What the private sector can learn from the Fed's new procurement strategy

on Friday, March 6, 2015


The US government kicked the year off with plans to improve spend categorization in the federal marketplace. Leading high-spending agencies broke spend into 10 overarching categories to be led by subject experts. Procurement professionals in the private sector have long recognized the benefit of proper category management - but for any business that hasn't begun the process already, the federal spend categorization might make a good case study to follow.


A move towards private sector practices

Plenty in the private sector may do a double take at the idea of taking a cue from public sector strategies.  However, the government's new initiative parallels private categorization in a number of ways. First and foremost is the reason categorization is so important. Anne Rung, Administrator of the Office of Federal Procurement Policy, and Tom Sharpe, Commissioner of the Federal Acquisition Service, summed up the issue simply: “Far too often, our acquisition professionals are making these purchases with very little insight into what their counterparts across the government are buying, who they are buying it from, what they are paying, and how they are buying it. In general, there is very little coordination and sharing of information and best practices across government. In fact, there is no single place a government contracting officer can go to find out important details regarding existing contract vehicles for any particular commodity area.” If these sound like familiar issues, it is because all businesses face these procurement challenges – even if spend in our own organizations is a bit below the federal mark of $400 billion. The goal of this categorization is to bring clarity and coordination to a disparate set of buyers and suppliers, just as it is in the private sector.

Another similarity is in the categories the government selected as key priorities. Here are three of the finalized 10 categories:

  • Technology – This category includes spend on software, hardware, and the consultants and outsourced work needed to manage both. Security and telecommunications spend also make the list in terms of crucial tech spend.
  • Professional Services – The most varied of the categories developed, professionals services runs the gamut from business administration to marketing and PR to financial services.
  • Facilities and Construction – Considering it encompasses everything from construction materials and services and the purchase and lease of federal facilities, it is easy to see why this category ranks as number one in terms of spend, weighing in at $72.1 billion.

There's a reason this list looks familiar; these are heavy hitting indirect spend categories that all firms, public and private, need to build a solid strategy around.


Taking a page from the federal play book

So what can private firms do to better categorize spend in their own houses?

Begin by breaking down the types of spend you will need to capture. Indirect spend encompasses everything not directly related to producing your products or services. The federal government’s hit list is a good place to start, touching some major categories – IT, telecom, administrative services, facility management, and logistics are often top contenders for spend volume.

Just as Anne Rung and Tom Sharpe recognize, visibility across a company can be murky and decentralized when it comes to indirect spend. Therefore, identifying sources of spend data is critical. A general ledger (GL) is a good place to start for high level information. Although they are often a good starting point for a 30,000 foot view, keep in mind that general ledgers will often categorize spend too broadly and will rarely have the details you need to proceed. It is important to do your own classification of this data, breaking overarching ledger categories into more specific groups.

Once this is done, it is time for some investigative digging for specific spend information. This often means rooting through supplier contracts and invoices for the added details they provide. Bring in some specialized help during this process – early on, members of the Finance and IT departments are often the key to wrangling decentralized data sources. This intel gathering process must be monitored directly. Cleansing and standardizing sources of information as they come in is necessary to ensure that you are capturing the true image of spend in each category.

Once you have clearly defined spend categories, it is time to rank them in terms of priority. Which categories have the most spend? Where can procurement have the greatest impact quickly? Which area has stakeholders that would be most willing to partner with Procurement moving forward? These are all critical questions that will help determine which areas to focus your efforts on first.



In order to truly take hold of indirect spend, Procurement must first understand the overall impact it has on an organization. With these steps complete, you will have a much more accurate picture of indirect spend across all key categories, and are in a better position to develop a strategy to address it.

For a more detailed look at why categorization is important and the part it plays in developing an actionable spend analysis, check out our sample report here.
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Sourcing Temporary Staffing Services: a Follow-up

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In a previous post (Understanding the Staffing Industry), we discussed the most common services offered by staffing companies. These services can be broken down into four main categories: temporary and contract staffing, recruiting and permanent placement, outsourcing and outplacement, and human resource consulting. However, as temporary and contract staffing is by far the largest of these categories, accounting for about 89% of the industry’s total sales in 2013, in this post we will concentrate on sourcing temporary and contract staffing services.

As discussed in the previous post, the reasons for working with a staffing firm to fill temporary or temp-to-perm positions in your company are plentiful. But with more than 17,000 firms throughout the United States claiming to all provide the same service, it is important to choose the right staffing firm to partner with; an ideal staffing firm will understand your needs and requirements and will have experience finding the types of candidates that you are looking for. Below are some key criteria to consider when deciding what staffing firm your company should work with.

Location of Your Company
For companies with multiple locations throughout the United States, or abroad, it’s important to consider a multitude of options when choosing a staffing firm. Staffing firms come in all shapes and sizes- there are local firms with only one office, regional firms with multiple offices throughout a state or a region, and national firms with hundreds of offices throughout the country. All of these types of firms offer their own advantages and there is no standard strategy to choosing a type of firm to work with that works best for every company. While partnering with one national firm may make relationship management easier, these firms oftentimes do not have a presence in rural areas, so a company with facilities in rural areas may need to partner with several local firms in order to receive the best service and candidates. Some companies prefer to partner with one firm for all of their temporary staffing needs while others partner with multiple firms throughout the country. Neither approach is wrong but it is important to think about what makes the most sense for your company.

The Types of Temporary Employees that Your Company Typically Hires
If your company only hires temporary staff to fill administrative or professional roles, it might make sense to work with a firm that specializes in these fields (like Robert Half or Kelly Services). These firms specialize in staffing these kinds of positions and usually have an established pool of candidates ready to be staffed in these positions. There also firms (like Manpower) that specialize in staffing employees into light industrial and skilled industrial roles. If you know that your company only needs to fill these kinds of positons, working with a firm that specializes in them makes sense. Finally, there are companies (like Adecco, Aerotek, and Randstad) that staff all kinds of positions. If your company needs to fill various positions throughout the year, including administrative, professional, and industrial roles, working with one of these firms may provide an opportunity to work with only one firm to meet all of your temporary staffing needs.

The Number of Temporary Staff that Your Company Hires Annually
It is very important to be able to project your need for temporary employees before choosing a staffing firm to work with. Companies that hire a couple of temporary employees per year may only need to work with one staffing firm to meet their needs. However, if your company hires hundreds of temporary employees every year, it might make sense to have a bench of approved staffing firms that you can always call on to fill a position. This way, if a certain firm is ever unable to find a qualified candidate for a position that you need staffed, you always have a backup plan to get that position filled.

If your company needs to find a staffing firm to partner with, but you’re not sure how to start the searching process, you can work with a service provider who can consult with your HR and procurement departments to source ideal staffing agencies and negotiate best-in-class contracts and pricing. These procurement consultants often have worked across multiple industries, understand how to optimize temporary labor service provider relationships, and can tell whether or not there are savings opportunities that your company is not taking advantage of.
Image courtesy of www.signazon.com
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Getting to the Root of the Problem with Nick Ammaturo, 30 Under 30 Supply Chain Star

on Thursday, March 5, 2015

Getting to the Root of the Problem with Nick Ammaturo, 30 Under 30 Supply Chain Star

In order to spread awareness of supply chain management among millennials, ThomasNet and the Institute for Supply Management collaborated to launch the "30 Under 30 Rising Supply Chain Stars" Recognition Program.

Nick Ammaturo, Director of Profit Improvement and Procurement at Hudson's Bay Company, New York, was included among this year's winners. Ammaturo, having begun his career in Procurement at PepsiCo, takes an approach that involves asking suppliers and partners every question he has, and then some. To top it off, he's dedicated to knowing everything about the organization he works for and the industry in which it participates. We managed to catch up with him for an engaging interview.

How do you value the 30 Under 30 program? Do you think the project will impact how millennials perceive supply chain management?

After getting the nomination and the award, it gave me a little inspiration to know that there are people in my age group who are in the same profession. For me, it was extremely valuable. I was honored to be named, and hopefully it's the beginning of something that stands for the next hundred years.

I think it's extremely important that ThomasNet and ISM are starting to draw attention to the industry. I think it's a good beginning, and definitely see the value in attracting people at the college level, because that's where students are starting to make those decisions and understand their career aspirations.



"Profit Improvement" is a part of your official title. What does that mean in regard to your responsibilities? 

When I saw the job – I know procurement, I didn't really know what they meant by profit improvement, so I asked the same question. I've seen a lot of major retailers sort of coin the term and include it as a part of their procurement operations. I don't know where it started, but it does seem to make sense, because not only am I targeting strategic procurement practices, but overall we are trying to increase the profitability of the company. We're looking at increasing sales through other channels and improving margins not only by reducing costs, but by improving the user experience at the store level or online.



How do you apply this practice of profit improvement when building supplier relationships? 

I always look to be a partner. I always say to myself "Hey, I want my suppliers to be healthy." At the same time, I don't want this relationship to be their golden egg and make their whole margin on us – I'm looking for a balanced approach.

At the same time, I go to them for innovation because, for the most part, they're the best-skilled in their industry and they know more than [Hudson's Bay Company does]. I wouldn't say we're an expert in everything, and that's why I go to my suppliers and look at two factors: One, how are they increasing profit and reducing costs for their customers? Two, is there something that's innovative that they want to test out with us?

In procurement, you have to know everything about the business you're purchasing materials for. How do you go about informing yourself?

In procurement, you have to be able to make informed decisions. Every procurement professional needs to ask a lot of questions and be a quick learner. You're often thrown into an industry that you may not have had prior experience in, or negotiations that you haven't had prior experience with.

So, what I do is ask a lot of questions internally to really understand what I'm doing with, and then I also ping some of my peers in other industries to see how they're addressing similar issues or suppliers, contracts – whatever it may be. Then I also ping my peers in the same industry to understand what their strategies are. I think procurement kind of gives us a bond where we don't see ourselves as competitors, because we all know that we're fighting the procurement fight.

As far as Hudson's Bay, I'm relatively new – I think it's been just about three months, maybe a little longer since I've come on board – so, my biggest challenge is understanding the retail industry.

What was the most vexing problem you've ever been faced with and how did you solve it?

Every day I'm kind of tasked with a new problem. Part of the role is putting out fires. So, I wouldn't say one problem stands out. Regardless of what I'm faced with, the approach is the same: working with all parties involved and fully understanding what that problem is. I like to look for the root cause and put something sustainable in place to correct it. I'm not one to look for a quick win. I like to sort of break down the process from start to finish and understand what broke, and then put something in place that will fix that.

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McDonald's: The Path to Strategic (and Safe) Sourcing

on Wednesday, March 4, 2015

Ever since word of their use of expired meats got out, McDonald’s sales have been plummeting. After conducting thorough inspections and levying criminal charges to workers guilty of unsanitary practices, McDonald’s firmly believes they’re in the clear. But one question should still be in the back of Mickey Dee’s execs’ minds: what about the next scandal?

Although flawed Chinese suppliers may not have been aware of U.S. FDA provisions during their meat expiration incident, McDonald’s can’t afford to hide behind such an excuse. The McDonalds brand will suffer tremendously from any and all major supplier scandals —especially when they raise flags about food health. McDonald’s needs to integrate auditing into their strategic sourcing to prevent disasters like this from occurring in the future.  An in-depth screening process would have made the supplier’s unhealthful preparation habits clear to McDonalds, prompting an end to the relationship before quality shortfalls were brought into the public spotlight.

The Strategic Sourceror post, Is McDonald's getting its supply chain right?, presents the thought, “According to Harvard Business Review contributor Steve New, McDonald's has made some considerable efforts to improve its public reputation in the wake of documentaries that disparaged its brand and a handful of overseas supplier scandals that only exacerbated its poor image. For instance, a recent commercial featuring celebrity Grant Imahara showed the presentation expert holding up a chunk of meat straight off the conveyor belt, lauding it as "wholesome meat!"

Identifying negligence during a supplier inspection can be difficult, as suppliers put their best foot forward when they know they’re being audited. However, there are organizational/process habits that can allow a company to understand a supplier’s regard for laws. By assessing corporate culture, a company can understand when a supplier blatantly disregards regulation and use it as a sign that they are likely to again in the future.

There should be comprehensive programs in place to observe and document expiration dates/inventory levels, all audit and food safety practices, and authentication that supplier culture and principles are in alignment with the company. Due to the many vendors working with restaurants and fast food chains like McDonald’s, it can be overly time-consuming to keep such a close eye on their operations. This is why more and more global food companies (whether consumer-packaged goods, restaurants, or supermarkets) are turning to third parties to handle suppliers to closely assess risk, compliance, and relationship management.

Effective supplier management for McDonald’s in this circumstance may have meant the difference between profit and struggling to break even from their hindered sales. Since there is a crucial relationship between McDonald’s and its suppliers (and many other food resellers as well), there is little room for disruption in these relationships from an incident such as that shown by their Chinese beef supplier. There are tools readily available to McDonald’s to combat these challenges through an intensive supplier relationship management program.
                 

Photo Courtesy of: www.wpxi.com
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Find Your SRM "Edge" With These Expert Insights

on Friday, February 27, 2015

Brad Carlson is an industry-recognized supplier relationship management (SRM) master, most identified by his strengths in building strong internal and supplier stakeholder buy-in to expand the confines of a traditional contractual relationship. Carlson is known for looking beyond a textbook approach and deploying a series of tailored SRM tactics and strategies to unlock hidden value for his clients and the supplier.  For these reasons among others, Carlson was awarded the 2015 Supply & Demand Chain Executive Magazine “Pro to Know” distinction.

Carlson encourages establishing a firm foundation and understanding of the essentials before your ramp up your SRM practice into turbo mode. Although SRM activity is a fairly newer discipline in the US, countries in Europe have established it as an essential corporate process. This point of view is supported by a guide I recently came across on “Find The Edge,” where English author David Atkinson guides readers through 10 principles to make an SRM goal into reality:

1. What Is It: SRM involves managing routine supplier communications to realize additional value from those connections before, during, and after a contract is enacted. Seems simple enough—however there needs to be an understanding that SRM can add unnecessary intricacy to an already multifaceted sourcing practice. By striking a balance between too much communication and not enough, both sides are left up-to-date and in the loop.

2. “Ongoing” Is The Magic Word: Once a supplier relationship has successfully begun, that is not the end of the game. To ensure ROI, continuous improvement, and risk mitigation during a supplier partnership, businesses have to remain as engaged as possible. To gauge the appropriate level of activity, Source One’s SRM Insights Report frames up how to approach the frequency of communication: “Not all suppliers require the high level of interaction offered through a comprehensive SRM program. Vendors that directly impact financial performance, affect the delivery of goods and services, have access to sensitive company information, and/or are associated with corporate regulatory obligations represent ideal scenarios for SRM.”

3. Scalability Is Paramount: Organizations must plan to scale up and down their interaction with suppliers based on how “essential” the relationship is to their core business. Whether a high or low priority, SRM can help retain savings achieved in strategic sourcing. In fact, without rigorous contract management, 75% of sourcing savings can disappear within 18 months.

4. Strategically Link In Sourcing: To enhance the results of strategic sourcing, SRM needs to be completely integrated with the process for maximum impact.

5. How to Gauge Preference: Atkinson points out, “[SRM] requires a detailed analysis of the specific supplier relationship, before the strategy can be determined; one size certainly does not fit all.” To determine the level of “priority” to place on a supplier, the following questions are useful:

  • Is the relationship strategic to the business and important to growth?
  • Does the supplier support the most important products or services?
  • Does the supplier represent a significant expenditure?
  • What is the risk of supplier failure?
  • Are regulatory and security issues involved in the services provided by the supplier?
  • Does the supplier offer specialized products or capabilities that offer a competitive advantage?
  • What does the supply market look like?
  • Is the supplier in a competitive vs. collapsed market?
6. Document Progress: With global partners managed by multiple parties, the whole team must be informed of all progress. Software utilities are often helpful in staying up-to-date.

7. It’s Not All Fun and Games: Although communication with suppliers may seem like just an easy conversation, SRM involves strictly adhering to processes and ensuring maximum value. Although interpersonal skills are an asset, that is not what it’s all about.

8. Compromise is Key: SRM doesn’t always equal a complete ‘win-win’; although contracts must be structured to satisfy both sides. Negotiation will help disagreements to form a mid-point agreement.

9. Anything Is Possible: SRM involves pushing for daily operational improvements as much as it does mutual value creation and innovation. This opens the door for any form of alliance opportunity with suppliers, but the basic goals of the relationship should not be forgotten while pursuing new endeavors.

10. Ease Your Way In: Atkinson accurately sums it up, “To get started in an SRM program, it always best to successfully implement a small number of SRM pilot projects, rather than go for the ‘big bang’. If you choose the latter you’ll quickly find your resources spread too thinly, and leaders and stakeholders will become frustrated by your lack of business impact.”


Once you’ve ironed out these ten fundamentals, your organization can form a more comprehensive view of supplier relationship management best suited for each unique circumstance. For more SRM guidance, Source One’s award-winning supplier management experts help clients form plans in any industry. 
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MRO Expert Tips Revealed

on Thursday, February 26, 2015

Michael Croasdale, a Source One Sr. Project Manager, has taken a new approach to the MRO (maintenance, repair, operations) category, blending traditional sourcing best practices with innovative solutions for successful top-down implementation. Croasdale’s outlook allowed him to gain the title of a 2015 Supply and Demand Chain Executive Magazine Pro to Know.  With such a cut-and-dry category, you’re probably thinking, “How can you possibly innovate?” Aside from the potential for innovation in strategy (enhanced supplier management and sourcing techniques), there are ways to tangibly drive new value to this area that Croasdale has witnessed firsthand. So sit back, relax, and hopefully our Pro to Know’s approach enlightens your own MRO sourcing practice.

Taking a Step Backwards: What’s MRO All About?

As the Business Dictionary coins it, MRO refers to “supplies consumed in the production process but which do not either become part of the end product or are not central to the firm's output. MRO items include consumables (such as cleaning, laboratory, or office supplies), industrial equipment (such as compressors, pumps, valves) and plant upkeep supplies (such as gaskets, lubricants, repair tools), and computers, fixtures, furniture, etc.”

Green It Up

One primary innovation taking place in the MRO space involves more health and environmentally-conscious industrial cleaning practices. These practices can also extend to purchasing office supplies manufactured from recycled materials, reducing paper within the sourcing process, or using gases/lubricants that do not have adverse health effects to factory workers. It is possible to achieve a significant savings percentage when sourcing sustainable and eco-friendly products/raw materials. Croasdale promotes businesses separating themselves from the misconception that sustainable solutions are always more costly than traditional options due to higher production costs involved. Sustainable business practices are an area that can offer innovation to the MRO category and still grant the same savings.

Broaden Your Supplier Horizons

According to a recent Maintenance Technology article, there is no shame in “cheating” on a supplier. Keeping your supplier options open, even if you are doing business with the competition, means you are available for better, more valuable alternatives if they should present themselves. When an organization takes the “we only do business with certain partners” avenue, it is limiting itself to innovation. This is the case within any spend category—just prevalent in MRO.

Heinz Bloch, Exxon Chemical’s Regional Machinery Specialist, supports this thought:
“More than ever, the decision to single-source is often made by uninformed people. Those who defend this approach typically miss the point about how closely reliability and profitability are related. It’s true that whatever a principled professional or leading corporation does should be driven and motivated by the desire to make profits while providing value and quality. But profitability is best achieved with reliable equipment, which is best served by using multiple sources of supply. This approach promotes competition, innovation and the ethical treatment of others—which is another way of saying, ‘Let’s work together.’”

Whichever category you are specialized in sourcing, remember that obtaining “preferred buyer” status can limit your ability to adapt when better ideas are presented if you don’t consider the opportunities. By no means is receiving preferential treatment negative quality, however even the most tight-knit relationship is not worth overlooking a better value. Especially in MRO, keep your eyes open to what’s out there!

Sources referenced:

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Identifying Value with Leah Halvorson, 30 Under 30 Supply Chain Star and Director of Procurement at Minneapolis Public Schools

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Identifying Value with Leah Halvorson, 30 Under 30 Supply Chain Star and Director of Procurement at Minneapolis Public Schools

ThomasNet and the Institute for Supply Management collaborated to launch the "30 Under 30 Rising Supply Chain Stars" Recognition Program, an initiative that acknowledges procurement professionals under 30 years old for their strategic thinking and expertise.

We recently had the opportunity to speak with one of its winners, Leah Halvorson, who heads the Minneapolis Public School district's procurement department as its director of procurement and supply chain development.



Carrying an air of ambition, she continuously emphasized the importance of bringing value to the students through her team's purchases and using creative methods to determine ROI. In addition, she also feels responsible for learning about her environment and how the decisions her team makes impact the organization as a whole.

It's your first day as Director of Procurement & Supply Chain Development at MPS – what's that first item on your agenda?

"I take an approach that's similar to what the first 100 days are for a president of the United States, which is that, within a hundred days, it's going to take some time to observe, learn where you're at and acclimate to your surroundings, and then make changes after that process is complete. I'm not the kind of leader who just comes in and bulldozes, making changes right that second without being informed." 

In fiscal 2014, you saved the school system $2 million. What approach did you use that allowed you to identify and reallocate those savings? 

"Up until three years ago, our procurement department did not serve a support role, and that was one of the things that I changed when I took over. My team and I turned it from a transactional department of just turning requisitions and purchase orders and adding in vendors to truly supporting business units and schools so that they could support their students.

"For example, one thing I did was work with our high users, both by spend or by volume, for printed materials – whether those were report cards, brochures, marketing materials, etc. When we were looking to save money in fiscal 2014, we did that by opening our document center. On any given job, on average, that document center saves us about 60 to 80 percent.

"Getting approval for this item involved developing trust among users, saying 'Look, we have XYZ area that's using it, here's how much we can save them on this job and this is what they used with that money instead.' Now, we can do something more impactful such as hiring a teacher or freeing up more time for teachers to spend with their students."

How do you think procurement can be leveraged to support the ideas behind education? In other words, how do you think your strategic approach to purchasing management positively impacts students? 

"If an individual from any department within the organization says 'Give me the information I need to source a learning management system,' my job is to ask:

  • 'How do we determine what that return on investment is going to be?'
  • 'How will it impact student performance here at Minneapolis Public Schools?'
  • 'Is it going to impact my stakeholders (the administrators, staff and teachers) so they have more time to dedicate resources to students?'

"In some cases, [the answers] are pretty black or white. In other cases, especially within education … it tends to be difficult to really define, to say 'This software is why a student graduated high school' when three years ago he or she was a struggling student.

"We initially look at why we want to source something, why an item is in place and then monitor and assess that item on a quarterly and annual basis to see if the needle is moving – whether it's through the soft side or the hard dollar impact."

Do you think the "30 Under 30" program is important? Why? 

"I'm really happy that ThomasNet and IMS are celebrating individuals in the profession who are my age, so it can show other individuals who are coming up into the world that there are others in procurement who exist. I think procurement is really interesting – there's a lot of variety and the chance to make an impact on an organization.

"I want to use this award to be an evangelist and tell people in my generation that they should consider coming into this world … It's not just sitting in front of a computer and crunching numbers all day. I would say procurement involves a lot of investigative work. I like being able to see the high-level picture of where the organization is going, how it's getting there and figuring out how procurement strategies can impact the organization's bottom line."

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Medical Device Sourcing Priorities: From a 2015 S&DCE Magazine Pro to Know

on Wednesday, February 25, 2015

Today, Source One’s own Martin Przeworski was recognized with the Supply & Demand Chain Executive “Pro to Know” accolade. Przeworski stood out for his ability to prioritize engineering needs within a sourcing-led initiative to bridge the gap between both departments and develop a well-communicated shift from conventional, decentralized purchasing approaches. With the rise in demand for sourcing attention in the medical device industry, Przeworski’s know-how has been changing the game. One development that has caught the eye of many industry gurus, including Przeworski, is the new software utilities to manage quality and risk while bringing a medical device product to market.

According to Jesseca Lyons, Product Development Engineer at Catheter Research Inc., “Surprisingly, but like many leading industries, a recent industry benchmark survey stated that in most major functional product areas, more than 50% of respondents confirmed still using manual, paper-based processes.” In the medical device arena frequently sourcing raw materials from low-cost countries, outdated information management is not an effective means to fulfilling demand.

This news is important to consider—but no excuse to jump into an agreement with any software solution just because it seems like the best route. Within the lengthy medical device New Product Development Process (NPDP), organizations need to benchmark which software, performance measure group (PMG), or performance management methodology is best suited.

I came across an interesting thesis from an engineering student at MIT who felt, “Having a lean operation is no longer considered a competitive edge; rather has become the new necessity and norm”—bingo. The medical device community understands that their NPDPs are an area to rise above the competition, and this can be done through the practice of benchmarking with criteria of industry key performance indicators (KPIs). Sassan Zelkha, the author of Benchmarking Of A Medical Device Company’s Product Development Process, combined qualitative and quantitative criteria to consider when evaluating your options. This approach, of course, doesn’t examine company culture, which is something you’ll also want to take a look at—however without knowing the organizations in question, Zelkha hits the nail on the head. 

For the quantitative, he points to the following as signs of quality expressed in hard numbers:

  •          Innovation: % revenues from new developments
  •          Productivity: Number of ECO (engineering change order) per engineering
  •          Response Time: scheduling integrity
  •          Cost: budgets and product reuse rate
  •          Quality: MBOM (Manufacturing Bill of Materials) accuracy
  •          Value: realized value ($) of innovation, impact of R&D budget ($) on the organization

For the qualitative side, Key Performance Levers (KPL) are:

  •         Innovation Excellence
  •         Product Lifecycle Management
  •         IT Enablement
  •         Software Practices
  •         Resource Management
  •         Design Excellence
  •         Technology Excellence
  •         Functional Excellence
  •         Development Chain Excellence
  •         Portfolio Excellence
  •         Product Excellence
  •         Project Excellence


KPI/KPLs In Action

One recent engagement in which Przeworski leveraged similar performance indicators involved a multinational medical technology company that needed to enhance engineering and designing capabilities for a main product component to mitigate the device’s radiation footprint. This SOW identified components including data acquisition systems and photo diodes for computed tomography (CT) machines, X-ray tubes and flat panel detectors for X-ray machines, magnets and gradient amplifiers for magnetic resonance imaging (MRI) machines, and crystals for positron emission tomography (PET) machines.

In English, this initiative required ensuring the safety and quality of patients receiving device treatment through benchmarking the component suppliers for the desired traits and service standards. As Zelkha expressed in his thesis, there is no widely-recognized or regulated standard of NDPD effectiveness, so determining value begins in supplier vetting and identification. Following questionnaires and interviews, clearer qualitative and quantitative insights were gained and initial research was backed by firm qualifiers/disqualifiers.

Through benchmarking, Przeworski identified contract manufacturers that were best suited to manufacture the PCBAs and electronic assemblies to the required level of quality. Another key activity involved the evaluation of box builds or sub-assemblies as potential solutions. Re-engineering the supply chain of a piece of diagnostic imaging equipment opened the door to larger-scale areas of improvement, but still remained a core focus of the engagement. With the help of Przeworski and Source One’s support, the client contracted over 30 qualified suppliers, received 23% savings from prior agreements, produced 700,000 units of custom components, and paved the way for long-standing business relationships.

Although this is only a glimpse of a very intricate evaluation, Przeworski and Zelkha have noticeable parallels in their view of the most important characteristics in medical device value-adds. These are also goals that attendees of the Medical Device Strategic Sourcing Conference held in January mentioned to Source One as we networked with industry sourcing executives.

As the industry grows and continues to develop, Przeworski is eager to take part in the changes. “It’s an honor to be recognized by an industry staple publication such as Supply and Demand Chain Executive Magazine,” he mentioned after receiving his award. "This is an exciting time in the industry to capitalize on opportunities to bring engineering and sourcing closer together—I’m very happy to be a part of it."


The next time you reevaluate your NPDP, look outside the initial confines of cost to gain some insight into quality—this is where the most long-term value can be delivered. 
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Countering the Walmart Wage Growth Effect: Strategic Sourcing-focused Procurement Plans Keep Your Prices Down, even as Suppliers' Hourly Worker Wages Grow

on Tuesday, February 24, 2015

It’s official – hourly worker wages are finally growing again, and the wave is just beginning. The market knows well that Walmart, a typical wage-laggard, has caved to inevitable market pressures and announced a wage increase for a half-million employees up to $9/hour by April and $10/hour by next February. How will this wage growth affect your suppliers' cost and pricing structures, and what is the best way to combat the all-but-certain price increases that they are gearing up to pass on to you? How do you counter the Walmart wage growth effect?

First, take heart that you don't need to scramble to establish a new best-in-class procurement strategy related to low-wage produced items in the next few days. Costs tend to rise after a new wage floor is introduced, not in immediate anticipation of wage growth, so the wave of increases may be months off. However, it is never too early to enact strategies & processes that will allow your company to weather the storm and come out of the other end with your pricing still intact and your supplier relationships positive. So, what can you do today to plan for a better pricing impact tomorrow?

Surveying the market is always a good first step, as is taking a look at your internal spending metrics, to determine which of your suppliers provides low-wage produced products or services, and will therefore be affected by these wage changes. These may include your office suppliers, packaging suppliers, or MRO suppliers, to name just a few. Aim to get long term contracts in place with these suppliers as soon as possible, and make sure these agreements include pricing that is fixed for an extended period of time. Tying pricing to appropriate industry or commodity indexes, utilizing a trailing average increase methodology, and putting in place caps on frequency and percentage of increases are potentially useful options. A preemptive benchmark may be your best option in terms of providing the most insightful metrics to inform your pricing agreement creation process. And last but not least, try to avoid cost or margin floor pricing, and always remember to work price-increase validation documentation into your supplier contracts.

Utilization of these strategic sourcing and procurement best practices will position your organization very favorably for future pricing impacts, however it is also important to remember the relationship aspect of these supplier transactions. Many of these suppliers are your long-term partners, and some of them may be running at razor-thin margins that cut very close to cost. Now is the right time to address these concerns with your supplier partners. Beginning an open and transparent conversation today about pricing and agreement structures can yield ample fruit in the future. However, your conversations should not just focus on price increases. Today is the day to start a dialogue about other service offerings, under-served needs, enhanced capabilities, innovation, efficiency, and potential for mutual and lean business growth. Creating a communicative, adaptive, and mutually supportive environment will allow for win-win scenarios when they are most needed. Building these values into agreements and daily procurement processes enhance your position even further. Establish and document regularly scheduled touch-points that focus on these areas, and build Key Performance Indicators around the achievement of goals based off of these ideas.

The Walmart wage-growth effect isn't just coming, it's already here. Are you prepared to counter it?

For help with innovative & effective approaches to strategic-sourcing focused procurement planning, please reach out to Source One Management Services, LLC or visit www.sourceoneinc.com



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Procurement in the hydrogen fuel cell economy

on Monday, February 23, 2015

Procurement in the hydrogen fuel cell economy

The green car movement is growing, but at a snail's pace. Critics have asserted that, for automotive makers and fuel providers alike, purchasing the resources needed for electric and hydrogen fuel cell vehicles simply isn't feasible.

From a procurement officer's perspective, price is generally the first aspect they look at. Platinum, a precious metal used as an electrocatalyst in hydrogen fuel cells, is expensive, so most purchasing management professionals advise their superiors to refrain from producing cars and other machines that run on hydrogen. 

Looking for affordability 

Take Part contributor Padma Nagappan acknowledged the Toyota Mirai, a hydrogen-powered vehicle that is priced at $57,500 before rebates and tax incentives. While this is largely a vehicle for the wealthy, Toyota will lose approximately $100,000 for every Mirai it sells. This loss is primarily due to the platinum required to make the car's fuel cell. 

In response to this challenge, researchers at the University of Delaware are trying to find a feasible alkaline polymer alternative composed of several non-precious metal catalysts, one of them being nickel. As nickel is a thousand times cheaper than platinum, its use in creating a new kind of fuel cell would boost the green automotive economy - that is, if the reaction occurred at a faster rate. Alkaline polymer-based fuel cells react 100 times more slowly than their platinum-based counterparts. Thankfully, because the project is still in experimentation, the researchers can figure out how the alkaline substance should be adjusted by measuring the rate of reaction. From these metrics, scientists can intelligently design new catalyst materials. 

The price at the pump 

According to Car and Driver, despite the fact that hydrogen gas is incredibly abundant, there are very few fueling stations available. Furthermore, hydrogen fuel isn't necessarily stored and transported across long distances like oil or natural gas.

Many are arguing for on-site capturing and conversion, involving extraction directly from a station's water supply or natural gas. The equipment required to complete this process may cost anywhere between $500,000 and $5,000,000 per installation. Therefore, in many cases, investing in a hydrogen fuel station is an endeavor that only the super-rich may be interested in - those with a "Why not?" mentality.

As for the price of the fuel itself, the source noted that current prices stand at $5 per kilogram. As a kilogram is nearly four times larger than a gallon, there's already a price advantage. Furthermore, Car and Driver maintained that one kilogram of hydrogen provides more range than a gallon of gasoline. 

Obviously, the green car industry has some feasibility issues. Further research may prove beneficial, but until new hydrogen reaction methods are discovered, constructing such machines isn't profitable. 

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Dissecting Increased Contingent Labor Cost due to the Affordable Care Act

on Sunday, February 22, 2015


If your organization utilizes contingent or temporary staffing services most likely your provider has just passed along a cost increase citing the 2015 changes with the Affordable Care Act (ACA). You as an organization understand that Obamacare and the Affordable Care Act do have an impact on staffing agency costs but you struggle to understand just how much of an impact it should have on your cost and if the increase is fair and justified.

The reality of the situation is that staffing agencies are making "play" or "pay" decisions; play meaning paying the additional cost necessary to meet compliant coverage or pay meaning pay the $2000 non-compliance penalty per year for each employee who is not covered with the minimal requirements. Regardless, both options mean that your costs with using third party staffing providers will increase. Many staffing companies have communicated to their clients that they will be receiving 2-4% increases to their current bill rates. From a markup standpoint this can be a rather significant increase.

Let's assume you are utilizing a temporary staffing agency for some of your administrative and clerical positions. The current bill rate is $17/hr. with a pay rate of $12/hr. Citing ACA compliance your provider had announced a bill rate increase of 4%. This translates into your markup moving from 41.67% to 47.33%, or a 13.6% increase from your old markup%. Using this methodology you would assume correctly that you would rather have the increase applied directly to your markup (e.g., your markup increasing by 4 percentage points, current markup% + 4%). The truth is both methodologies can be disguised as a rip off. Increasing the bill rate or the markup for each hour the employee is working might be the most simple approach for addressing ACA compliance but it is not the most cost effective.

Simply adding additional cost for each hour worked is not considering the marginal cost factor. Marginal cost of production in economics is defined as, "the change in total cost that comes from making or producing one additional item. The purpose of analyzing marginal cost is to determine at what point an organization can achieve economies of scale." In this case the one additional item being temporary employee's hours worked since the increase has been applied to either markup% or billable hour. Therefore the marginal cost of insurance and administration is dependent upon volume of eligible temporary employee hours and the total cost incurred of the staffing firm's current healthcare program declines with the continual addition of eligible temporary employee hours worked.

This is why a blanket increase such as the increases outlined above may be a rip off. With this methodology the agency is maximizing their profit margin dependent upon hours worked by the employee, whereas the cost for ACA compliance should be a pass-through (the actual increased cost for insurance and administration due to ACA compliance). One solution is the provider bills on a monthly basis for the actual cost of the program for each employee utilized on a prorated basis, dependent on employee hours/days worked out of the year. Work strategically with your staffing provider(s) to come up with a solution that is fair to both parties. The provider should be able to clearly lay out the additional costs incurred and be able to demonstrate how these costs are passed down to you the customer.
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Transparency in Agency Ties Doesn’t Have to Be Dubious

on Thursday, February 19, 2015

The days of pushing a brand just “to get out there” are over—thank goodness. Modern Marketing and Advertising are now centered on a brand’s personal engagement and long-term resonance within an audience. As companies turn to agencies to manage their communications with these goals in mind, the perfect balance of upholding culture and a fresh perspective must be maintained. To get the most value for the investment of onboarding an agency, there are certain details that must be addressed.

Source One’s Kathleen Jordan, Associate Director, was approached with this topic by ScribbleLive, and from her experience in helping organizations identify best-fit agency partners, she was able to expand on proper criteria and best practices to be successful in working with an agency navigating non-traditional advertising.

In the article, Top 9 Tips for Finding and Working with an Advertising Agency, Jordan informed Engage Magazine that the first step in gaining the assistance of a qualified agency partner is outlining the details of the project(s) for which assistance is needed. “Before engaging any agency candidates, a company must first outline and agree upon the scope of work for the overall assignment. This will drive the best results for an agency search. The key deliverables, strategic goals, and selection criteria will serve as the framework for the entire search process; therefore, establishing this upfront will allow a brand team to clearly understand the type of agency they are looking for, assessing the core competencies, capabilities, and experience levels that need to be delivered to the brand,” Jordan said. Once you’ve laid out the foundation of your needs based on these factors, these principles should be used to guide your search.

An organization should also decide whether they are looking to accomplish solely one project’s work or a strategic partnership marking the agency as their Agency of Record (AOR). When evaluating agency candidates for a “one-and-done” type project scenario, more specified and technical expertise can be placed in evaluations; however with a more long-term arrangement, cultural fit becomes an important consideration.


Jordan’s interview expands into further detail about marketing trends affecting agency relationships, resources to help navigate the selection process, and proper ways to do your due diligence and confirm similar objectives between agencies and organizations. In today’s shifting marketing community, these areas cannot be overlooked if an organization seeks to unlock innovation in brand messaging.

Photo courtesy of: thefoxisblack.com

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