According to Wikipedia Private Label goods and services are available in a wide range of industries from food to cosmetics.

Historically these products or store brands were positioned as low cost alternatives to major national and international brands. Today if you read the labeling many of the products are virtually identical and in some cases companies are positioning their brands as better or premium to the large brands.

A great source if education is The Private Label Manufacturer’s Association or PLMA. Their website is www.plma.com. PLMA sponsors an annual show toward the end of each year. This show is full of great workshops as well as manufacturers that would be glad to compete for you business.

According to GfK Roper, 57% of all shoppers now say that they purchase store brands which represents a 21% increase from ten years ago and an impressive 38% growth rate.

E-procurement tools typically assigned to the e-RFX suite are an ideal way to source these products and will help to drive your costs even lower. Start with an RFI to select the companies or manufacturers you are interested in partnering with and then invite the best few to bid for your business.

We look forward to and appreciate your comments.

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